Background Press Call on Upcoming Action to Continue Holding Russia Accountable

Via Teleconference

(December 21, 2023)

3:05 P.M. EST

MODERATOR:  Thank you so much.  And thanks, everyone, for joining the call.  As a reminder, this call is on background, attributable to senior administration officials, and it’s embargoed until 6:00 a.m. Eastern on Friday, December 22nd.

For your awareness, not for your reporting, on the call today we have [senior administration official] and [senior administration official]. 

With that, I’ll turn it over to our speakers for a few words at the top, and then we’ll take your questions.

SENIOR ADMINISTRATION OFFICIAL:  Great, thanks.  And thanks to everyone for joining today’s call.  It’s been almost two years since Russia drove towards Kyiv in a brutal invasion of Ukraine that threatens the very foundation of international peace and stability.

From that moment, the United States has taken strong and decisive actions to impose costs on Russia to hold it accountable for its actions in Ukraine, while also supporting Ukraine and its people.  That has included military aid and financial and humanitarian assistance, as you all know.  And we have also deployed our economic tools to undercut Russia’s ability to continue its unjust war. 

The core to our strategy is denying Russia access to the international financial system, ensuring the costs to Russia’s economy continue to grow over time, and preventing Russia from accessing the equipment, materials, and technology it needs to fuel its aggression.

As part of this strategy, we have imposed powerful sanctions and export control measures against thousands of entities and individuals, including sanctions on multinational procurement networks helping Russia to acquire key defense-related goods from abroad.  We’ve also sent teams across the globe to engage directly with foreign governments, companies, and financial institutions to share information and highlight sanctions risks.

We’ve been very clear in all of this, along — in all of this that those who are supplying goods or processing transactions that materially support Russia’s military industrial base are complicit in Russia’s brutal violation of Ukraine’s sovereignty and territorial integrity.

The action that we will take tomorrow is at the direction from President Biden and National Security Advisor Jake Sullivan to further step up our efforts to disrupt Russia’s efforts to expand its military industrial base.

Tomorrow, President Biden intends to sign a new executive order that strengthens U.S. sanctions authorities against Russia, with a focus on financial facilitators for Russia’s war.

This EO is an important step to further disrupt material support for Russia’s defense industrial base and to obstruct Russia’s efforts to increase its military capacity.

It’s also steps that we are taking in coordination with partners and allies.  The G7 leaders statement we secured on December 6th previews these actions, committing to further curtail Russia’s efforts to use the international financial system to facilitate expansion of its military industrial base.  G7 leaders also spoke to a commitment to curtail Russia’s revenue from other sectors, including non-industrial diamonds.

Before I hand to [senior administration official] for more details on this action, I did want to note that our sanctions on Russia are just one prong of a broader strategy to support Ukraine against Russia’s illegal aggression, alongside essential economic, military, and humanitarian support, which is why it remains essential that Congress pass supplemental funding for Ukraine. 

Let me turn it over to [senior administration official] for more details on the action we are taking tomorrow.

SENIOR ADMINISTRATION OFFICIAL:  Thank you so much.  And thanks to you for all the hard work getting this across — getting this done.

We’ve now been doing this in terms of thinking about how to use sanctions and export controls as tools to go after Russia for more than two years now.  More than two years ago, we saw Russian troops gathering on the border of Ukraine.  The President directed the Secretary to think about what could be done using these tools to hold Russia accountable while limiting the impact on our allies and partners.  And that continues to be our objective.

And in doing that, we are seeking to do two things: one, deny Russia access to the revenues they need to fight this war of choice in Ukraine; and, two, put sand in the gears of Russia’s war machine and taking apart their supply chain.

Today’s action and the actions that have been — today’s actions that we’re describing for the executive order that will be signed tomorrow speaks to that second objective.

While many of us will be hitting the road soon to see our families or spend time with loved ones, we know all too well that Ukrainians face another holiday season of unprovoked war from Russia.

The United States has stood with the Ukrainians since the start of the brutal war, and we will continue to do so unequivocally.

Over the last two years, as part of the global coalition representing over half of the world’s GDP, we at Treasury have used our economic tools to disrupt and degrade Russia’s ability to supply its military and limit the Kremlin’s resources to wage this war of choice, as I’ve mentioned.

