[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
ASSESSING THE USE OF SANCTIONS IN
ADDRESSING NATIONAL SECURITY AND
FOREIGN POLICY CHALLENGES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
INTERNATIONAL DEVELOPMENT AND
MONETARY POLICY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MAY 15, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-25
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
37-927 PDF WASHINGTON : 2020
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on National Security, International
Development and Monetary Policy
EMANUEL CLEAVER, Missouri, Chairman
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio, Ranking
JIM A. HIMES, Connecticut Member
DENNY HECK, Washington PETER T. KING, New York
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
JUAN VARGAS, California ROGER WILLIAMS, Texas
JOSH GOTTHEIMER, New Jersey FRENCH HILL, Arkansas
MICHAEL SAN NICOLAS, Guam TOM EMMER, Minnesota
BEN McADAMS, Utah ANTHONY GONZALEZ, Ohio
JENNIFER WEXTON, Virginia JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia, Vice
TULSI GABBARD, Hawaii Ranking Member
JESUS ``CHUY'' GARCIA, Illinois
C O N T E N T S
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Page
Hearing held on:
May 15, 2019................................................. 1
Appendix:
May 15, 2019................................................. 31
WITNESSES
Wednesday, May 15, 2019
Carpenter, Michael, Senior Director, Penn Biden Center for
Diplomacy and Global Engagement, University of Pennsylvania.... 6
Mortlock, David, Nonresident Senior Fellow, Global Energy Center,
Atlantic Council............................................... 4
Rosenberg, Elizabeth, Director and Senior Fellow, Energy,
Economics, and Security Program, Center for a New American
Security....................................................... 8
Singh, Daleep, Senior Fellow, Center for New American Security... 9
Zweig, Matthew, Senior Fellow, Foundation for Defense of
Democracies.................................................... 11
APPENDIX
Prepared statements:
Carpenter, Michael........................................... 32
Mortlock, David.............................................. 38
Rosenberg, Elizabeth......................................... 47
Singh, Daleep................................................ 61
Zweig, Matthew............................................... 68
ASSESSING THE USE OF SANCTIONS IN
ADDRESSING NATIONAL SECURITY AND
FOREIGN POLICY CHALLENGES
----------
Wednesday, May 15, 2019
U.S. House of Representatives,
Subcommittee on National Security,
International Development
and Monetary Policy,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:07 p.m., in
room 2128, Rayburn House Office Building, Hon. Emanuel Cleaver
[chairman of the subcommittee] presiding.
Members present: Representatives Cleaver, Perlmutter,
Himes, Sherman, Gottheimer, Wexton, Lynch, Garcia of Illinois;
Stivers, Williams, Hill, Emmer, Gonzalez of Ohio, and
Riggleman.
Ex officio present: Representative Waters.
Also present: Representative Barr.
Chairman Cleaver. The Subccommittee on National Security,
International Development, and Monetary Policy will come to
order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of the subcommittee are
authorized to participate in today's hearing.
Today's hearing is entitled, ``Assessing the Use of
Sanctions in Addressing National Security and Foreign Policy
Challenges.''
But I want to take some liberties at this point to
acknowledge the life of Dr. Alice Rivlin, who has appeared
before our committee many, many times over the years. She was a
trailblazing economist, professor, and frequent guest here at
the Financial Services Committee. Educated at Harvard, she
served as the first female Director of the Office of Management
and Budget, Vice Chair of the Federal Reserve Board, and the
founding Director of the Congressional Budget Office. Her life
and impact will continue to reverberate through Congress and
this subcommittee. And as we mourn her passing, we all
celebrate her life, legacy, and service. I would like to thank
the committee for granting me this privilege in formally
convening a hearing.
I now recognize myself for a 3-minute opening statement.
Today's hearing will focus on one of the more pressing
matters facing Congress, the use of sanctions to preserve
American national security and advance critical foreign policy
aims. Recent headlines highlight an American movement toward
lurching toward war in Iran, a potential military intervention
in Venezuela, and increasing instability in Iraq and
Afghanistan, and, maybe most importantly, Russia to this day
still has not felt the full force of American diplomacy
following their audacious and churlish intrusion into our most
sacred institution, our democratic elections.
I might add that, just this morning, we found out that
Russia was successful in getting into a couple of voting
machines in a particular county. But as Ronald Reagan once
noted, the only way our children can inherit the freedom we
have known is if we fight for it, protect it, defend it, and
then hand it to them with the well thought lessons of how they,
in their lifetime, must do the same. I would urge my colleagues
and our witnesses to consider these words while we discuss this
topic. The battle we fight today is not unlike the one that
once faced Ronald Reagan and the generation before him. I would
dare say the work to preserve freedom for the next generation,
due to increased interconnectedness and global uncertainty,
have become more difficult in our time than his.
Today, we are going to talk about sanctions, one of the
most powerful tools in the congressional tool kit, and how to
effectively utilize them to preserve national security and to
change the behaviors of nefarious actors across the globe.
As the legislative body of the most powerful country in the
world, we have a responsibility to ensure that sanctions are
deployed effectively and efficiently to achieve a cohesive and
well-thought-out policy aim. With respect to Russia, in my
view, this does not appear to be the case. There does not
appear to be a consistent strategy to curb their dangerous
activities and lawless behavior.
Before us today is a draft bill that seeks to respond to
Russia's malign activities, prohibiting U.S. persons and
financial institutions from dealing in the new sovereign debt
of the Russian Federation. This bill would close the disturbing
loophole that allowed Russian oligarch Deripaska's companies to
be delisted while possibly still allowing he and his family to
benefit monetarily. And so, with this, I would look forward to
a constructive conversation as we explore these issues. I will
now recognize the ranking member of the subcommittee, Mr.
Stivers, for 5 minutes.
Mr. Stivers. Thank you, Mr. Chairman.
I want to recognize the chairman and congratulate him on
his new chairmanship of the National Security, International
Development, and Monetary Policy Subcommittee. Those three
issues are not partisan issues. We look forward to working with
the chairman on an agenda to keep our people safe, make sure
that we help our international partners with international
development, and that we also have a monetary policy that
works.
With regard to today's hearing, past Administrations have
attempted, and failed, to bring Russia into the international
rules-based order. In the past few years, Russia has invaded
its neighbor Ukraine, murdered 98 innocent civilians aboard
Malaysia Airlines Flight 17, and assassinated dissidents. They
have backed the likes of Bashar al-Assad in Syria, Maduro in
Venezuela, and attempted to interfere with the elections in the
United States.
The sanctions draft today, the discussion draft that is the
subject of this hearing, says a lot about how far our
understanding of the Russian government's motivation and
behavior have come. I am glad we have hit the reset button, to
finally acknowledge the Russian government is dangerous, that
it is an enemy of human rights and democratic values. Having
said that, I want to emphasize that the Russian government is
an adversary and its people are not. They are victims of their
corrupt leadership. This is true of many other sanctioned
countries that will be mentioned today, and it is important we
remain mindful of that. I want to thank all of our witnesses
today. I look forward to your testimony and learning how we can
more effectively use sanctions to achieve our foreign policy
objectives.
Thank you, and I yield back the balance of my time.
Chairman Cleaver. I now recognize the gentleman from
Colorado, Mr. Perlmutter, who will make a statement on behalf
of the Chair of the full Financial Services Committee,
Chairwoman Waters.
Mr. Perlmutter. Thank you, Mr. Chairman.
And on behalf of Chairwoman Waters, thank you, Mr.
Chairman.
There are many principled, intellectual disagreements
between Republicans and Democrats about public policy and the
direction we should take this country. But there is one thing
about which there is no dissent: Our democracy is the greatest
experiment in self-governance the world has ever seen.
Mr. Chairman, our democracy was attacked, and if we do
nothing, it will be attacked again. Our intelligence agencies
have assessed with high confidence that Russian President Putin
ordered an influence campaign aimed at the 2016 U.S.
Presidential election, and they expect Moscow to do so again in
the 2020 Presidential elections.
We must send a strong signal to the Kremlin and to the
markets that the U.S. sanctions have not plateaued and that the
threat of additional, significant, economic actions against
Russia is real. We will not tolerate attacks on our democracy.
The chairwoman looks forward to discussing this matter further
today.
And, with that, I yield back.
Chairman Cleaver. The Chair now recognizes the gentleman
from California, Mr. Sherman, for 1 minute.
Mr. Sherman. Thank you.
For a long time, I have been urging tougher sanctions on
Russia for interfering in our elections and have proposed that
we prohibit dealing in sovereign debt of the Russian state
until they can go an election without interfering in our
elections.
But let's talk about what we mean by ``interfering.'' It is
fine for RTTV to run editorials. It is fine for the Kremlin to
issue a press release. And if Putin wants to make huge
concessions to us on arms control in an effort to make Trump
look good, fine. But when the Russians steal data, when they
interfere with voting and tabulation, or when they engage in
propaganda efforts under a false flag, that is when we have to
respond.
Second, at the most recent hearing of the Full Committee, I
attacked cryptocurrencies. Since then, the crypto community has
responded, as they would, and has pointed out that I was right.
I said that cryptocurrencies would have the effect of
diminishing American power, and so many of them in that world
said, yes, that is the point. Now, you may disagree with
American policy, and if someday a majority of Americans think
we shouldn't sanction Hamas or Kim Jong-un, that is fine, but
we don't want to disempower the American people by diminishing
the role of the U.S. dollar or making it easier to evade
sanctions.
I yield back.
Chairman Cleaver. Thank you.
