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tv   Impact of Sanctions on Russian Economy Panel  CSPAN  May 8, 2018 10:28am-11:50am EDT

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book "inseparateable." >> you can imagine these are two married couples that cannot be in the same bed, right? and also -- so when they set up two separate households about a mile from each other and they stick to this very rigid schedule. they will say, stay, live in chang's house for three days with chang's wife. during these three days chang is basically the master of the house. he can do whatever he wants to. and the other will give up his free will. and three days later they move to ang's house and ang will be the master of the house and chang will give up his own free will. brian: did it work?
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>> apparently. they had 21 children. on &a" sunday night c-span. >> the center for strategic and international studies hosted a forum on russia sanctions and during this next panel discussion, former treasury department representatives and the former deputy chair to the central bank of russia talk about how imposing sanctions impacts the russian economy. this is about an hour, 20 minutes. >> good morning or afternoon. it's morning somewhere. i'm matthew goodman. i hold the simon chair and political economy here at csis and welcome you on a beautiful day. thank you for coming. welcome, also, to our online audience. we always have a good crowd who watch from their desks. delighted to have you as well. just a fouad minute straightive points -- just a few administrative points. thank for this event which by the way in case you're in the
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wrong place, this is an event on russian sanctions and roughly four years after they were first imposed. for ant to thank you making this possible. this is what we do on the simon chair on economic state craft. so we haven't delve into this topic before so we're delighted o have this opportunity. if you could silence your phones, please. if there is a security event, follow me. there is an exit out the back or down the front. the rally point is around the corner at national geographic on m street. one thing about the run of show today, we're going to have in a minute i am going to invite the first panel up. we will have that panel. we will take a brief coffee break after that panel from about 2:20 to 2:30. then, the second panel will come up to talk about the foreign policy dimensions of after that hen,
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panel there will be no break. senator cardin will come up after the second panel. so stick around or take the break at 2:20 if you can. i think that is all of the administrative things. we're here to celebrate the inauguration of vladimir putin as president of russia for a fourth term. he won spectacularly with 77% of the vote. wee have won more but we were messing with their electoral system. so he only ended up with 77%. seriously, this is about sanctions that were first imposed after russia invaded and annexed crimea in the kraine in march, 2014. starting with diplomatic sanctions, there were events and negotiations under way that the u.s. and e.u. had and those
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were cancelled. russia was tossed out of the g-8 effectively. then, following that over subsequent months and years, dditional economic and individual sanctions have been imposed for a variety of reasons, not just now ukraine but because of russia's activity in north korea and yria in our elections. or at least that's the backdrop of the story. we're here to sort through all of that. there is a mix of actions and events. in this panel we will be looking at whether these efforts of the sanctions had the desired effect in economic terms, whether they had an impact on the russian economy and maybe on russian economic behavior. that the second panel we will
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talk about impacts, whether that's changed russia's behavior in the places, the aforementioned places. then i also want to explore the unintended consequences of these sanctions. have there been unexpected implications in terms of conomic cost or otherwise? so i am delighted to have such a strong panel to join me, and if i could invite them to come up on stage. i will sit over there and introduce them from their, if we can get the podium down, please. ok. o. all right. well, delighted to be joined by this terrific panel of experts. ome you may know, some you may
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not, but they all have a very interesting perspective on these sets of questions. in this order, moving from my left, liz rosenberg from the center for a new american ecurity. i should put on my glasses to make sure i get your title right. senior fellow for the economic ecurity program. she is an expert in energy-related issues, and she is doing one on economic coercion now, it's a very interesting agenda you have, that you do. delighted. by the way, she is also a treasury alone, as our three of -- a treasury alum, as our that you do. three of the four of us here. delighted to have you. ext to her is sergei
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alexachenko, a senior fellow at the global development program, former deputy banker of the ank of russia. nd an economist by training, an expert in the issues of international finance and economics. we are delighted to have him with us. at the end is david murray, vice president for product development and services with the financial integrity network. e was director of the office of illicit finance at the u.s. treasury department. like me, he was there for about nine years in total, and served as our anti-shake in islamabad -- attache in islamabad. he's done some interesting things as well. he left last summer, 2017, right? so he is relatively recently been at the treasury department, working on issues like this. so i think that is everyone,
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right? great. let me get started -- dave, i will start with you. explain to us -- i just want to lay down what happened and how treasury geared up to start working on sanctions back in 2014. if you could just do a quick introduction to familiarize our people with the story. david: thanks, matt. so the initial basis for the sanctions with russian gression in crimea, in eastern ukraine, at that situation heated up, there were policy problems with the obama administration. when you look at the top end of the ladder for both the united states and russia, nuclear war is the top. equally placed -- we were quite aware that this could spin out of control, and that is where we could land. you know, as the sanctions discussions evolved around
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russia, it was clear that this would need to be a program like no other program we have had. we had never taken on sanctioning an economy like russia. russia is ingratiated into the global economy, with so many of their allies dependent on russia for commodities. this was a call for a different kind of program, and where we settled was a hybrid program. what you see in the russia sanctions were the traditional u.s. sanctions listings, people were -- u.s. persons prohibited from doing business with the people listed. that is one prong of the sanctions program. that was the first prong we used. we also recognized -- we believed -- that it was important to put pressure on the russian economy as a whole. a broad financial pressure campaign of the type we carried out against iran, but certainly not as intense, because the risk is still over -- particularly on our allies, was much higher than it was with ron -- iran.