Our sanctions have had a meaningful impact already.  Since February of 2022, Russia’s military has lost over 13,000 pieces of equipment, including tanks, UAVs, and missile systems.  It’s now struggling to rebuild and reconstitute its arsenal because of production constraints, the lack of workers, and restricted access to foreign components.  Our goal is to make each one of these things harder.  And the executive order the President plans to sign will help us do just that.

And Russia is facing increasingly difficult economic pressures as well.  As the Kremlin’s defense spending rose by almost 75 percent in the first half of 2023, its energy revenues have dropped by almost 40 percent this year due to the price cap that was implemented by the United States and our allies and partners.

Beyond energy exports, Russia is increasingly isolated in global economic trade while simultaneously facing a brain drain.  Immigration out of Russia has reached historic highs.  Foreign direct investment has flipped into negative.

Overall, Russia’s economy is 5 percent smaller than predicted prior to the war and is far underperforming other oil-exporting countries.

Due to a lack of alternative, Russia has now converted itself into a war economy.  Manufacturing capacity and the labor force have reoriented to weapons production and producing things that will be necessary to fight this war of choice in Ukraine.

This singular wartime focus has weakened the domestic economy.  While Russia has the resources to maintain its war in the short term, its leaders face increasingly painful trade-offs that will sacrifice long-term prospects as under-investments, low productivity growth, and labor shortages will only deepen.

But beyond that sobering outlook, a more immediate way we know our economic measures are working is that the Kremlin has spent considerable time and resources in directing its intelligence services to find ways to evade the multilateral sanctions and export controls that we have put in place.  They have created cutouts and front companies using both witting and unwitting financial intermediaries to circumvent restrictions and source critical components for the war.

These are items like semiconductors, which of course have been in the news, but also things Russia needs to convert and power their wartime economy, such as machine tools, chemical precursors, ball bearings, and optical systems.

Over the past year, we and our global coalition have exposed and cut off sanctions evasion networks, sanctioning or listing hundreds of front companies, middlemen, and Russian companies who are taking actions to move these types of parts.

The new executive order by the President will simply give us a tool that will allow us to go after financial institutions that failed to make the choice to either stop allowing their companies to ship these goods to Russia’s military industrialized complex or getting out of business with Russia.

This tool will be the first time that we’re introducing a tool that allows us to use secondary sanctions to go after financial institutions during this conflict in order to provide us with a strong tool to disincentivize the type of behavior that is furthering Russia’s ability to build weapons of choice that they are using in Ukraine.

Over the course of the last two years, we have spent time talking to jurisdictions or financial institutions about the importance in making sure that they do not provide material support to Russia’s economy.  And with the President’s signing of the executive order, we have a tool that allows us to hold them accountable.

We look forward to keeping our promise to the Ukrainian people that as long as Russia continues its invasion of Ukraine, we will continue to use sanctions and export controls to hold Russia accountable.

With that, I’m happy to join [senior administration official] in taking your questions.

Q    Hi, this is Andrea Shalal with Reuters.  I guess we’re wondering whether you couldn’t already go after financial facilitators before.  Can you just explain exactly what this changes and how it gives you new authorities to go after institutions?  Because, I mean, my understanding was that you already were, you know, looking at these financial institutions for aiding and abetting.

SENIOR ADMINISTRATION OFFICIAL:  A great question, Andrea.  And I’ll take it and see if [senior administration official] has anything to add.

What the executive order gives us the ability to do is it gives us a surgical tool that allows us to go after the financial institutions that are doing transactions that further Russia’s military industrialized complex. 

What we’ve seen to date is that our initial set of sanctions and export controls had a significant impact on Russia’s ability to get access to the goods and technology they needed to build weapons.  What the Kremlin then did was order them to go out and to build cutouts and facilitators that would allow smaller companies to be able to move some of these goods into Russia.

And what you’ve seen us do is we’ve sanctioned a number of these companies that we’ve found.  But ultimately, the chokepoint for these companies and Russia’s ability to continue to try and circumvent our sanctions is the financial system, because ultimately they need to have financial transactions in order to move things from a third-party jurisdiction into Russia.

What this tool allows us to do is to target those institutions and give them a very stark choice: If you are continuing to ship these types of goods into Russia, you need to be in a position to make sure that those goods are not going to Russia’s military industrialized complex, or you have to stop.  If you don’t take one of those two choices, you’re going to be subject to the sanctions regime.  And for the first time, we have a sanctions regime that includes secondary sanctions.