Thank you, to the witnesses who have agreed to be here with
us. Let me apologize to you that we are getting started late. I
am a part of a committee, a select committee, and it is a
bipartisan committee, and we are working on congressional
change, updates in the way we function until we are trying to
create a system where we don't have votes interfering with
committee hearings. It is the Congressional Committee on
Modernization. This is only the third or fourth time in history
we have had this committee in existence, and I think everyone
is serious about trying to figure out ways in which we can
avoid this kind of thing. So we apologize, but we thank you for
being here.
Our first witness is Mr. David Mortlock, who is a
nonresident senior fellow at the Atlantic Council's Global
Energy Center, and former Director of International Economic
Affairs at the White House National Security Council.
And let me go on and introduce all of the witnesses at this
time.
Dr. Michael Carpenter is senior director at the Penn Biden
Center for Diplomacy and Global Engagement at the University of
Pennsylvania, and former Deputy Assistant Secretary of Defense
for Russia, Ukraine, and Eurasia.
The next witness, Ms. Elizabeth Rosenberg, is a senior
fellow and director of the Energy, Economics, and Security
Program at the Center for a New American Security, and former
Senior Advisor to the Undersecretary of the Treasury for
Terrorism and Financial Intelligence.
Next is Mr. Daleep Singh, who is a senior fellow at the
Center for New American Security, and former Acting Assistant
Secretary of the Treasury for Financial Markets.
And then we welcome the final witness, Mr. Matthew Zweig,
who is a senior fellow at the Foundation for Defense of
American Democracies, and a former professional staff member of
the House Foreign Affairs Committee.
Welcome to all of you.
We have 5 minutes for each of you. Pay attention to the
light. It will tell you when to stop, and if you should go over
very gently, then I will gently give you a hint.
So with that, Mr. Mortlock?
STATEMENT OF DAVID MORTLOCK, NONRESIDENT SENIOR FELLOW, GLOBAL
ENERGY CENTER, ATLANTIC COUNCIL
Mr. Mortlock. Thank you very much. Thank you very much to
Chairman Cleaver and Ranking Member Stivers. It is a real
privilege to be here with you today, particularly with such a
distinguished panel, including several former colleagues.
Sanctions are certainly an attractive tool in foreign
policy crises. They give us many options between words and war.
And there is no doubt that the United States, as the strongest
economy in the world, can visit significant economic harm on
its adversaries.
Moreover, in recent years, the U.S. Government has gotten
much more sophisticated at the way we impose sanctions. The
sectoral sanctions for Russia, the restrictions on Venezuelan
debt, and very sophisticated and nuanced carve-outs through
licensing, has marked a real high-water mark for the Office of
Foreign Assets Control (OFAC).
Unfortunately, we also have proven that sanctions have
their limitations. On occasion, they have often been more bark
than bite. As Director for National Economic Affairs for the
National Security Council, and Deputy Coordinator for Sanctions
Policy at the State Department, I worked with the individuals
at this table, and numerous others, to face these questions.
Based on this experience, I would like to offer three
principles that I believe should guide our imposition of
sanctions, including those legislated by this body: first,
sanctions should only be deployed in pursuit of a clear,
broader policy goal; second, a sanctions regime must have an
end game or an exit strategy; and third, sanctions must be
backed up by a firm political commitment. Let me explain.
So, first, an effective sanctions program must start with a
clear and articulated policy goal. Economic pain in itself is
not a U.S. foreign policy interest. The lack of consistent and
implementable policy goals, as well as patient follow-through,
has occasionally undermined the efficacy of sanctions under
this President, even in areas where the Administration has
implemented tough measures. For example, the Administration
deserves credit for successfully corralling the world to impose
tough sanctions on North Korea. But consistent sanctions have
been undermined by a moving target on policy and the
President's effusive praise for Chairman Kim, giving China,
Russia, and South Korea an excuse to ease the pressure,
reducing our leverage, and expanding North Korea's access to
resources.
Second, sanctions must have an exit strategy. If future
targets of U.S. Sanctions are to change their behavior under
the threat of sanctions, it will be because they find those
threats credible and because they believe they have a path to
relief. This approach worked when Iran took steps to dismantle
its nuclear program in response to relief from very specific,
nuclear-related sanctions, while the United States maintained
other sanctions linked explicitly to terrorism and human rights
abuses. President Trump's Iran strategy has relied on an all-
or-nothing approach, hoping for capitulation of the Iranian
regime, something economic sanctions have never produced.
Instead of a diplomatic resolution, the sanctions are more
likely to produce a spiral of worsening aggression.
Third, sanctions must have political backing. This is
perhaps most obvious with respect to our approach to Russia.
Strong U.S. sanctions measures for Russia have been undermined
by the President's public subservience to Vladimir Putin. The
sanctions are unlikely to compel a change in Russian behavior
when that behavior is minimized and dismissed by the President.
The Administration's mixed messages were illustrated
recently by the removal of Rusal and other companies controlled
by Oleg Deripaska from the SDN list. On the one hand, the
action sent a strong message to other supporters and friends of
President Putin: Facilitate Putin's aggressions and corruption,
and you, too, could lose control of your corporate empire.
Yet, the message to Putin's supporters was undermined by
the Administration's failure to fully explain the reasoning and
embrace the congressional review required by statute. This was
a lost opportunity.
Moreover, the Administration's failure to impose a second
tranche of sanctions on Russia required by the Chemical and
Biological Weapons Act after the attempted murder of Sergei
Skripal has raised serious questions about the Administration's
commitment to holding Russia accountable.
To close, I will simply say that sanctions can be a useful,
precise, and effective tool of U.S. foreign policy, so long as
they are treated as a tool to implement a clear policy and a
thought-out strategy. Beyond those principles, in my written
testimony, I have outlined a number of ways Congress
specifically can make sanctions more effective, including using
other tools to complement the sanctions, such as beneficial
ownership transparency. I invite your questions and thank you
again for allowing me to appear before you today.
[The prepared statement of Mr. Mortlock can be found on
page 38 of the appendix.]
Chairman Cleaver. Thank you, Mr. Mortlock.
Dr. Carpenter, you are now recognized for 5 minutes.
STATEMENT OF MICHAEL CARPENTER, SENIOR DIRECTOR, PENN BIDEN
CENTER FOR DIPLOMACY AND GLOBAL ENGAGEMENT, UNIVERSITY OF
PENNSYLVANIA
Mr. Carpenter. Chairman Cleaver, Ranking Member Stivers,
and distinguished members of the subcommittee, I am grateful
for this opportunity to be before you today, to talk about the
use of sanctions to address national security and foreign
policy challenges.
Some pundits claim that because sanctions haven't yet
compelled Russian President Vladimir Putin to change course in
Ukraine, Syria, or here in the United States, that sanctions
are an ineffective policy instrument. It is true that sanctions
are not a silver bullet, but when imposed at the right strength
and combined with other policy levers, they offer the United
States a unique ability to apply asymmetric leverage against
our adversaries. This is particularly important when military
options are off the table and when diplomacy alone is
insufficient to compel our adversaries to change course.
When it comes to Russia, sanctions are a particularly
appropriate policy tool because of the threat the Kremlin poses
to core U.S. national security interests. Russia's invasion of
neighboring countries like Georgia and Ukraine, its violations
of international treaties such as the Intermediate-Range
Nuclear Forces Treaty or the Chemical Weapons Convention, and
its brazen cyber attacks, information warfare, and corrupt
influence campaigns to destabilize the U.S. and its allies must
not be allowed to stand.
In most cases, the reasons our sanctions fail is because we
tend to conflate impactful measures with symbolic ones. To be
effective, sanctions have to be impactful. And to be impactful,
they really need to target the Russian economy as a whole. We
kid ourselves when we think we can have an impact on Kremlin
decision-making by surgically targeting this or that oligarch
or government official. Multilateral sanctions on Iran during
the period between 2012 and 2015 reduced Iranian GDP by roughly
9 percent annually. For Russia, the figure is closer to 1 to
1.5 percent. I understand that Iran and Russia have different-
sized economies, but my point is that the Kremlin has to feel
some pain before it reevaluates its current course.
Recall that President Putin was willing to spend $50
billion on the Sochi Winter Olympics, which was a vanity
project. To change course in Ukraine, which is a top foreign
policy priority, he will need a much clearer incentive
structure.
To have real impact, in my view, the United States should
consider imposing full, blocking sanctions, in other words,
complete restrictions on all financial transactions on select
Russian banks. These sorts of sanctions would need to be
coordinated with our European allies, but they would not have
to be matched by the EU and could, in fact, be imposed
unilaterally if we chose to do so. This is because most Russian
banks have extensive exposure to U.S. financial markets.
To be clear, I am not arguing for unilateral action,
because it would be far better to have our European allies
along with us. However, at the end of the day, this is
something the U.S. could do alone if we had to.
To minimize risks of financial repercussions for our
allies, such blocking sanctions would have to be applied
iteratively to guard against the risks of contagion into
European financial markets. In other words, the U.S. should aim
to cause sufficient pain for the Kremlin to reconsider its
policies, but not so much pain as to plunge our allies into
recession. Sanctioning the Russian financial sector one bank at
a time is a smart way to ratchet up pressure while keeping some
of our powder dry for another day.
It is also important that future sanctions be tied to one
or two specific behaviors that we would like to see changed,
for example, the verifiable withdrawal of Russian troops from
Ukraine, and a stop to its interference in our democratic
process. If we add on too many additional reasons or sanction
Russia for past behavior that can't be changed, we greatly
diminish the likelihood that Moscow will change its behavior.