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so you saw innovation in the russia program, you saw a set of sanctions we referred to as sectorial, where we prohibited equity investment and trading and debt with russian entities, and we gradually expanded that starting with financial services and going outward. the idea was to take a very precise bite out of the russian economy while minimizing the risk for allies. and minimizing the risks to ourselves as well. since then, the scope of the program is grown significantly. now the program addresses russian cyberintrusions on the united states and russia active measures targeting the united states. it has not grown in scope, and as a result it has not grown in intensity. the situation we have today is a persistent and growing gap between the united states and the e.u. and the sanctions
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program, and that brings along with it its own complications, and for the people we work with, a lot more risk. where you see big financial institutions getting in trouble, it tends to take us places where you have activities permitted by one jurisdiction and not another. matt: ok, great, good. i have some follow-up questions, but let me get everybody involved first in laying down the basic facts. sergey, let me turn to you and k you in -- before 2014, the russian economy was doing pretty well. it turns south pretty sharply from 2014. how much of that was because of the sanctions, and what were the general conditions going into the sanctions? what else was going on and what is the impact over the last four years, economically? sergey: there was a mistake in your initial statement that russian economy in 2013 was in bad shape. in 2013, oil prices from $108
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per barrel and the russian economy was growing 1.3% per year. that's not good. in the beginning of 2012, russia reached pre-2008 level so russia fell down by 10%. in 2008. and it took three years to recover. so the russian economy before crisis, before sanctions, were not in good shape. and they said very well about targets, the administration in the west, i will say none of those targets were reached. maybe one. that was reached. that was reached. because i believe looking backward, we have to say there was not any significant pressure on russia. and what president obama called for was not reached. we know about the financial turmoil in december, 2013.
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ussia rubles was 70 rubles per dollar, but it was combined with the decline in the oil price, combined with the mistakes of the central banks. altogether, this led to a collapse in the exchange rate of the ruble but maybe february, 2013, the market stabilized and they declined in 2015 when the russian economy declined by 2.5%. it's much smaller than the crisis of 2008. was mainly by the low of oil prices. so in the beginning of 2015, maybe in the first half, there was a different assessment or the impact or potential impact of sanctions on the russian economy, they assume it will be between 1% and 1.5% of g.d.p. i think it was less. there was no afterward
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assessment. we can compare but i believe the overall decline of the russian economy in the low recession. the recession started in the second half of 2014 and lasted for nine quarters. it was the longest recession in 20 years. but the overall combined ecline was 3.2%. it was three times less than the crisis of 2008. and it was caused mainly by low oil prices. if you look backward on soviet and russian economic history, you will see -- very easy you see oil prices down, russian or soviet economy is down as well. as oil prices are going up, russian economy is going up as well. i believe that's the most important factor. we may look at the russian none and corporations and of them were in trouble in those years. a special exception --
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sanctions imposed in april but i will talk a little bit later on that. in four years, none of the companies were in serious trouble, and, for example, in december of 2014, the biggest russian oil company was in trouble because of their own problems. the russian government and central bank was going to help. d central bank opened its -- within itself to help banks under sanctions to settle in foreign exchange. so sanctions imposed by the west on banks and corporations, they worked a little bit in 014, 2015, limited access, but from the beginning of 2016, western markets became open for everybody except a dozen of banks and companies in the sanctions list.
