We must reinforce Putin’s military losses with economic losses

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As Ukraine pushes against Russia on the military battlefield, the United States must reinvigorate its support efforts on the economic battlefield. National Defense Authorization Act Passed by House Includes Amendment #743, which would give the president the one-time power to use the assets (confiscated in criminal proceedings) of sanctioned targets linked to Putin to help rebuild Ukraine. Likewise, the European Union can make progress towards this type of legal seizure of assets. In July, European Justice Commissioner Didier Reynders told the press that he expected a political agreement to facilitate asset seizures would be finalized in the fall. The US, EU, UK and their allies must maintain momentum in their efforts to counter Russia, including closing loopholes in the sanctions regime.

The need arises because in the short term there have been areas of Russian economic crisis resilience. Putin has replied economic countermeasures so far with ” intervention to mitigate these structural economic weaknesses. Therefore, the sanctions that once tanked the Russian ruble at around 139 for the USD are appearing less effective in the short term than many had hoped. In June, the Russian ruble hit around 52 to the dollar, “its highest level since May 2015”, although it has slightly weakened at around 60 to the dollar. EU history punishments Russian oil package has not yet significantly reduced the Kremlin’s income. The reasons include the “downturnas well as important exclusions for oil delivered by pipeline. Moreover, the unprecedented situation high oil prices, as well as those of India and China will to “buy Russian crude at discounted prices”, have given Large surpluses in Russia’s foreign exchange account.

In the long term, the effects of sanctions, export controls intended to freeze Russian technology and the ostracism of Russia by many states will have devastating effects – if the United States and its allies remain determined to push.

The latest edition of the Brookings Sanctions Tracker shows how more can be done to leverage and strengthen the existing and upcoming framework for economic countermeasures. The tracker shows that the United States and its allies have imposed targeted financial sanctions on more than 3,000 individuals and entities in response to Russian aggression since 2014. But not all are equally effective.

The tracker illustrates the significant differences between jurisdictions. For example, the United States has yet to target 37 senior Belarusian defense officials and 82 members of the Russian Duma with asset freezes and travel bans, while many allies have. Filling such loopholes are an important step in closing backdoors to sanction evasion and conduct legal seizures of domestic assets.

To take another example, people and companies at risk of being sanctioned often hide behind pseudonyms or transfer their assets to subsidiaries such as their spouses, children or daughter companies. Unless jurisdictions coordinate on a technical level, which includes sanctioning affiliates and listing all known pseudonyms, ill-gotten gains by individuals and corporations can stay portable. Looking at the tracker, you see that the United States has put a lot of effort into target and publish information about known subsidiaries, where many other jurisdictions have not.

In addition, multilateral sanctions can increase pressure on targets due to relevant geopolitical and commercial interests. For example, countries, private entities and individuals may be particularly reluctant to engage with the targets of sanctions when imposed by their closest allies. Regulatory factors also come into play, as we have seen with multinationals that have chosen to voluntarily distance themselves from trades linked to Russia.

At the end of June, the United States took a step forward to close a significant gap in imposing a freeze on Rostec’s assets, which the UK, Australia, Canada and New Zealand had previously frozen.[1] Rostec is “the corner stone Russian defence, industry, technology and manufacturing sectors. Closing about Rostec’s subsidiaries, which are involved in various industries, including report electronics, optical and laser systems, and asset management, weakens Russia’s ability to “develop and deploy weapons and technologies” used for the war in Ukraine. Although the US government took longer than other jurisdictions to target Rostec, it sanctioned more subsidiaries than others. Other jurisdictions should follow suit and sanction any potential subsidiaries.

Economic countermeasures take time, especially when they target an economy as large as Russia. Putin has made it clear that he is committed to the long term, and he shows No sign to slow down or move resources. To counter Putin, the United States and its allies must do the same. However, they are already showing some signs of fatigue. Votes to approve help packages in the United States have become more partisan. Only 10 House Republicans opposite the new lend-lease law in April, while 57 vote against the aid bill in May. Additionally, a survey taken that month show that the majority of Americans no longer favor “sanctioning Russia as effectively as possible, even if it hurts the American economy”.

It is imperative that the United States and its allies continue to send military and financial aid to Ukraine and provide military training. A strong political unity today can lessen tomorrow. Therefore, it is crucial that we use what we have and do it quickly. The Brookings Sanctions Tracker provides the opportunity to analyze gaps in the global sanctions regime and opportunities for greater coordination to close them.


Footnotes

  1. The EU has imposed sanctions against Rostec under Annex XIX, which prohibits the direct or indirect conclusion of any transaction with listed entities or individuals. The EU has not yet imposed an asset freeze against Rostec. (back to top)
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