Finally, it is critical that sanctions be integrated into a
more coherent strategy that makes use of diplomatic, military,
and communications tools, as David has mentioned as well. Since
the invasion of Ukraine, the U.S., France, and Germany have all
condemned Russian aggression and even pledged troops to defend
our allies in the Baltic States and Poland.
But at the same time, Chancellor Merkel has supported
building a massive natural gas pipeline between Russia and
Germany. President Macron has traveled to Russia to trump up
bilateral trade and commercial ties. And President Trump has
proposed readmitting Russia to the G8. We can't expect
sanctions to work if we provide the Kremlin with such mixed
messaging. Together with a stronger military deterrence
posture, a more coherent policy of economic isolation, and more
rigorous efforts to make our institutions resilient to foreign
interference, sanctions can, in fact, give us effective
leverage to achieve our foreign policy goals. Thank you.
[The prepared statement of Dr. Carpenter can be found on
page 32 of the appendix.]
Chairman Cleaver. Thank you, Dr. Carpenter.
Ms. Rosenberg, you are now recognized for 5 minutes.
STATEMENT OF ELIZABETH ROSENBERG, DIRECTOR AND SENIOR FELLOW,
ENERGY, ECONOMICS, AND SECURITY PROGRAM, CENTER FOR A NEW
AMERICAN SECURITY
Ms. Rosenberg. Thank you, Chairman Cleaver, Ranking Member
Stivers, and distinguished members of this subcommittee, for
the invitation to appear today and discuss the use of sanctions
to address national security and foreign policy challenges.
Sanctions are an essential means for the United States, its
allies, and the international community, to respond to security
threats. They are among the most powerful tools in the U.S.
arsenal to exercise leverage over a wide variety of actors
whose policies and threatening behavior U.S. leaders seek to
change. It is no surprise that sanctions have become the go-to
instrument for successive Administrations and Congresses and
are now tools of first response in U.S. foreign policy.
However, sanctions are not the solution for every
challenge. They cannot force capitulation or topple a brutal
regime. They cannot be a substitute for holistic strategy to
address threats to our national security. On their own and
without multilateral support or coordination, they can be
leaky, ineffective, and very dangerous, undermining our
national interests.
Congress, through legislation and oversight, including in
hearings such as this one today, has a critical role to play in
advancing a sophisticated public understanding and analysis of
sanctions and establishing principles for their responsible and
effective use. At present, the United States maintains roughly
30 sanctions programs. The Trump Administration has emphasized
the threats emanating from Iran, North Korea, Venezuela, and
Russia, and has wielded sanctions against these countries
accordingly.
On Russia in particular, the Trump Administration has
embraced sanctions, including secondary sanctions, pursuant to
a variety of Russian malign activities, and the Administration
has implemented meaningful designations, though not at the same
scale as their Iran sanctions implementation, for example.
In one of the most high-profile sanctions designations in
recent memory, the U.S. Treasury Department named Russia's
Rusal with sanctions. While that designation was lifted earlier
this year, of course, sanctions remain on its founder and key
stakeholder, the Russian oligarch Oleg Deripaska.
Additionally, the Trump Administration has designated under
Russia's sanctions authorities the Equipment Development
Department of China's military for conducting significant
transactions with the Russian defense or intelligence sectors.
The United States could also impose Russia-related defense and
intelligence sanctions on countries such as Turkey, which has
resisted complying with the sanctions and said it will not
abandon its plan to purchase the Russian S-400 surface-to-air
missile system.
Recently, however, the Trump Administration has slowed the
implementation of its Russia sanctions. There is a robust
debate, as has been previously referred to, to my copanelists,
about whether sanctions can change Russia's policies and
threatening actions, and if so, how. However, U.S. policymakers
must not abide inaction in the face of such doubts. Lack of
response to Russia's threats only empowers Russia.
Furthermore, the United States will lose credibility and
allies in the campaign to push back on Russia if U.S. sanctions
policy appears episodic, arbitrary, or lacking in strategy. The
time is right for new, strong measures that impose real costs
on Russia, constraining its ability to operate internationally,
while minimizing potential collateral damage for U.S.
interests, allies, and partners. Congress should consider new
legislation at this time to address the grave threats presented
by an array of Russian malign activity, including in the areas
of malicious cyber activity; chemical and biological weapons
attacks; interference in democratic processes, one of the main
themes for the hearing today; human rights abuses; territorial
aggression; rampant money laundering; and the undermining of
international institutions, all of which undermine our national
interests.
Along with diplomatic, defense, and arms control
provisions, new legislation could potentially include sanctions
measures targeting the following areas: financial services,
including related to issuance of sovereign debt; defense,
intelligence, technology, and other economic sectors; as well
as further measures targeting oligarchs. I have included
several specific suggestions in my written testimony.
In conclusion, the role of Congress in creating sanctions
and overseeing their implementation and enforcement is
critically important for the long-term ability of the United
States to use this tool in pursuit of U.S. foreign policy and
security goals. This work is nothing short of essential, given
the factors that may undermine effectiveness and the
availability of sanctions in the years ahead. The work will
also be fundamental to balancing the use of sanctions with
other tools of national power to strategically and effectively
advance our core interests and values.
Thank you for your time and attention, and I look forward
to answering your questions.
[The prepared statement of Ms. Rosenberg can be found on
page 47 of the appendix.]
Chairman Cleaver. Thank you, Ms. Rosenberg.
Mr. Singh, you are now recognized for 5 minutes.
STATEMENT OF DALEEP SINGH, SENIOR FELLOW, CENTER FOR NEW
AMERICAN SECURITY
Mr. Singh. Thank you, Chairman Cleaver and Ranking Member
Stivers. You have asked whether current sanctions policy is
effective, especially as it relates to Russia, so forgive me
for being blunt, but my answer right now is ``no.'' This isn't
just my opinion. Unlike other sanctions targets like Venezuela
or North Korea, Russia is a market-based economy. That means by
looking at market prices, we can gauge in realtime the opinion
of investors across the world about the impact of sanctions. We
can also analyze economic data in Russia at a high frequency,
and, of course, we can look at Putin's own behavior, which is
the ultimate test of whether sanctions are working.
So what are the data telling us? After an 18-month
recession in 2015 and 2016, the Russian economy is now growing
again. In fact, Russia's GDP grew in 2018 by the fastest amount
in 6 years. Inflation has fallen from a peak of 17 percent in
late 2014 to an all-time low last year. Foreign reserves in
Russia are now back to pre-sanctions levels, almost $500
billion in total. Russia's budget and trade balance are both
well into surplus.
Financial markets are sending the same message. In
February, Moody's upgraded Russia's sovereign debt from junk to
investment grade. In March, the Russian government placed the
largest amount of dollar issuance since 2013, and foreign
investors bought over half of Russia's ruble bond issuance in
the first quarter. The Russian ruble and the Russian stock
market are both among the top performers in the world this
year.
Why is this happening? While rising oil prices are part of
the story, so is the perception that the U.S. lacks the
political will to stand up to Putin. Market prices are shaped
by expectations about the future. And when investors consider
the future, they read signals from U.S. policymakers, none more
important than the words of the President. What they hear is
doubt and skepticism about whether Russia attacked our
democracy. They are told it would be a good thing to get along
with Russia. They see no serious action against Russia's use of
chemical weapons on NATO soil. Instead, they read about long
and warm phone calls and a continued rhetorical embrace. They
put these signals into context. They know this President is
masterful at using signals to impose costs on Iran, Venezuela,
North Korea, and even China. And when contrasted with the
absence of serious criticism towards Putin, they see a flashing
green light to pick up Russia exposure on the cheap, and that
is exactly what has happened.
Does any of this mean that sanctions can't work in Russia?
Absolutely not. Along with colleagues from this panel, I was
part of the effort in 2014 to impose costs on Russia's economy
through sanctions. Our approach was effective and would still
work today. Find asymmetries. Where does economic leverage in
the U.S. intersect with Russia's economic vulnerability?
Financial capital and energy technology were--and are--obvious
pressure points. U.S. and European firms are the dominant
suppliers of what Russia needs and can't replace.
What was the impact in 2014? In the first instance, Russia
depleted 25 percent of its foreign reserves trying to defend
the ruble before surrendering to market forces. The ruble then
depreciated up to 50 percent in value. Capital flight reached
record levels. The central bank of Russia only slowed this down
by raising interest rates by 10.5 percentage points. Banks then
needed bailouts to avoid bankruptcy. Ultimately, the Russian
economy fell into recession while inflation spiked to the mid-
teens.
So falling oil prices definitely played a major role in
this spiral, but sanctions were undeniably a secondary shock.
And throughout the process, unified signaling from the
President, from this Congress, and from European partners acted
as a force multiplier. Costs would ratchet higher unless Putin
changed course.
Now, do these costs matter to Putin's calculus? We can't
prove a counter-factual, but I believe the answer is ``yes.''
Were it not for the mounting cost of crisis in the Russian
economy, Putin's forces likely would have annexed more of
Ukraine's territory or marched all the way to Kyiv. Sanctions
gave Ukraine breathing space to avoid an economic collapse and
remain a sovereign nation.
Ultimately, Putin is a tactical opportunist, and if that is
right, then costs matters and sanctions matter. So what do I
recommend now? I suggest in the absence of Presidential
leadership, Congress must again show the way on Russia
sanctions. This is far from ideal. At best, the signals will be
muddled, but it would be far worse if our system of checks and
balances was questioned. Specifically, my main recommendation
is to ban purchases of new Russian sovereign debt and any
currency. There is simply no good reason why U.S. pension funds
and 401(k)s should fund Putin as he actively undermines our
national interests all around the world.