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so my -- the best demonstration of a low effect of sanctions is increase of russian production of oil compared to 2013 is -- before sanctions, increased by 5% and stable in 2017 but not because of sanctions but because of the economic effect of oil producing companies. the negative outflow took place in 2014, 2015. then two years, 2016, 2017, there were inflows. russian companies were able to borrow. russian companies were able to selleck wit in the financial markets. -- sell equity in the financial markets. so i do not believe there is any significant effect. few months ago, the biggest -- matt: this year.
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sergey: yeah. the biggest effect is one of the two biggest aluminum producers in the world, russian company, were included in the sanctions list. it was sanctioned heavily. american persons, individuals, companies, banks were in one d to trade and month, the output was stable but not able to sell any of it. cargo aluminum in russia declined by 70%. in fact, increasing their stockpiles, the company is increasing their stockpiles and we understand that is not a long-term solution. you cannot increase your stocks forever. but it may cause, of course, problems for the aluminum industry and for the owner of this company,russian oligarchs, and -- but i - and there was a statement.
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i wonder, was he a target of sanctions? i do not understand. ok. i don't want to support, to protect him. he is a very specific guy. d i understand the intentions. there was not a target of the administration to pressure him. my short conclusion, to make a long story short, is where the west does not want to harm us, the real economic price on russian aggression is close to zero. matthew: ok, excellent. there's a lot to respond to and i will let dave have a chance. let me bring liz into the conversation by talking about what they have referred to as the european sanctions being ivergent now from the u.s. but at the beginning, the 2000 line, what sort of process of getting the sanctions going
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back to 2014? then if you want to respond on he energy-related -- elizabeth: i do. matthew: please feel free. elizabeth: thank you, and thank you to csis for hosting this conversation. so just a pickup on your question about the elizabeth: thank you, eu-us coordination, and to give more of a frame and context, harmonious with what they gave about the authority and how they came about, i would just make the point that the coordination that exists between -- perhaps i should say existed -- between the united states and e.u. in the development of these sanctions, authorities, implementation was really remarkable, a really remarkable piece of foreign policy and policy coordination and it brought together these authorities in economic sectors
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that were challenging for many of the people involved. obviously there were much more european economic connectivity with russia. to organize the creation and implementation of these legal measures, which was unprecedented in this fashion, in such economically sensitive areas was substantively and administratively really notable. also, the reason it was done was because there's a belief to which i subscribe that there is stronger messaging value and economic consequence, and it is harder for russia to divide transatlantic partners when there is this shared approach towards the creation and implementation of these measures.
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there's a little bit of precedent for this kind of coordination between the united states and europe. if you have been watching the stations -- there was a lot of effort to align european and u.s. sanctions in regard to iranian entities and in other areas as well, and that continues to some degree. but this is markedly different. the two differences that existed -- i want to point to two in particular from 2014, that still exist now, that are important. really important. the first one is that the european approach to sanctions has always involved a bit of randfathering in the way the u.s. sanctions really never have. that existed in this program. even moral authority is aligned and there was a similar effort to go after creating restrictions on capital market access, to those listed entities, both within the u.s. and e.u. markets, the
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grandfathering that existed in the european case, also with regard to some public financing, created an opportunity for some european entities to continue, taking a really liberal interpretation, of what it means such that for example -- exactly, continue black sea drilling operations, when u.s. companies and u.s. overseers have taken a different approach to what pre-existing might mean, or how you can renew contracts. 50 years out in the future, saying, yes, that continuing business allows us to keep going and expanding the scope of projects. so there are some different grandfatherings going on in eu jurisdictions.
