Spotlight on Russia
Since March 1, the United States (US), the United Kingdom (UK), and the European Union (EU) have led a campaign to increase the application of sanctions and other restrictive measures against Russia that is unprecedented in its scope, complexity, and impact—which will continue to increase. While Congress has largely taken a back seat to the sanctions developments since late February, when the conflict began, it may soon initiate legislative action to include energy sanctions, expanding financial sanctions, and increased oversight.
The designation of hundreds of lawmakers by the Biden Administration indicates that the Administration may be shifting its Russia sanctions focus from a vertical expansion of sanctions (introducing more Executive Orders and regulations imposing sanctions and other restrictive measures), to a horizontal expansion (increasing the number of sanctions designations and enforcement actions).
The sanctions against Russian lawmakers and others indicate that the Administration is shifting its approach and that there will be an increasing emphasis on enforcement actions. On March 16, the US Department of the Treasury announced the launch of the Russian Elites, Proxies, and Oligarchs (REPO) multilateral task force consisting of Australia, Canada, Germany, France, Italy, Japan, UK, EU, and the US. Each member jurisdiction will use its respective authorities to collect and share information and take concrete actions, including imposing sanctions, seizing assets, and pursuing criminal prosecutions.
Simultaneously, the Financial Crimes Enforcement Network (FinCEN) issued an alert that highlights the importance of financial institutions identifying and quickly reporting suspicious transactions by sanctioned Russian elites and their proxies that involve real estate, luxury goods, and high-value assets—with a particular emphasis on the use of virtual currencies. Importantly, such alerts are usually issued before a major enforcement initiative in terms of sanctions and illicit finance, as they provide the financial sector and other industries with clear red flags for prohibited or sanctionable conduct.
The Biden Administration has not yet broached major energy-sector sanctions like those imposed on Iran, Venezuela, and Syria although such measures are reportedly under consideration.
While Congress has largely taken a reduced role in developing sanctions legislation and restrictive measures against Russia after the Senate Foreign Relations Committee did not reach an agreement on legislative sanctions prior to Russia’s invasion of Ukraine, Congressional activity has ramped up.
The House of Representatives passed legislation rescinding preferred trading status for Russia and Belarus on March 17th by a vote of 424-8. The House had previously also approved separate legislation banning Russian oil imports. While underreported, Congress also expanded and made permanent the Global Magnitsky Act, which imposes sanctions on human rights abusers and corrupt public officials globally.
A flurry of legislation from Members of Congress on both sides of the aisle points to sectors that the Congress may be targeting: the financial sector and energy sector.
A major point of criticism, mostly privately but sometimes publicly, is the view that several major Russian financial institutions that were subject to financial sanctions should have been subject to blocking sanctions and had their property in the US frozen, such as Sberbank. Expect to see a major push by some Members of Congress in this direction. Additionally, while the emphasis on taking all Russian banks off SWIFT has subsided, an emphasis on targeting the Russian and Chinese version of SWIFT has increased—particularly amongst Republican Senators. This interest has expanded into looking at legislation aimed at digital currencies, led by Senator Elizabeth Warren.
There also may be interest in expanding restrictive measures to target Russia’s financial system as a whole, through imposing measures for US financial institutions in Section 311 or 312 of the PATRIOT Act. These sections require financial institutions to take certain measures and perform enhanced due diligence on foreign accounts and foreign financial institutions.
Most financial sanctions legislation would need a considerable number of revisions to make them effective or even operative in some circumstances, but we would not preclude movement given how fluid the environment is. Of the four House and Senate Committees that have primary jurisdiction over sanctions, only the House Financial Services Committee has advanced Russia sanctions legislation to include bills to “suspend Ukraine’s crippling debt obligations, crack down on Russian oligarchs for evading existing sanctions, deny Putin economic resources and access to financial markets, and isolate Russia from major financial and intergovernmental forums.” As the number of financial sanctions bills expand, the three other committees with sanctions oversight may begin to advance sanctions legislation. For a package to make it the Floor it will likely include input from these other Committees. Yet, this may be possible fairly soon as there are indications that the Senate Foreign Relations Committee is working on sanctions legislation for movement as early as next week.
While the Administration will likely spare Russia’s energy sector further sanctions for now, momentum may be quietly growing in Congress for the Administration to act. Pressure has been building for the EU to join a US-led embargo on Russian oil, but that appears to have faded due to the huge costs for major economies including Germany. This may spur Congress to act to impose sanctions to decrease Russian oil and energy revenue. However, there will likely be an emphasis paid on the price per barrel and aggregate income on the part of Russia, rather than efforts to take oil off the market as was the case with Iran. This will be an important space to watch.