We also have to do a better job of winning the narrative on
sanctions. If there was a failing in 2014, it was that most
Russians bought Putin's propaganda that U.S. sanctions were
just the latest example of keeping Russia down. This
scapegoating muted the damage to Putin's power structure and
gave his regime endurance.
Our best weapon in this fight is transparency. We need to
expose the corruption and criminality of the Kremlin by
identifying the scale, location, and holdings of Putin's
wealth, and that of his cronies around the world. Putin is
ripping off the Russian people, and they deserve to know it.
Equally important to winning the narrative is relaunching
an economic offensive in Ukraine. I would be happy to discuss
that in my testimony. But Russians deserve more than Putinism,
and we need to show them what free market democracy can do.
[The prepared statement of Mr. Singh can be found on page
61 of the appendix.]
Chairman Cleaver. Thank you, Mr. Singh.
And Mr. Zweig, you are now recognized for 5 minutes.
STATEMENT OF MATTHEW ZWEIG, SENIOR FELLOW, FOUNDATION FOR
DEFENSE OF DEMOCRACIES
Mr. Zweig. Chairman Cleaver, Ranking Member Stivers, and
distinguished members of the subcommittee, I am honored to
appear before you today. As Congress considers its options for
additional sanctions against Russia, based on the general
principles contained in my written testimony, the legislative
proposal before us, and others circulating in the House and the
Senate, I would like to share with you a few thoughts on
sanctions legislation moving forward.
First, consider developing specific termination criteria
for sanctions. The primary difficulty with respect to measuring
the impact of legislatively mandated sanctions against Russia
in the 2017 CAATSA sanctions is that there is no specified
termination criteria for those sanctions as a whole. CAATSA
sanctions were obviously predicated on a wide array of malign
Russian behavior, but Congress did not specify the specific
behavioral changes that would have to take place for Russia to
receive sanctions relief. Without articulating in legislation
clear objectives for Russia to meet in order to qualify for
such relief, the sanctions may be viewed as indefinite, giving
Moscow little incentive to change its behavior, and creating
uncertainty or confusion with our allies and partners with
respect to our specific foreign policy objectives.
Second, future election-interference sanctions may want to
consider not only being targeted at Russia. While Russia has
clearly developed a sophisticated approach to election
interference, it is not the only state or nonstate actor that
can avail itself of such tactics and techniques. Therefore, any
future legislation aimed at preventing Russian interference in
foreign elections or U.S. elections could seek to capture
Russia through a conduct-based regime rather than targeting
Russia specifically.
I agree with my colleague, Liz, with respect to her written
testimony, recommending the codification of Executive Order
13848. I would recommend going a step further and broadening
the application of the measures contained in that executive
order, applying mandatory sanctions against foreign persons or
foreign states that engage in election interference against the
United States and include discretionary sanctions with respect
to those that interfere in our allies' elections. We are not
alone in this.
Congress could also ensure that legislative sanctions are
synchronized effectively with existing criminal statutes in
order to support or supplement possible indictments,
prosecutions, and extraditions.
Third--and a few of my colleagues have made this point as
well--close coordination with our allies is important. Any
additional U.S. action with respect to Russia's sanctions will
likely have an impact on U.S. allies and partners, given the
scale of the trade relationships that could be affected. Any
new congressional sanctions should take active measures to
guard against doing unintended or severe harm to U.S. allies.
While some legislative proposals being considered by Congress
note the need to coordinate and cooperate with Europe, for
example, any new legislation should consider developing an
explicit cooperative mechanism within those sanctions
themselves. This is another area where balanced flexibility
could help preserve alliances or partnerships as rigid
sanctions could punish governments that are aiding the U.S. in
other efforts to counter malign Russian behavior but that may
not be able to fully comply with U.S. sanctions.
Conversely, these sanctions can also be used to provide a
push for U.S. allies to take action in other areas against
malign Russian behavior. One of Putin's overriding objectives
has been to split the U.S. and EU on Russia- and Ukraine-
related sanctions. We should not inadvertently aid those
efforts.
Finally, utilize existing oversight mechanisms to ensure
the near-term application of additional Chemical and Biological
Weapons Control and Warfare Elimination Act sanctions that
David mentioned in his testimony.
As of today, the Administration has not implemented the
second round of the sanctions, nor has the President determined
that Russia meets the conditions needed to avoid them. Congress
has a role to play in ensuring that the Administration in this
instance imposes the strongest possible and appropriate
measures as part of the second round, measures that can have a
direct impact on the content of the legislative proposals under
consideration by this committee and the House and the Senate.
Thank you again for the opportunity to appear before you
today, and I look forward to receiving your questions.
[The prepared statement of Mr. Zweig can be found on page
68 of the appendix.]
Chairman Cleaver. Thank you, Mr. Zweig.
I now recognize myself for 5 minutes. I began this
committee hearing by talking about the fact that the Executive
Branch--and some of you have mentioned it, too--never moved for
the second round of sanctions. Can any of you give us some
reason to believe that the failure to do that was part of some
kind of strategy and that we just simply need to be patient?
Ms. Rosenberg?
Ms. Rosenberg. Mr. Chairman, I have no reason to believe
that that was by design as part of a strategy, that there is an
intent to, indeed, implement those sanctions at any time in the
near future. I share your concern, implied, that the
Administration is behind and absent in implementation.
Chairman Cleaver. Well, I am very serious; I am not trying
to be sarcastic. I am looking for something that would allow me
to be able to respond to people about the fact that there is or
there is not a strategy. And if there is not a strategy, then
why? I mean, the whole issue with Deripaska is just extremely
frustrating. Why not the 50-percent rule? Anybody? Mr.
Mortlock?
Mr. Mortlock. If I could, first, quickly address your
question on the CBW sanctions. Like Liz, I do not know the
Administration's motivations or intent, but I do know that the
statute suggests that the second round of sanctions was due on
November 5th, based on the determination made by the Secretary
of State. So the Administration knew what they were getting
into when they made that determination.
I think, while the motivation is unclear, the result is
crystal clear, which is essentially a waffling of our
government's response to an assassination attempt by the
Russian government. And I think--
Chairman Cleaver. On British soil.
Mr. Mortlock. On British soil, that is right. And I think
the consequence is demonstrating a lack of consequence for an
action like that by the Russian government, which means they
are just more likely to try such things again. With respect to
Deripaska and the delisting of Rusal, I think at the heart of
it, the delisting by itself is not necessarily a bad outcome,
right? The fact that we were able to reach a very transparent--
unprecedented, transparent deal with Mr. Deripaska, the
Treasury Department was able to do so--is good news, and he did
lose control--while he did financially benefit in some ways, he
did lose control of companies that he had used to define
himself over the past decades. I think where the failure was,
was in the Administration explaining that. And again, the
impact of sanctions is going to be whether that threat is
credible. And to make that threat credible to Putin's other
supporters, the explanation needed to be clear, but the
Administration notified Congress immediately before the
holidays, from what I understand, participated in a limited
number of briefings and responding to Members' and staff's
questions. And it really was a lost opportunity by the
Administration to have a positive impact on the Russia
sanctions.
Chairman Cleaver. Do any of you believe that the lack of
some kind--you know, I had a meeting with my farmers, dealing
with the tariffs. I represent a farm area in Missouri, and they
are hurting. But one of the things they wanted to know is, what
is the strategy on this? Are we taking steps to reach this, and
so we are going to do this and then this? Does this hurt us
with our diplomacy all over the world, the fact that we can't
put our finger on this? Congress voted overwhelmingly--the
House did, I'm sorry--that this is not a Republican or
Democratic issue--to support sanctions. And we have not been
able to do it, and, of course, we don't have the power of law.
Anybody, any of you who would like to respond--Dr. Carpenter?
Mr. Carpenter. So, Mr. Chairman, I would say the fact that
CAATSA was passed with such overwhelming margins in both the
House and the Senate, as you just referred to, and the fact
that those authorities likely already existed with the
Administration, with the Executive Branch, to pursue much
deeper and stronger sanctions against Russia but have not
resulted in follow-up, as expressed in the bill, which is now
law, sends a clear message to Mr. Putin that this
Administration is not willing to go after him, that they are
not willing to impose significant economic pain on Russia, and,
therefore, he can continue, and he does continue, his strategy
of waging war in Ukraine. There are soldiers and civilians who
die almost every single day, propping up the Assad regime in
Syria, propping up Maduro in Venezuela, and so on and so forth,
including, by the way, interfering actively in our democratic
process to this very day.
I think the message that Mr. Putin takes away from this is
that he is free to continue with his current policies because
the repercussions and consequences simply will not be felt.
Chairman Cleaver. Thank you, Dr. Carpenter.
I will now recognize the gentleman from the great State of
Texas, Mr. Williams.
Mr. Williams. Thank you, Mr. Chairman.
Mr. Zweig, on page 4 of your testimony, you state that the
previous round of sanctions against Russian aluminum producer
Rusal reduced the net worth of the wealthiest 27 Russian
individuals by $16 billion in 1 day. As a result of these
sanctions--we have talked about him--Deripaska reduced his
shares in the company from 70 to 45 percent. The Treasury
Department believes that this divestment from the oligarch
provided enough justification to lift the sanctions against
Rusal since Deripaska's influence had been appropriately
diminished. Mr. Zweig, my question for you is this: Do you
believe these types of targeted sanctions are still an
effective tool against Russia given that the oligarchs wield
such power with the economy with little accountability?