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in the eu, sanctions are set up on essential levels, and the enforcement to create implementation guidance exists within the national level. but in the united states, there is a very elaborate, well resourced, technically superior gency that helps with this implementation. as well as the tremendous professionals in coordination with and in support of hat. but no other government in the world and not in europe at the national level has a similar administrative body to work on the same kind of licensing and implementation issues. the e.u. level is a national government is not in the same place to enforce and impose penalties for their violations. not only do you have some carveouts or grandfathers in the e.u. or u.k., there may be opportunity for legal
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restructuring or regulatory ash trauge. that is to say getting out from under the application of sanctions in the e.u. that goes somewhat unchecked by enforcement or regulatory authorities. i don't want to go into detail with regard to the differences and that is that in the e.u. it's easier to challenge the designation and the european court of justice than it is in the united states. and brexit will have a bearing on what happens to continuity of these restrictions going forward. matthew: and being the financial hub. elizabeth: that as well.
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it's the political will, the technical center, the intelligence assets, that's all significant to that. not to go on too long, but i will just say what dave has said about the way the two programs had diverged, it has aybe been an understatement. i think we can lean in much harder to talk about how different these programs have become and how profound the trajectory is diverging, these two rajectories are diverting, and animating political issue when it comes to russia is different. it's no longer ue crane. t's the election interference, involvement in syria, different constituencies are moving at a different directions, and the authorities are different now. what motivates people in the united states may have to do
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with more sanctions in regard to election interference, cyber activity and not so much with russia's territorial ambitions in eastern ukraine. i will stop there for now. matthew: i am tempted to ask a follow-up, but i think the next panel will talk more about the relative sort of foreign policy and other objectives of the sanctions, so i will let that lie for now. let me go back to dave, and you can respond to sergey's presentation. does that sound like what you expected the effect to be, what you think the effect was in russia and in doing that, if you could help sort through the different -- because sergey seemed to emphasize the one that seems to be having the biggest effect were the recent ones which are more targeted individuals than some of the do you think of
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the different sanctions? david: in terms of having the design, the intent was never to take the russian economy. if that were the intent, it it would have been differently designed. think through the summer of 2014, the european union had a series of meetings, and everybody knows what the meetings will be and what will be on the agenda and i think you saw putin calibrate russia's activity in crimea to those meetings. and moving forward to kind of forestall additional sanctions. i don't think we'll ever know the answer or we'll never have a consensus answer on what was the biggest driver -- the drop in oil prices or the sanctions? but, i know, you had russia facing economic headwinds and then sanctions in the face of
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that, so i think at the very least you're looking at a more prolonged recovery for russia, and also in the long term side of the ledger,the financing for russian firms making more expensive. that is a long-term costs. and depriving energy firms and advanced technology, that's a very long-term cost. that won't show up in the year after over-year. the sanctions -- the intensity of sanctions, the increase in sanctions, it wained as you got into 2015, certainly 2016. and you know, one of the things we learned at the treasury department and i think we learned very well from the iran program is that constant sanctions do not equal constant pressure. one, your adversary is going to find ways to evade and how to work around. they will learn how to find substitutes. two, economics is so much about expectations. you know, by the time you get through year one of sanctions, a lot of people reset their expectations for economic growth. if you remember the recession
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we had here, the first time we had growth again people thought it was great. it was anemic growth but people thought it was great. if you asked them five years ago, would you be happy with the kind of growth we had in 2002? no, they would have said that was terrible. expectations reset over time, and if you are not diligent about recrafting sanctions as time goes on, then your pressure is going to -- your pressure is going to decrease. matthew: sergey, let me ask you one relatively small question and then maybe a bigger one, which is not small in its nswer. laettner 2014, russia imposed countersanctions from the u.s. and europe, i guess from other countries that were imposing these sanctions. first of all, what was the impact on that on the russian economy? that might antidotally, i hear that's a problem for russians being able to access reasonable prices, commodity products and
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so forth. has there been that rebound effect? that's the narrower question. the broader one, what -- maybe you hinted in your answer, what would have actually had more impact on the economy and economic behavior? later, i will ask you about the political impact of all that. first trying to get at the economics of this. sergey: immediately after the sanctions, the western sanctions were imposed, july, eginning of august, 2014, president putin announced russia will impose countersanctions. and it was a storm raised in the kremlin, but he is that russia can do nothing to harm the western economy and western markets. he solution that was chosen in russia called to -- banish all people and kremlin decided to
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ban the import of food from european countries, from the united states, from australia, new zealand and canada. fact, that was a real disaster for the russian consumer market because russia is a country that's the xporter number one of grain. other products, more and more plants, vegetables, fruit, they don't grow at all. it was banned. prices jumped. as a result, in 2014 -- in 2015, 2014, the very specific interest rate for the russia food industry flourished. it is called the production of cheese product. cheese product is a very specific product. it's not cheese. it's based on oil. it was sold in the russian supermarkets as a substitution
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for cheese. purchase something else. not cheese. artificial food. definitely, definitely it was not good. it was not good for the health of the russian nation, but as well as it was not a hard -- it was a real harm for eastern european countries. lithuania, latvia, poland and finland, export of agriculture products on russia, but in two years, they substituted this from russia to other countries so it was not very strong. . i had to endure that the subject of there is no one sanction imposed on russia. it is on banks, on companies.
