Lawmakers to Push Treasury to Impose Russia-Related Secondary Sanctions
The Treasury Department has enough evidence to show that its Russia sanctions are being violated and needs to move faster to impose secondary sanctions, Sen. Chris Van Hollen, D-Md., said. He said he and Sen. Pat Toomey, R-Pa., plan to push the agency to act.
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“We're going to pursue this,” Van Hollen told Treasury Secretary Janet Yellen during a May 10 Senate Banking Committee hearing. “It seems to me we have enough flashing lights here indicating that sanctions are being violated.”
Although the Biden administration hasn’t yet imposed secondary sanctions against any entity for helping Russia evade financial and trade restrictions, Van Hollen has said the U.S. should be penalizing countries and companies for taking advantage of cheap Russian oil prices and increasing purchases of Russian energy (see 2204270029). He also said the U.S. should be punishing countries for providing safe harbor to Russian oligarchs, specifically pointing to a May 5 BBC report that said Russian billionaires are finding refuge in Dubai, which has recently seen surges in property purchases by Russians.
Yellen said the U.S. has “made it clear” that any entity that provides material support to a sanctioned Russian entity will “themselves be sanctioned.” The threat of U.S. secondary sanctions, she said, has dissuaded companies from violating U.S. restrictions.
“When you look around the world, you find that financial institutions, whether they're in China or in other countries that may not be terribly supportive of our views on the war that Russia has waged in Ukraine -- they are very worried about themselves being the target of sanctions for providing material help in evading sanctions,” Yellen said.
But Van Hollen disagreed and pointed to the BBC report on Russian purchases in Dubai. “I have to believe that some Dubai banks that have connections to the United States’ banking system have been involved,” Van Hollen said. “It seems to me we should be taking strong action against those that are sort of taking advantage and war profiteering, effectively, off of the situation.”
Yellen said she’s willing to work with Van Hollen on potential secondary sanctions, but stressed that it isn’t the U.S. policy to penalize other countries for buying Russian oil. “What I think is in our interest is depriving Russia of revenue from selling oil in global markets, and that's a somewhat different thing than saying that we wish to hold Russian oil off of global markets,” Yellen said. “Because when we do that, we can end up driving up the price of oil globally, which counterintuitively can raise Russian revenues rather than lower them. I think we have to be very careful about this.”
Sen. Steve Daines, R-Mont., said the U.S. has “done a good job ratcheting up sanctions over the past several months” but also said the administration should be doing more. “I don't believe we're moving fast enough,” Daines said, adding that U.S. sanctions enforcement is “severely lacking.” He also said “our current sanction regime is full of holes.”
In a May 9 letter to Yellen, Daines said Treasury should impose stronger sanctions against Gazprom, Gazprombank and Rosneft, Russian President Vladimir Putin’s “largest money makers.” He also said the Office of Foreign Assets Control should revise its 50% rule -- which subjects subsidiaries to sanctions if they are owned 50% or more by a sanctioned entity -- to give the agency “more flexibility.”
In the letter, Daines said Russia’s Bank Rossiya and others use the 50% rule to “shield themselves from the impact of financial” sanctions pressure. “If the U.S. wants to sharpen our financial war fighting capabilities,” Daines wrote, “we must revise OFAC’s archaic 50 percent rule as it relates to Russia.”
During the hearing, Daines also said OFAC needs to do a better job using “online commercial registry data” to monitor sanctioned companies. “I do believe the use of real time data needs to be stepped up in a significant manner,” he said.
Yellen said the agency is “in the process of ratcheting up sanctions,” and has increased its restrictions almost every week since Russia’s invasion of Ukraine. “We wish to take every action that we possibly can to raise the pain to Russia and to end this war as soon as possible,” she said.
Yellen also said the agency is “examining” whether to renew General License 9A, which allows certain transactions with several Russian banks involving dealings in debt or equity (see 2203030001). The license expires May 25, and Yellen said the agency will “shortly” announce whether it will be allowed to lapse.
“We want to make sure that we understand what the potential consequences and spillovers would be of allowing the license to expire,” she said, “and we have not yet made a decision.”