Mr. Zweig. Thank you, Mr. Williams. I not only think it is
potentially an effective tool depending on how it is used in
the Russia context, but also in the Venezuela context, and that
is where you have seen those types of tools increasingly
utilized. As far as specifically spelling out in advance the
specific requirements that persons or entities have to fulfill
in order to get off the sanctions list well in advance.
My overall concern with respect to the Rusal delisting
centers on two issues: first, the number of politically exposed
persons involved despite the intrusive requirements of the
agreement; and second, whether the Administration would have
the political will or whether political will exists anywhere,
given the European response to the Rusal listing, to relist
them if there were a violation of the agreement that the
Administration commenced with Rusal.
Mr. Williams. Okay. Thank you. North Korea recently began
testing missiles again and continues to be an aggressor in the
region. This is obviously a heavily sanctioned country, yet
they have been able to circumvent some of the multilateral
measures put in place by the United States and our allies. My
question to you, Ms. Rosenberg is, can you discuss how North
Korea most regularly--access to the global financial system as
well as the role Chinese financial institutions play in
attaining critical weapon components and technology?
Ms. Rosenberg. Thank you for the question. You point out
something that is a disturbing phenomenon that is going on:
North Korea's continuous, over many years, evasion of
international and U.S. sanctions, that has been facilitated by
a network of front companies and trusted individuals who have
had tremendous success in doing so.
China is a major lifeline for North Korea. Most North
Korean trade and financial transactions move through China,
which means that most roads lead to China on successful
enforcement of North Korea. And when we see North Korea evading
these sanctions, it means that our problem is primarily China
and the lack of enforcement, political will, and technical
capacity by those banks in China and trading companies that
facilitate, wittingly and unwittingly, this North Korean trade.
Mr. Williams. Okay, thank you.
Mr. Singh, in your testimony you mentioned that, beyond
sanctions, we must focus our efforts on winning the domestic
narrative within Russia about the corruption of the Putin
regime and Russian aggression. Now, while I understand the
thought process behind that, I am really worried about how
achievable this goal is. In the first 6 months of 2017, the
number of people detained for violating regulations on public
gatherings in Russia was 2\1/2\ times higher than the entire
total in 2016. So can you elaborate on how you think this could
be achieved when Putin is willing to take drastic steps to get
rid of dissidents and control his own narrative?
Mr. Singh. Yes, Congressman, this is a key part of how
sanctions need to work going forward. I think we have the
information about Putin's wealth and that of his cronies. A lot
of it has been classified. I think to the extent that we can
overcome concerns about sources and methods, we need to just
distribute this information. Transparency is our best weapon in
this regard.
The second thing we can do is look at how stashes of dark
money are being stashed in the U.S. Our beneficial ownership
rules currently allow anonymous shell companies, other forms of
investments, to find their way into high-end real estate in
Miami, New York, and other places, and we don't know who the
ultimate owner is. I think it is a reasonable assumption that a
lot of that money comes from Russia and from the Kremlin inner
circle. If we can't expose it in Russia, let's expose it here.
And then the third thing we ought to do in terms of winning
the narrative is show a better example in Russia's near abroad,
and that means being really serious about helping Ukraine
emerge from crisis. Right now, their reforms are languishing.
It is the poorest country in Europe on a per-capita income
basis. They need money. We ought to provide money with
conditions that force Ukraine to battle corruption and embrace
market-oriented reforms. That is Putin's worse nightmare, and
we ought to do it.
Mr. Williams. Thank you. I yield back.
Chairman Cleaver. Thank you.
The Chair now recognizes the Chair of the full Committee on
Financial Services, Chairwoman Waters.
Chairwoman Waters. Thank you so very much, Mr. Chairman. I
appreciate the opportunity to raise a few questions. We have
initiated a few sets of sanctions on troll forums and those who
led the sabotage of our American elections. We know that these
individuals and entities continue to abuse social media to try
to divide Americans based on race, vaccinations, and elections
to come.
And we understand there is or has been a weak Presidential
Executive Order, but we are looking at our 2020 elections,
knowing that they are coming again, and I want to ask first
about the President's Executive Order. Does it deal with what I
am alluding to, the undermining of our democracy by hacking
into the DNC and our election systems? Mr. Singh, do you know
and understand a lot about the President's Executive Order?
Mr. Singh. Madam Chairwoman, my understanding is that it
simply repeats authorities that already exist, but those
authorities haven't been exercised. And so, in a practical
sense, nothing has happened.
Chairwoman Waters. Well, first of all, I want to kind of
respond a little bit to the information just shared about
beneficial ownership and some other kinds of things. I
understand that the Russian economy has not been hurt at all by
our so-called sanctions, that they are doing very well. I want
to get directly at the systems that are used to undermine our
democracy and our elections, and I think you are right about a
sanction dealing with beneficial ownership. Because I do think
these high-end properties in California and New York, for
example, are owned or invested in by Russians. So, aside from
what is being attempted in the President's weak order, what
else can we do, particularly getting at the systems that they
use for trolling and undermining our democracy? Mr. Carpenter?
Mr. Carpenter. Yes, thank you, Madam Chairwoman.
My belief is that a lot of the methods that the Russians
use to interfere in our democracy, including cyber attacks,
including information warfare, putting up disinformation
through social media, or using dark money to try to perpetrate
influence campaigns, these are all operations run via proxies.
It is very difficult to find the actual individuals behind
these.
Now, our intelligence community has done some excellent
work in terms of designating individuals within a particular
unit of Russia's military intelligence agency who were involved
in hacking, in terms of identifying also individuals within the
Internet Research Agency that were involved in spreading
disinformation. But sanctioning those individuals or even those
organizations really doesn't have an effect. The GRU can be
sanctioned and has been sanctioned, and it is not going to
change the way it operates because they don't conduct
transactions through transparent means.
What we need to be doing is imposing tough pain on the
Russian economy as a whole. Some of the measures that have been
discussed here, including new sovereign debt, but also as I
have proposed, going after Russian banks with full blocking
sanctions. That sends a message to Mr. Putin that he will feel
pain for interfering in our democratic process. If we go after
specific actors, it is useful to expose what they are doing,
but it does not send a truly grave consequence to the Russians.
Chairwoman Waters. Okay. Let me just ask you this, quickly,
in late 2018 and early 2019, we have seen a number of signs
that markets no longer see a significant risk of sanctions
escalation on Russia. For example, in recent months, the
Russian government issued a new U.S. dollar, denominated by an
attractive rate, indicating the markets think there are solid
fundamentals. In another sign that markets have priced out
sanctions risk, in early February Moody's upgraded Russia's
rating. Moreover, in March, French oil company Total signed a
massive new agreement to develop LNG resources in Russia. Does
this increasing appetite by markets for Russian assets suggest
that the markets don't see the Trump Administration's Russia
sanctions policy as credible?
Ms. Rosenberg. Madam Chairwoman, may I respond to your
question?
Chairwoman Waters. If the Chair will allow you, yes.
Yes, please go ahead.
Ms. Rosenberg. Thank you very much. I think that is exactly
the signal that markets have understood. They look at the Rusal
delisting example in particular as an example that the U.S.
Administration blinked, it lost its spine, it won't be imposing
tough penalties for the array of Russian malign activity that
it is conducting and has conducted, and therefore, they feel
confidence in investing in that market because they don't
believe that they will be hit by sanctions in the future.
Chairwoman Waters. Thank you so very much.
The Chair has been generous. And I yield back the time I
don't have.
Chairman Cleaver. Thank you, Madam Chairwoman. The Chair
now recognizes the gentleman from Arkansas, Mr. Hill.
Mr. Hill. Thank you, Mr. Chairman. I appreciate that.
I appreciate the panel before us for bringing your
expertise and I also thank you for your service to the country,
those of you who have served ably at the Treasury and other
locations. And there is no doubt that we have sanctioned Russia
in this Administration and in the Obama Administration, and I
just want to be on record that Congress supports that. We have
worked together for 4 years, 2 in the Obama Administration and
2 in the Trump Administration, to send that message to Russia
and to Putin and to his cronies. And I just hope that--I sense
a little bit of second-guessing, a little significant criticism
on the panel, and I wouldn't ask you if you supported President
Obama's release of sanctions on Cuba, for example, Cuba being
the largest supporter of the disaster in Venezuela. I won't put
you on that spot. I won't put you on the spot, having worked in
the Obama Administration, about the lack of sanctioning Russia
in any meaningful way for the absolute systematic dismantling
and destruction of the country of Syria. I won't bring that
subject up.
But with that said, I really appreciate your service and
appreciate your comments today, particularly the constructive
ones you made.
And I am curious, as we have done on Iran in the last
Congress, your views, Ms. Rosenberg, on this issue of naming
names that Dr. Carpenter talked about in Russia, as we proposed
in Iran in the last Congress, how to do that and also protect
sources and methods but get the point across, because this
legislation proposes that.
Ms. Rosenberg. I do think there is an important role for
transparency, and everywhere there is an opportunity to
declassify information about Russian agents and entities that
are involved in doing harm to U.S. national security, we should
do that. And I appreciate the effort of Congress, and this
committee in particular, in making this point precisely with
regard to Russia.
The particular language in this bill is designed to go
after that point. There are other ways this committee has and
that you can focus on the issue of declassifying information
and making notice of it. One particularly important way to
promote transparency in this regard is the committee--rather
the legislation before this committee on beneficial ownership,
which is a wonderful opportunity. I would urge you to advance
that to the greatest extent possible.
In addition to that, the opportunity--your urging of the
Financial Crimes Enforcement Network and the Treasury more
generally to give information about the typologies or
methodologies of Russian money laundering in the United States.