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in my mind, ukraine became more expensive -- it is not true. if you look at the financial markets, interest rates went down, and interest rates were up. they went down as well. for a very short period of time. maybe six quarters. it was restricted but not impossible. now it might be cheaper than it was in 2015 for russia. i think more systemic pressure on the russian economy would be the results of the ban on trade. >> domesticyes. debt? >>because it is very important that of a moment, you have the russia domestic debt, and building the sanction, no less than 75% of nearly issued domestic debt in rubles.
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so to allow them to borrow in rubles -- that made sense. and i believe it would be much more systemic before would create pressure on the federal budget, on the interest rate, nd on the whole. matthew: and there would be no real alternative for russia to replace that. sergey: no russia was not able to borrow. russia was very interested in borrowing in the foreign central market. in the first half of 2016, they attempted to do it, but the institutions refused. they tried it again in the second half of 2016. ooking more for finance.
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they are not able to borrow domestically. hat else can you do? elizabeth: i want to jump in and talk a little bit about the energy sector. it is one proxy example, if you will, to respond to the point that you are making, actually, the push back when it comes to whether or not these measures had an effect on the russia economy. there is certainly a very strong narrative. you have given a number of points, suggesting that in fact it did not have overwhelming or profound economic effect, but actually i want to try to make the case that it did have a very significant effect in a couple of respects when it comes to the -- i will use the energy industry as a case. the 2014 measures, the sanctions aimed at energy -- the energy
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industry in a couple respects. first, the financial piece of this, if you will, restricting access to capital in the european and u.s. markets. that was designed to have a nearer term impacts, because understanding that a number of these state firms had debt -- a very sizable debt load that needed resurfacing, probably in the markets. that was plan a. early on, within the first year f the sanctions. secondly, the measures that have been described, aiming at what we might call the horizon energy technologies, which is to say the ones that will unlock, difficult to access hydrocarbon reserves, and deep water, offshore, or what's called shale, refers to a particular
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nd of low porocity hard to access rock. in some places, like the united states, there is an awful lot of that going on right now. the rest of the world is much more nascent. that definitely has a longer-term effects, not immediate. ndeed, there has been a more limited effect, but it does not mean it does not have a significant shaping effect to the industry, even while if you look at some indicators for the industry, they are very strong. russia has expanded production in oil, and hydrocarbons, over the last several years. during the oil price collapse, few others in the world were making the kind of investments that russia had. it was very strong and had taken an even stronger, formidable role, in energy, geopolitics,
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and pressuring opec, etc. on the face of it it looks like sanctions didn't rattle them whatsoever. there is ample support from the central government to help those major russian companies with an external debt load to manage through resurfacing the debt without getting stuck. some people tell a positive story that in fact one of the things that these restrictions did was very helpfully encouraged a number of major russian energy companies to pull back from speculative expensive projects that weren't doing any good on their balance sheet, to focus on more core areas where there's more competency, and cheaper and easier to access hydrocarbons. so that story, it did not hurt them. if you look a little bit longer and think about whether russia will be able to keep up with this massive production expansion, there are a number of
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true russian energy industry among , titanium company them, who has pointed out that he focus on indigenous technology or capacity in an array of sectors, not just in agriculture, as a kind of and se nationalistic politically necessary response to thee sanctions, may be ok now. now, but russian companies, energy, service firms, do not have the assets -- they are developing them -- but they do not have the necessary assets to be able to keep up with the harder and harder to unlock energy reservoirs that russia will needle tole get to sustain this energy production capacity. when you getting out toward 2025
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and beyond, there may be a very meaningful decline in russia's ability to produce hydrocarbons and sustain its production rowth. and for this resource economy, that is an important, though not immediate, indicator of economic strength. one other thing i will just say is --, who has partnered with the lng project, which has managed through these sanctions, by turning to another chinese financing, and i brought a little quote along with me, he was saying they are the first to find financing in china, quote, project financing was quite difficult, even to educate the chinese banking system about what project finance means, how you structure it. but at the end of the day we discovered it is possible to finance the project without using dollars.