SENIOR ADMINISTRATION OFFICIAL:  Great.  I think [senior administration official] covered it well. 

I think the only thing I would add is — really, very central to our strategy here — is thinking about how do we take that next step in disrupting Russia’s attempts to be able to produce the weapons systems, the industrial goods that it needs to prosecute its war. 

And I think, really, we do see this as a significant step forward by making very explicitly clear that financial institutions are responsible for ensuring that they are not becoming the facilitators of the transfer of the inputs that Russia needs to step up its military industrial base and increase its capacity to produce the weapons that it is using in Ukraine.

And I do think that that is a clarification.  It obviously builds on a huge amount of work that we’ve done, including with partners and allies, to go after entities in third countries that are shipping these goods, entities in third countries that are violating or evading our sanctions.  But it does put a more targeted focus on financial facilitation, which we think will be, as [senior administration official] said, an important step in slowing down Russia’s efforts to fuel its war.

Q    Thanks.  Can you guys say if the U.S. is planning to mirror the sanctions the EU adopted this week?  And then secondly, what’s the start date?  When do the provisions in this new EO kick in?

SENIOR ADMINISTRATION OFFICIAL:  So, my understanding — and I’ll let [senior administration official] confirm this — is that the President intends to sign the EO tomorrow, which will also be the time in which the authority then is given for us to utilize this tool to hold banks accountable.

And I think the key thing here with this tool is that what we’re trying to do is go after materials that are key to Russia’s ability to build weapons of war.  But what we know is that in order for them to get those materials, they need to use the financial system, which makes the financial system a potential chokepoint and is the tool that’s targeted at that chokepoint and making clear to these banks that they need to take actions to prevent Russia’s military industrialized complex from getting access to these goods.

What we’re doing here with this executive order — the sanctions package we’ve already released prior to the 12th package is consistent with what Europe did with the 12th package and also consistent with the actions that the UK has taken, all driven by the leaders statement that came out from the G7 leaders when they met.

Ultimately, we’re increasingly focused on Russia’s ability and willingness and desire to circumvent the sanctions and export controls we’ve already put in place.  And we’re each taking actions to try and prevent that, using the different tools in our toolkit.  We have a very powerful tool, that the President is now giving us when he signs this executive order tomorrow, that we plan to use in collaboration and coordination with our colleagues throughout the government.

But our hope, frankly, is that jurisdictions and financial institutions will take actions to stop the behavior well before we have to use this tool.  And the basic reason we believe this is likely to be true is that, ultimately, for almost any bank in the world, given the choice between continuing to sell a modest amount of goods to Russia’s military industrialized complex or being connected to the U.S. financial system, they’re going to choose being connected to the U.S. financial system, given that our economy is far bigger and our currency is one used around the world.  Fundamentally, people are not going to want to take that risk.

And the message we’re going to send clearly to people is that you either do the due diligence that you need to, or you put at risk your ability to have access to our system.

SENIOR ADMINISTRATION OFFICIAL:  Thanks.  I think that covered it well.  Let me just add just a few key things.

First of all, just to confirm that the President does intend to sign this EO tomorrow.  So the timing of the financial facilitators provisions that we are describing here will come into effect immediately upon that signing.

There’s two other elements of the EO and — or really one major other element which does align with the 12th package, which is the EO will also give the departments — relevant departments — the ability to take the steps necessary to implement bans on products that originated in Russia but were substantially transformed outside of Russia.  So that is things like the diamonds action that we are taking in concert with the EU where we’ve already, in the United States, banned the import of Russian diamonds directly — Russian non-industrial diamonds directly.  They are now taking the step to ensure that if Russia ships diamonds to another country for processing, those cannot enter the United States.

So the EO also contains that component which aligns with action in the EU’s 12th package.

Finally, I would just echo — remind everyone that we have already this month rolled out a package of over 250 individual targets but aligned within those same categories of the EU’s 12th package.  So we have, as is usually our practice, aligned with EU steps.  And it has taken sanction steps against individuals and entities already this month that cover many of the same categories and, in some cases, the same targets as the EU’s 12th package.