Particularly, we heard the reference to geographic targeting
orders, the purchase of high-end real estate in cash, for
example, which--
Mr. Hill. Excuse the interruption, but during the Obama
Administration, of course, we did sweep exams and targeting
exams in New York and Miami that Dr. Carpenter was referencing.
Do you think you had a good track record in that work?
Ms. Rosenberg. I think there is much more to be done. I am
pleased that that effort started. That was a new initiative
just a number of years ago, and responded to a--
Mr. Hill. And it continues today, right?
Ms. Rosenberg. Absolutely. And in many more geographic
locations than have been named publicly so far.
Mr. Hill. Good. So I am supportive of that, too. This
committee has been very supportive over the years of that
geographic targeting, and I would hope that we would get
testimony from FinCEN on exactly what they have learned from
that, even if we have to do it in a classified setting. Because
as we have talked in here, we collect beneficial ownership
information, and we have a requirement to know our customer
since 1999, in the financial industry. And if people don't
understand the beneficial owners, they should have been filing
a SAR on those people. So I just want to--I always want
audiences to understand, we collect that information, and we
have a legal expectation to do that. And what the Treasury has
tried to do in the last year or so is clarify what to measure,
and what we are debating about is how to improve that
collection, make it the best that it can be, to support both
the business community and the banking and financial community
and bring balance to that.
But I don't want anyone watching this testimony to think
that we don't collect beneficial ownership information, we
don't have our financial institutions held to a high standard
of trying to get that information and providing it to FinCEN
when we have a particular concern about suspicious activity.
Let me turn to North Korea, if I could. In the Treasury
sanction, Chinese trading companies that have had connections
with North Korea, and in that reporting, there were 5,000 such
companies in China operating between 2013 and 2016. It makes it
very difficult, even though we have now sent a U.S. Coast Guard
cutter over to help interdict in the waters over there as of
last month.
Should we sanction the Chinese banks more aggressively, Ms.
Rosenberg?
Ms. Rosenberg. We have some examples of that to learn from.
So the Administration has gone after--the Bank of Dandong is
one example--Chinese financial institutions. And there are
doubtless opportunities to think about that in the future.
Mr. Hill. Thank you.
I yield back.
Chairman Cleaver. Thank you.
The Chair now recognizes the gentleman from Colorado, Mr.
Perlmutter.
Mr. Perlmutter. Thanks, Mr. Chairman.
And I promised myself not to get mad today. But listening
to the testimony and sort of going back over the invasion of
Ukraine, Crimea, the cyber war that has been conducted against
us, the biological warfare and the chemical warfare, killing
the guy in England, and the fact that we keep, instead of
ratcheting up sanctions, laying off the sanctions, the crying
wolf.
Mr. Singh, you talked about the rhetorical embrace. I
remember the picture of the big wet kiss between Putin and our
President. It was just a painting and all that.
If you were to give me a continuum of sanctions against
Russia, where would freezing their assets be?
Mr. Singh. That is very close to the top.
Mr. Perlmutter. So just kind of run through what kinds--
where we are, if we were enforcing sanctions, and where we
could go if we considered these acts to be as terrible as I
think they are.
Mr. Singh. Yes, sir. There is a spectrum.
At the mild end of the spectrum are sanctions on
individuals. At the more extreme end are sanctions on the
entire economy. And then, as you go across that spectrum,
whether it is an individual or it is the entire economy, you
can have either greater or lesser depth of the sanctions.
In other words, right now, we have sanctions on a lot of
Russian banks, a lot of Russian energy companies, but we only
restrict their ability to raise money from U.S. investors. And
Europe has done the same.
A more extreme step is to block any kind of transaction by
that bank with the U.S. financial system. In other words, you
can shut them out entirely.
But I want to emphasize, the actions haven't diminished
greatly in the last couple of years. What has changed are words
and our signals. Russia is a market-based economy. The pain is
transmitted through markets. And, yes, markets care about the
actions, absolutely, but they are really conditioned to read
the guidance from our top leadership. That is the biggest
reason why Russian markets are where they are now versus where
they were in 2014 and 2015 when Russia was really on the ropes.
Mr. Perlmutter. So Mr. Mortlock talked about how there has
to be a broader policy goal, as one of the three things that
you mentioned; there has to be an exit strategy, an endgame,
and political commitment, which is more or less what you have
just been talking about.
And going back to Mr. Deripaska and Rusal and En+, or
whatever it is called, as part of our relief that the President
demanded and Congress, at least the House, objected to, as I
understand it, he still is under sanctions, but the company is
not, his ex-wife got some of his interest in it. Some family
members got some interest in it. And the value of that company
is way up to the point that there, in effect, is no sanction.
Mr. Mortlock, can you comment on that?
Mr. Mortlock. Absolutely. On the delisting of Rusal, I
think the--again, in theory, that could have been a good
outcome, to have an SDN publicly divest from his biggest
companies. We tried to do similar efforts in Burma over the
years. And so this was a big moment. It could have set a
blueprint for how we do this in the future. Again, the end game
of how people come after the sanctions list.
I think the failure here was the Administration sending a
strong message--there was obviously an explanation of what that
deal looked like, but it was very complicated, it was complex.
It was--there were financial benefits to Mr. Deripaska, and,
frankly, there was a complete failure to explain to the public
and to this body why it was a good outcome for the U.S.
sanctions program and, most importantly, to send a strong
message to Putin's other friends about what they needed to do.
And I think really if I could give another example of what
you are trying to get at here, is I think there are a lot of
sanctions on the books on Russia already. I am certainly not
against the other measures that have been proposed by the other
panelists, but there are a lot of sanctions on the books
already that simply are not being implemented as they should
be.
For example, speaking about Oleg Deripaska, it may surprise
a lot of people to learn that there are actually secondary
sanctions, so similar to what we have on Iran, in CAATSA, for
any significant transaction with an SDN, a Russian SDN,
including Mr. Deripaska. But no one has been sanctioned under
those provisions. It is hard to imagine that there has been no
company anywhere in the world that engaged in a significant
transaction with Deripaska.
Mr. Perlmutter. Thank you. My time has expired.
I yield back.
Chairman Cleaver. Thank you, Mr. Mortlock.
The Chair now recognizes Mr. Gonzalez from Ohio for 5
minutes.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman.
Thank you all for your testimony and, again, for your
service to the country.
Look, there is bipartisan support in this committee and
across Congress for devising an effective sanctions regime and
program against Russia and anybody, whether we are talking
about China or ISIS, whomever it is. This committee is
committed to that, and that is a good thing.
I do take exception to some of the testimony that seemed to
imply, Mr. Mortlock and Mr. Singh, that the Obama-era sanctions
were somehow--I won't call it the Holy Grail, but that you guys
kind of cracked the nut on Russia, and everything there has
been downhill.
I would just like to remind you of a few things: one, in
the 2012 election, the comment, ``The 1980s called and want
their foreign policy back,'' with respect to Russia; two, in
2014, after sanctions had been implemented, the Malaysia
Airlines flight was shot down; three, in 2015, Russia bombed
anti-Assad rebels years after the red line was crossed; and
four, in 2016, the Russian misinformation campaign.
So I appreciate the effort, certainly, and the sentiments,
but to suggest that the Obama-era sanctions were fantastic and
everything since has been downhill, I think paints an
inaccurate picture. Frankly, I think we just haven't figured
this out as a country. You can look at multiple Administrations
across multiple parties. I don't actually think this is
partisan. I think we just haven't figured out exactly how to
deal with Russia, and China, frankly.
But, with that, I will shift to questions.
Ms. Rosenberg, in your written testimony, you suggested
measures to sanction primary issuance of Russian sovereign
debt. Given Europe's dependence on Russia for its energy
supply, can this discussion draft change Russia's behavior
without our European allies' support, and can we successful
changing Russia's rogue behavior if we are acting unilaterally,
in your opinion?
Ms. Rosenberg. I think it is possible to succeed acting
unilaterally, though it is more likely that the U.S. will be
successful if there is multilateralism. Whether that is
sanctions coordinated and taken on the part of Europe or
something less than or different than that, where there is an
effort at coordination but no sanctions from Europe,
nevertheless an effort to try and keep the pain focused on
Russia and not on our European allies.
Mr. Gonzalez of Ohio. Thank you.
And then, Mr. Singh, you sort of talked about the
overwhelming driver of the rebound in the Russian markets being
the change in tone. Is it fair to characterize your comments
that way?
Mr. Singh. That is right.
Mr. Gonzalez of Ohio. Okay. Can you talk about the
difference between where we are today, where you have Europe
basically partnering with Russia on more of its energy projects
and soliciting for our help in that in some ways, versus back
in the 2014 timeframe when the Obama-era sanctions were
implemented?
Mr. Singh. Sure. So I want to be clear, just to respond to
your earlier comment.
Mr. Gonzalez of Ohio. Can you focus on this one, please?
Mr. Singh. Yes, I am going to respond--
Mr. Gonzalez of Ohio. Okay. Perfect.
Mr. Singh. --in the context of that.
Mr. Gonzalez of Ohio. Thank you
Mr. Singh. The Obama-era sanctions were not perfect. There
were lots of failings. And as I mentioned in my comments
earlier, we didn't win the narrative within Russia. The
narrative that Putin spread that this was another historical
injustice perpetrated by the West on the Russian people carried
the day. That was a failing.
I think more transparency about his criminality is part of
the solution to that. Also, showing to the Russian people that
there is another choice they can make and showing that Ukraine
is another big part of the answer.
Specifically on your question, look, the Europeans have had
dealings with the Russians for a long time. Some of those have
increased. But if we want to figure out how do we actually have
more impact right now on Russia, we have to do what Dr.