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the day, we discovered it was possible to finance the project using dollars, so there's success but there is some cost. not only literally but also in the number of having to turn to an entirely different market for the kind of mega project financing necessary if russia wants to continue with that major joint venture in hydrocarbon production. matthew: you may rebut. sergey: please. it would be great if the u.s. treasury would be so consistent in its policy, targeting sanctions, after 2025. it's not the policy. it may decline after 2025, then sanctions do not do harm today. it is so simple. nobody knows what will happen. maybe putin will not be president. matthew: you're saying it is too far out to be speculative. sergey: yes.
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10 years ago, there were predictions that there will be declines of oil in russia in 2015. now, ok, not 2015, 2025. nobody knows. ou cannot predict. today, all major companies, they failed to increase productivity in oil fuels. and the increase in oil production is due to oil fuels but not to new developers. they do it in western siberia. elizabeth: there is actually a lot of greenfield energy production in the last couple of years. ot brownfield. sergey: it is this idea where the productivity is not as eager to replace. elizabeth: it is a hot topic. matthew: we will need another panel, another event. let me ask dave another question, which is this issue of
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-- i do not know if you put it in a bucket of unintended consequences, but the challenges of implementing spillovers, jobs, i am thinking of a bunch of things. there is the issue of coordination with the eu, but some of these sanctions hit other allies or partners directly or indirectly. i see general mattis is trying to get a waiver for arms sales to india that come from russia under some of this. that sort of evokes this problem of, again, maybe not unknown, but not intended consequences. how do you balance all of that, and in the financial system as well? david: of course there were unintended consequences of the sanctions. this is one of the challenges in sanctioning russia. we have a number of allies who are dependent on russia, whether it is technology or for nergy.
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that is a vulnerability for us. it is a vulnerability for our national security policy. it is a vulnerability for our allies, although i am not sure that they perceive it at the same way that we do, necessarily. it is incredibly challenging designing a project, because you want effective in the near term, you want to see some return in the sanctions space, but you want something you are prepared to live with into perpetuity. you cannot impose sanctions to try to change someone's behavior and then decide you are going to roll back sanctions unless that behavior is changed. it undermines the credibility not just of the sanctions program but of the sanctions tool just in general. it is an incredible challenge to try to navigate around all of this. i mean, it is one of the reasons -- one of the conditions we
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really looked for when we designed a sanctions policy, and -- was a broad based consensus and getting to a place where there were going to be common rules. you know, one, it is so much easier for the financial system to implement. it is much more efficient. two, you avoid conflicts like this where you have an ally who has a hard time giving of the -- up the things you're going to sanction, saying i have a conflict with the ally. and three, i mean, it prevents opportunity for background. it gives you better chances. matthew: so again, i want to follow up, and you can answer, too, but i want to ask this question, first. one unintended consequences long-term that they designed workarounds, longer-term issues about the payment systems, setting up their own commodity
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exchanges or financial systems more broadly, maybe setting up their own credit rating companies and various other parts of the story that are ultimately affected by or initially affected by our sanctions. the current issue of "the conomist" actually has a piece about the missile sanctions on the chinese company gte saying they have been very powerful in one sense, but the very last of the story says "america's use of its new weapons simultaneously demonstrates its power and will hasten its decline," meaning that the u.s. will be increasingly finding it more difficult to use mechanisms that alternative payment systems, the dollar may not be used in the same way that it has been.
