On Monday night, the U.S. Treasury Department issued its long-awaited report on Russian oligarchs and Vladimir Putin’s inner circle. The report, issued in time for the Russian markets to absorb it before trading began on Tuesday, was required by Section 241 of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA). Meanwhile, the State Department chose not to designate any individuals or companies pursuant to Section 231 of CAATSA, which authorizes sanctions on those who do business with the Russian defense and intelligence sectors. That decision is consistent with the letter of the law, but designations under Section 231 should come soon if State is serious about turning up the heat on Russia.
The oligarchs and officials on Treasury’s list include both individuals who have already been sanctioned (22 to be exact) as well as those not yet sanctioned but with varying degrees of closeness to Vladimir Putin. For his part, Putin unsurprisingly called the action a “hostile step” while trying to diminish its importance at a campaign event. Russian opposition leader Alexey Navalny praised the report, saying it was a “realistic list describing what we would call the ‘Putin mafia.’ Obviously these people have different roles, but they are absolutely the backbone of a corrupt regime.”
Treasury Secretary Steven Mnuchin indicated at a Senate hearing on Tuesday that “there will be sanctions that come out of this [oligarchs] report.” Coupled with such statements from the Trump Administration, the report should serve as a catalyst for financial institutions to evaluate their exposure to the individuals on Treasury’s list. Likewise, those listed may begin to look at ways to protect their assets abroad, either by repatriating them to Russia or having family or business associates assume ownership.
The Russian government, for one, is happy to have its economic elite bring home their fortunes to invest in Russia. In a December meeting with a group of oligarchs, Putin laid out a plan in which oligarchs could return overseas capital through euro bonds issued by the Ministry of Finance. While Putin has for some time pushed for Russia’s elite to bring home their billions, doing so would ultimately lessen Russian financial influence abroad. Putin’s oligarchs play an important role in greasing the skids on issues of importance to Moscow in foreign capitals, more easily done when those individuals are key players in that country’s economic interests. Diminishing that influence would be a win for the United States and Europe.
Treasury’s oligarch report also contains a classified annex, which may include additional individuals whose wealth does not surpass the $1 billion threshold for a public listing. It is important to identify this second tier, since family members and business associates may help the principal targets evade sanctions, perhaps by taking nominal ownership of their assets.
The classified annex should also help lawmakers assess the details of the relationship between Putin and those listed, including how they interact and other relevant information about the power dynamics at play. If the annex does not address these key issues, Congress should go back to the Administration and request more information.
To justify the State Department’s decision to hold off on sanctions, which was called into question by both Democrats and Republicans, a spokesmen claimed that CAATSA itself is already “deterring countries from acquiring Russian military and intelligence equipment,” which is the law’s main purpose. After a classified briefing, both the chairman and ranking member of the Senate Foreign Relations Committee, Sens. Bob Corker (R-TN) and Ben Cardin (D-MD), seemed to be satisfied with the Department’s explanation, but both indicated that Section 231 sanctions should be coming sooner rather than later. Senator Cardin and nearly two dozen of his colleagues followed up with the State Department in a letter requesting that certain information in regards to this decision be provided.
On the basis of publicly available information, it is hard to justify the State Department position that CAATSA itself is a deterrent, since there are no clear examples of deals with Russian defense and intelligence firms that have either been stopped outright or fallen through due to financing difficulties, which could be attributed to fear of impending U.S. government actions. What we do see are countries such as Turkey, a NATO member, and Qatar, host of a key U.S. military base, moving forward with multi-billion dollar deals to acquire S-400 missile air defense systems from Moscow. They do not seem to be deterred as of yet.
To be clear, Section 231 does have a provision for delayed implementation, but both Republicans and Democrats will be displeased if they are not given sufficient updates on success in the Administration’s efforts behind the scenes, while those clearly continuing to do business with Russian partners escape being sanctioned.
While attention has focused heavily on the oligarchs list and Section 231, the most interesting report sent to Congress on Monday evening may be another classified document mandated by Section 242 of CAATSA. This provision required a report on the effects of expanding potential sanctions to include Russia’s sovereign debt and derivative products. For instance, if the United States moved to prohibit U.S. and foreign persons from investing in such debt, Russia would have a far more difficult time bailing out key sectors of its economy, particularly during downturns. Just this month, one of Russia’s sovereign wealth funds, the Reserve Fund, was completely drained and shuttered. The fund, which held $87 billion in 2014, became a key instrument for Putin to fix leaks in Russia’s economy. Targeting Russia’s ability to bail out its economy would be a serious escalation; the threat to do so is a powerful tool for Congress to consider.
What we know about Vladimir Putin is that he will continue to aggressively press and prod against the national security interests of the United States and our allies. He will seek to continue to undermine the global order and seek to position Russia and like-minded states to counter us wherever and whenever they see an opening. The Administration should not be shy about using the authorities granted to it in CAATSA.