Carpenter suggested. We have to think about how to impose costs
on the entire Russian economy. Right now, we are in a much
worse place than we were in 2014.
Mr. Gonzalez of Ohio. So I will agree with Dr. Carpenter's
point. I would agree with that.
Let me shift to Mr. Zweig and Venezuela, if I have a
moment. Many of our partners and allies recognize Juan Guaido
as the legitimate leader of the Venezuelan people. In one of
your policy briefs, you argued for the Administration to expand
the sanctions architecture against the Maduro regime's foreign
allies and enablers.
Can you kind of just go into detail on that, if you could?
Because we have a lot of players in there now, who are kind of
mucking up the whole thing.
Mr. Zweig. Absolutely, sir.
In fact, probably about 6 weeks after that was written, the
Administration sanctioned, under Executive Order 13850,
sectoral Venezuelan sanctions, I think it is Evrofinance bank,
a Russian bank, for involving themselves in both corruption and
sectoral-based violations.
One of the ideas that we have been floating around is--
well, number one, both China and Russia have significant
investments in Venezuela. And as far as demonstrating a success
in pushing one of them or one of the significant--one of the
significant company out--
Mr. Gonzalez of Ohio. I believe we are out of time, Mr.
Zweig. My office will follow up with you. I would love to talk
about this.
Mr. Zweig. Absolutely.
Mr. Gonzalez of Ohio. Thank you so much.
Chairman Cleaver. Thank you.
The Chair now recognizes the gentlewoman from Virginia, Ms.
Wexton.
Ms. Wexton. Thank you, Mr. Chairman.
And thank you to all of the witnesses for appearing today.
I appreciate all of the discussion of Russia, and there is
obviously a lot going on there. But I do want to switch gears
very briefly and talk about China and its treatment of ethnic
Uighurs and other Turkic Muslim groups in the Xinjiang
autonomous region of China because my district in Northern
Virginia is one of the largest populations of Uighurs in the
United States. And I would imagine most of you are aware that
the Chinese Communist Party has undertaken a methodical
campaign of oppression and an apparent attempt to wipe out the
religion and ethnicity of the Uighur people.
The Pentagon estimates that between 1 to 3 million Uighurs
are being held in concentration camps, which is the term that
the Pentagon uses, and being reeducated. Many more are living
under a very tightly controlled surveillance system where
government-assigned relatives are living with Uighur families
and reporting back to the Communist government about what is
going on within those households.
And this surveillance is not confined only within China's
borders. I have spoken to constituents who have reported
intimidation and harassment by agents of the Chinese government
here on American soil.
Mr. Sherman, who serves on this committee, has been a
leader in terms of drawing attention to this and attempting to
expand export controls on U.S. businesses that provide
technology, training, or other support and equipment to the
Chinese government security apparatus, and I have been working
with a bipartisan group of Representatives and Senators to
attempt to get the Administration to impose Global Magnitsky
sanctions on Communist party officials.
My question to Mr. Zweig, Ms. Rosenberg, Mr. Mortlock is,
are Magnitsky Act sanctions something that could be an
effective tool in pressuring Beijing to change its behavior in
this regard?
Mr. Zweig. Thank you, ma'am. I think in the interim they
could be. I would expand the aperture to the specific companies
providing surveillance equipment, and I think it would largely
be captured, if not under the statute, then under the Executive
Order.
Ms. Wexton. Okay.
Ms. Rosenberg. I would agree and just add that the United
States, beyond that Global Magnitksy actions, also should
concern itself with rules, requirements, and regulations that
prohibit U.S. entities from in any way participating in the
provision of technology and equipment or enabling of that
surveillance and that treatment to occur.
Ms. Wexton. Okay. Thank you.
Mr. Mortlock. I also agree. I think Global Magnitsky has
been a real highlight of Congress imposing sanctions and giving
the Administration new authority in the human rights area and
the Administration following through on that.
Another list of sanctions was due in December by the
Administration. We are waiting on it now.
I think, given the horrific reports on the treatment of the
Uighurs and the scale of those abuses, this certainly seems
like a strong candidate for Global Magnitsky sanctions, which
would send, I think, a very strong message to China and the
companies supporting those efforts.
Ms. Wexton. Thank you. One concern that has been raised is
that China has warned that it will retaliate in proportion to
any--against any U.S. sanctions.
Is the threat of retaliatory sanctions, is that a credible
threat and something that policymakers should be concerned
about?
Ms. Rosenberg. It is certainly credible that China may
respond, including in ways that have economic and political
detriment to the United States. They have been engaged for
years now in various forms of economic coercion that have often
hit countries in its near abroad, not as often U.S. entities.
But there is no reason that China's growing economy and growing
points of leverage could not be used to advance this, which is
among the core of China's national interest related to
sovereignty and their concern if they were to be targeted by
the United States, that they should not be, that this would be
an inappropriate extraterritorial exercise of U.S. power. So I
think it is credible that they would respond, not that that
should deter the United States from doing the right thing, but
eyes wide open would be a good approach for the U.S. in
pursuing such implementation of such policies, Magnitsky or
otherwise.
Ms. Wexton. Thank you. Thank you very much.
I will yield back my time.
Chairman Cleaver. Thank you.
The Chair now recognizes the ranking member of the
subcommittee, the gentleman from Ohio, Mr. Stivers, for such
time as he may consume.
Mr. Stivers. Thank you, Mr. Chairman.
Before I ask questions, I want to make it clear that I
support the objectives of this discussion draft. I think that
it is important that Russia understand that, if it interferes
with our elections, they will suffer serious consequences.
However, I do have some concerns about the specific proposals
in the discussion draft.
The first question I have for the panel is, how exposed are
U.S. banks and asset managers to Russian sovereign debt? Does
anybody want to handle that?
Mr. Singh. The estimates are that foreign investors own
about 20 or 30 percent of Russia's ruble denominated debt. That
is the bulk of what Russia issues. I think we can assume that
most of that foreign-owned debt is held by U.S. investors.
Mr. Stivers. Do you believe that if we enact this bill,
that one of the outcomes could be a default on U.S. creditors,
and what would that do to the debt markets in the United
States?
Mr. Singh. No, I don't think that is a serious concern. If
we look at Russia's holdings of U.S. Treasuries, for example,
they sold about 90 percent of those holdings last year. Even
before they sold those holdings, Russia was only the 15th
largest holder of Treasuries.
We have had much bigger owners of U.S. Treasuries sell in
much larger size, China in particular, in 2015 and 2016, and
the effects on the U.S. Treasury market were negligible.
Mr. Stivers. Okay. I want to talk a little bit about the
U.S. fossil fuel production and energy security.
Under the draft, Russian interference in elections would
trigger tough new sanctions, including restrictions on any new
investment in Russia's energy sector. If you want to punish
Russia, I think that is a really good place to inflict pain for
Russia. Russia is ranked second in natural gas production,
third in oil. The United States is now the top producer in both
categories. And Congress has witnessed a lot of debate about
energy policy, some pushing for divestment of all fossil fuel
sources.
I have a simple question. Has the shale revolution in the
United States energy production made it easier or harder for
the United States to impose energy-related sanctions on
countries like Russia?
Ms. Rosenberg. Congressman, I would like to speak to this
question.
I think there is a perception that because the United
States is a bigger producer and indeed now exporter and that
this contributes more meaningfully to the U.S. balance of trade
and our economy, that we are in a position to impose energy
sanctions, cut off supply elsewhere in the world, because the
United States is more secure or it is adding more supply and
can, therefore, substitute for other in the market.
Though there is an attractiveness in thinking that way,
that obfuscates the actual vulnerability we nevertheless feel,
which is tremendous, for every consumer of energy products,
which includes everyone who drives a car and who uses diesel
for their vehicle, or gasoline, otherwise, that if there is
volatility in the market that we impose, we ourselves will be
faced with that as well.
And so I think we should carefully resist the notion that
just because we are in a stronger economic position as a bigger
producer, we therefore insulate ourselves from market
volatility. We do not.
Mr. Stivers. Okay. Thank you.
Yes, Mr. Carpenter?
Mr. Carpenter. If I could add onto that, though. I do think
that targeting new investments in the energy sector whether it
is in Arctic, deep water, unconventional, or in conventional,
will impose pain without having a price shock in the near term.
And so that is probably a more advantageous way to go than
trying to limit supply in the near term.
Mr. Stivers. Thank you.
Mr. Carpenter, in your testimony, under the subtitle,
``Meaning what we say and do,'' you talked about the lack of a
coherent message on Russia and talked about this Administration
and the G8. And every testimony I think stated that sanctions
are stronger when they are imposed by a coalition of allies.
Do you believe our partners in Europe have been clear about
their views on Russian aggression?
Mr. Carpenter. I think our partners in Europe have--it is
remarkable that they have stood with us for as long as they
have. I think that is a very tenuous coalition right now. You
have a number of countries, including principally Hungary,
Italy, and Austria, that are very weak on Russia, that have
embraced Mr. Putin, and have complained very vocally about the
impact of sanctions on their economies, whether that is true or
not. And so we are right now almost at the end of the rope, I
think, as far as European cohesion goes.
Mr. Perlmutter [presiding]. Dr. Carpenter, I am going to
cut you off, because I want the last two gentlemen to be able
to get their--
Mr. Stivers. Thank you. I yield back.
Mr. Perlmutter. --questions in.
The gentleman yields back.
Mr. Gottheimer from New Jersey is recognized for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Chairman.