So I would say that if you took a step back, we can say, yes, we are aligning with the 12th package, although some of that we have already done and some of that will take place through this EO.

Q    Hi, this is Missy Ryan from the Washington Post.  I actually have a logistical question.  Can you all provide a recording of this call?  I was disconnected at the beginning.  So I’m just — I missed some of the material, so I’m hoping that we can get a recording afterwards so we can cover it properly.

MODERATOR:  Missy, yeah, happy to after this.

Q    Thanks.

Q    Hi, it’s Alan Rappeport from the New York Times.  I want to ask: Are there American or European financial services firms that have been in violation or have been facilitating these kinds of transactions already that will be in violation of these sanctions if they don’t stop?

SENIOR ADMINISTRATION OFFICIAL:  Not to my knowledge, Alan.  And the reason for that, frankly, is that many American and European firms don’t do much business with Russia anymore.

If you all didn’t see it, some of our economists at Treasury put out a report that demonstrated that, since the war, Russia has had negative foreign direct investments because companies are pulling out of Russia and financial institutions are pulling out of Russia.

But what American and European firms do have, though, is they have correspond- — they’re the correspondent bank for other banks to get access to the U.S. financial system that are currently doing this type of business in third countries. 

And what we’re going to be doing over the course of the next several weeks is working with those U.S. and European banks to inform them about this EO and tell them about the importance of telling the banks that they work with that they need to take steps to prevent themselves from being subject to this executive order, or they’ll have to — or they may be cut off from their relationship.

So part of our goal in issuing — in using this tool is going to be getting banks in Europe, in the United States, that have relationships with banks around the world and other jurisdictions, to help warn them about the importance of taking steps to prevent themselves from being used to move goods into Russia that furthers their military industrialized complex.

Our overall goal here is to put sand in the gears of Russia’s supply chain, which we think is one of the most effective ways to slow Russia down. 

But as [senior administration official] said early on, we’re one tool in our overall strategy.  And in order for the Ukrainians to have — to speed up, frankly, and to go faster, they need our support.  And that’s going to require Congress to act in terms of providing Ukraine with a supplemental to give them the resources to continue to have the weapons to defend themselves and the money to make sure they support their economy.

So, to your question, I’m not aware of any U.S. or European financial institutions that fit into that category.  But what we do know is that a number of the banks in third-country jurisdictions that we have concerns with have relationships with U.S. and European banks that could be threatened if they don’t take steps to prevent Russia from getting access to goods that are used for their military industrialized complex.

SENIOR ADMINISTRATION OFFICIAL:  You covered this well.  I’ll leave that one there.

Q    Hey, thanks.  Just one housekeeping question.  Will the President be making remarks, or this is going to be sort of a paper pushout of the EO being signed?  And if you do have an approximate time of when it will be signed.

And then secondly, connected, is there a renewed push to consider seizing Russian bank assets to help Ukraine pay for the cost of the war?

Thank you.

MODERATOR:  Aamer, I’ll take your first one there.  I’ll be back in touch on timing and the other details for the rollout after this.

SENIOR ADMINISTRATION OFFICIAL:  Great.  On your second one, I think we have been public, and I think you all know that we have been in discussions with our G7 partners, on what is the best and most appropriate way to ensure that Russia doesn’t get to choose when it is it pays back Ukraine for the damage that it’s caused, which, of course, is international law obligation.  We’re also in really active discussions about the best ways to engage Russia to cease its illegal aggression. 

I don’t think we have anything to announce around a change in the U.S. position on seizing assets, although I think we have been very public that that is a conversation that we are continuing in the context of those strategic aims.

[Senior administration official], I don’t know if there’s anything that you wanted to say additionally on this, but just to emphasize, this is something that we’ve been very clear that we’re in active discussions with our partners and allies around these issues.  And we do have a strategic aim of making sure that Russia doesn’t get to choose when and if it compensates Ukraine for the damage it’s caused.

SENIOR ADMINISTRATION OFFICIAL:  I think you covered that well.

MODERATOR:  Thank you.  I think that’s all the time we have for today.  Thanks, all, for joining.  And thanks again for our speakers for taking the time.

As a reminder, this call is on background.  All that you heard was attributable to senior administration officials.  And this is embargoed until 6:00 a.m. Eastern on Friday, December 22nd.

Thanks, everyone, for joining.

3:28 P.M EST