Terrorist groups like Hamas and Palestinian Islamic Jihad
in Gaza are well known for firing rockets and digging terror
tunnels into Israel and using Gazans, including women and
children, as human shields.
In March, Congressman Brian Mast of Florida and I
introduced the Palestinian International Terrorism Support
Prevention Act, along with House Foreign Affairs Committee
Chairman Engel and Ranking Member McCaul, to impose sanctions
on foreign persons and governments that provide support to
these terrorist groups.
Mr. Zweig, if I could ask you a question, sir? First, I
assume you would agree that Hamas and PIJ are foreign terrorist
organizations as designated by the United States of America?
Mr. Zweig. Yes, sir.
Mr. Gottheimer. Also, I assume you would agree that--or if
I could ask your opinion on this--if you would agree that the
United States and our allies need a comprehensive strategy to
strengthen sanctions against those who knowingly and materially
assist terrorist groups like Hamas and PIJ so we can further
isolate, weaken, and cut them off at the source? If you could
comment on that, sir?
Mr. Zweig. Yes, sir. I absolutely agree. And I think your
legislation is a very important marker in achieving those
objectives.
Mr. Gottheimer. Thank you.
If I can move on to Iran sanctions for a minute.
In 2017, Congress passed the Countering America's
Adversaries Through Sanctions Act, or CAATSA, to increase
sanctions on Russia, Iran, and North Korea.
Section 241 of CAATSA requires Treasury, in consultation
with the Director of National Intelligence and the Secretary of
State, to submit a report to Congress on Russian oligarchs and
other entities.
Ms. Rosenberg, the Iranian regime has also enriched corrupt
regime-connected officials. Wouldn't it be beneficial, in your
opinion, for Congress to require a similar public report on
Iranian oligarchs to shed light on that that regime's
corruption, distortion, and mismanagement of Iran's economy?
Ms. Rosenberg. Congressman, I share your concern.
Mr. Gottheimer. Thank you, Ms. Rosenberg.
Ms. Rosenberg. And I would encourage the Administration to
implement sanctions that have the effect of highlighting and
exposing those Iranian officials that have engaged in terrorist
activity and support of missile proliferation, abuse of human
rights and otherwise. That is a facet of the current sanctions
implementation across a variety of programs. There can always
be more there, given the dangerous nature of the regime and the
activities in which they have been involved.
Mr. Gottheimer. Thank you, Ms. Rosenberg. I appreciate
that.
Mr. Zweig, if I could ask you a follow-up question on Iran.
Iran is the world's leading state sponsor of terror, providing
hundreds of millions of dollars annually to terrorist groups
like Hezbollah.
How effective have reimposed sanctions on Iran been in
terms of limiting the flow of Iranian resources to Hezbollah
and other proxies, sir?
Mr. Zweig. Just anecdotally, Hezbollah has issued one of
its first public appeals for resources in recent memory. And I
think, through that, you can see that there is a real squeeze
on them.
Mr. Gottheimer. That seems to be a growing consensus,
right? If I can--
Ms. Rosenberg. Congressman, may I speak to that point?
Mr. Gottheimer. Please, Ms. Rosenberg. Thank you.
Ms. Rosenberg. Yes. It may be true that Iran--and I expect
that Iran will be squeezed by the reimposition of sanctions,
and that we will see that show up over coming months.
Nevertheless, it may be the case that this regime spends
every last dinar on intensity conflict in its support for
terror regimes--terror groups throughout the region. And one
thing that we saw during the period of most intensive sanctions
in 2012 through 2015 is that there was funding nevertheless
during that intensive period of sanctions for these groups who
continued to threaten and destabilize the region.
Mr. Gottheimer. But if they are being squeezed and continue
to be, and that will give them fewer resources to fund
Hezbollah and Hamas and others, right, in the region?
Ms. Rosenberg. That is surely the case. At least I hope
that that is the--that is a theory of the case, and it will be
true to some extent. But given that this is a top priority of
the Iranian regime, there must be complementary efforts to
nevertheless try and contain and undermine the efforts of these
terrorist groups in the region which will survive on a
shoestring in that intensity conflict is cheap.
Mr. Gottheimer. Mr. Zweig, do you want to say something?
Mr. Zweig. I just want to mention that it is a dual-track
effort. You hit the Iranian regime. But in addition, the
Administration and the Congress, similar to legislation that
you mentioned earlier, has sought to go after the proxies
themselves through successive legislative efforts related to
Hezbollah, also Syria, in the Congress but also the actions
that the Administration has taken recently to effectively go
after Syria's access to oil.
Mr. Gottheimer. Thank you very much. Thank you all very
much for being here today.
I yield back. Thank you.
Mr. Perlmutter. The gentleman from New Jersey yields back.
The gentleman from Kentucky, Mr. Barr, is recognized for 5
minutes.
Mr. Barr. Thank you, Mr. Chairman.
As the former chairman of this subcommittee, I appreciate
you allowing me to jump into the fray here. And let me stay on
the same topic that Mr. Gottheimer was exploring related to
Iran.
Specifically, I want to talk about NGOs and the BDS
movement. As all of you know, any U.S. banked organization that
has ties with a designated terrorist organization is subject to
U.S. sanctions. I think that was part of an Executive Order
post- 9/11.
What concerns me is the potential for these nongovernmental
organizations who receive access to U.S. funding or access to
the U.S. banking system to use their humanitarian or stated
educational mission as a cover to actually facilitate terrorist
activity.
Mr. Zweig, are you aware of any NGOs, particularly those
that are participating in the BDS movement, that are
circumventing U.S. sanctions and that have ties with terrorist
organizations like PIJ, Hamas, or Hezbollah?
Mr. Zweig. I don't have the information in front of me, but
I can get back to you on it.
Mr. Barr. I know that FDD has done a lot of work on this.
And I would appreciate you informing Congress, with all of your
extensive expertise, if your organization has identified NGOs--
particularly NGOs operating in either the United States or
Western European countries--that parade as a humanitarian
organization with an educational mission but have actual ties,
or maybe even financial ties, with Hamas, Hezbollah, PIJ, or
other similar type organizations.
I think that if we do discover that, U.S. sanctions are
appropriate to affirmatively go after these NGOs as opposed to
just passively resist BDS. And I would invite your reaction to
that.
Mr. Zweig. Absolutely, sir. And I will be happy to get--as
I said, I don't have the information in front of me right now,
but I am happy to get back to you immediately after the
hearing.
The one thing I would note is, for those organizations
operating in the United States, they potentially run afoul of
the material support threshold within the foreign terrorist
organization statutes, which is title 18 criminal liability,
which is much stronger than that of the International Emergency
Economic Powers Act civil liability. So that is also another
thing to consider when looking at the aperture--
Mr. Barr. Good thought. Good feedback.
Last Congress, I introduced the Otto Warmbier North Korea
Nuclear Sanctions Act, which passed the House 415 to 2. I will
be reintroducing this bill in the near future due to what I
believe is the need for continued and even heightened sanctions
on North Korea given the recent missile tests.
We must continue to increase pressure on North Korea and
ensure we have used all of our available tools to ensure that
North Korea is negotiating in good faith, which they are not,
and that Secretary Pompeo and the rest of our negotiators--we
want to make sure that they have the leverage that they need.
Mr. Zweig, in your testimony, you talked about how
sanctions can be undermined by an unwillingness on the part of
our allies and partners to escalate pressure.
Obviously, China is not an ally. They are certainly not a
continuously willing partner in applying sanctions to North
Korea. Can you identify the ways in which they are helping
North Korea evade sanctions?
Mr. Zweig. I think we have seen in the past, both in the
financial sector and in the shipping sector, efforts on the
part of Chinese entities to do so. And it is a matter of fully
deploying, implementing, enforcing existing sanctions,
including shipping sanctions contained in CAATSA that, to my
knowledge, hitherto have not been fully implemented or
enforced.
Mr. Barr. Any other tools that we have in our arsenal that
are not being used to put maximum pressure on North Korea,
specifically secondary sanctions related to China?
Mr. Zweig. Yes, absolutely. And then you have secondary
sanctions related to China, which is again something that comes
up fairly frequently. But you also have, for example, entity
lists, Department of Commerce-related actions with respect to
companies providing support, direct or indirect, to North
Korea. You also have Department of Homeland Security, both
Homeland Security Investigations and CBP action, as it pertains
to a rebuttable presumption on goods with any part
manufacturer--with any growth or manufacturer emanating from
North Korea, preventing it from coming to the United States.
And that has proven to be a fairly substantial sanction.
Mr. Barr. I don't have much time left. But in my remaining
time, with respect to the underlying draft on Russian
sanctions, as I visited Eastern Europe and NATO countries, what
I am disturbed by is this Nord Stream 2 project. I applaud the
provisions in the draft that relate to the energy sector of
Russia. I think they are probably overbroad. But I would want
to know from anyone why we don't specifically target Nord
Stream 2 as a matter of U.S. sanctions policy.
Mr. Singh?
Mr. Perlmutter. The gentleman's time has expired. We have 1
minute left to vote on the Floor, so I am going to bring this
to a close without cutting off Mr. Barr--
Mr. Barr. Thank you. I yield back.
Mr. Perlmutter. He is yielding back.
Mr. Barr. I yield back.
Mr. Perlmutter. I would like to thank our witnesses for
their testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
I ask our witnesses to please respond as promptly as you
are able.
Thank you very much. We are going to bolt out of here. And
I appreciate the testimony of this panel.
This hearing is adjourned.
[Whereupon, at 3:39 p.m., the hearing was adjourned.]
A P P E N D I X
May 15, 2019
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