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those sort of bigger picture, longer-term implications, are those things we should worry about? and how do you balance that with an immediate need to deal with the bad behavior? elizabeth: i think answering this question is one of the first bullets i see in my job description. i love this question, and i think it is important. there are a couple of things, and i will come back to this in one second, but that we should think about, the implications of the u.s. reaching for this maximum pressure sanctions approach across the board now, turning to this as a tool of first resort. there are some concerns about the sustainability. but there is a second question, which maybe "the economist" may r may not have pointed to, but -- if you expect the comment that in fact such intensive use may be diminishing their
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availability with respect to russia or anything else, do you then, a, double down and use up this authority while you've got it in order to advance your agenda? or do you fry and exercise your strength -- try and exercisor strength and encourage other people to exercise the strength so you preserve the ability to reach for this tool for as long as possible? that is an interesting question, which current policymakers should very seriously consider. s far as the earlier part of your question, as far as what are the earlier implications, for as long as the u.s. has a really broad jurisdiction or broadly understood jurisdiction, then it will have a really powerful use of sanctions as tools. it may relate to getting after
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russian malign actors as this administration has called them short han, or anything else. so that means you're seeing a diminishing to the dollar, that is in the jurisdiction, or maybe think about evolution in the signature technologies, such as distributed by your system where certain value transfers may live outside of u.s. jurisdiction. in fact, they do not live neatly in anyone's jurisdiction, particularly if regulators struggle to understand how to regulate and demand some transparency around this. that also will diminish. i think also that may be the most significant near-term concern about the diminishing u.s. jurisdiction and what that means about the ability of u.s. sanctions. in the russia case, actually, there are many powerful, globally networked individuals,
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close to the kremlin or not, that we have taken now to just referring to as owe lig arcs -- oligarchs, which may or may not be fair to the russian political elite. one interesting take away that i have had from watching the progression of russia's sanctions, including the april ups is that i was sort of expecting that this class of -- elise class -- elite class of political actors would have shielded themselves more from the recent u.s. sanctions than they apparently did, which is one of the reasons why the april measures went over like a load of bricks. of bricks, and in fact had an enormous effect, i think more than the u.s. treasury had anticipated. but just to use vernacular here, an utter freak out of the aluminum sktor and people in
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hong kong and all over the world were electrified by the effect of these things. and a sincere growing fear about where they could then go next. i was expecting that there might have been this cadre of very well lawyered economic and political elites that would have shielded their assets more. matthew: interesting. i will get to the audience soon, and i want to ask sergey to segue into the next session, but first, two of you have worked at treasury on these issues. i'm interested -- and you both alluded to it in passing and one with or another -- but there is a process to how this is done, and to what extent treasury does is on its own, it to what extent it is working with state and other agencies that may have different perspective. i know generally something about interagency coordination, but on the side of the issue, how easy
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or difficult is it to get alignment? is it really an issue, either ne of you? david: i will let you take it. elizabeth: it is different from administration to administration, and this administration is different from the last three, which all were real sanctions cheerleaders. this is just my outside observation, because dave worked in and under an administration. i did not. so we should hear from him on this. it does seem as though the amount of interagency coordination is a bit slimmer, and the treasury department -- it has the point and power to act independently, but one thing that they mean is an absence of a stronger interagency process, this maybe uncharitable, but i will say it never the less,
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perhaps the commerce department may have gotten ahead of some of the economic fallout from the april designation if there had been better interagency coordination. it does not look that way from the outside. so that is a challenge. and also given that there is very limited and noninstitutionalized systems for re-announcement consultation with the private sector on sanctions, and you know, what is going to happen, who will get affected, what is it going to do with the markets, can we live with this, how do we adopt it? if the interagency process is not working very well, and given it's already informal and limited amount of field testing you can do beforehand, it means that there's -- it will be a lot more turbulent in the rest of this administration. matthew: will you answer, dave, but to that point of privacy
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interaction, treasury has privacy constituency and the financial sector but not in the broader businesses sector. how do you -- i want to ask a whole range of questions about the private sector implications of all of this, but to what extent do you interact with the private sector or through other agencies and try to mediate those views? david: again, there are other agencies around the table. the state department has a lot of conversations with u.s. citizens. what kind of footprint u.s. businesses have around the world. the commerce department is certainly having conversations with u.s. businesses, and they -- the defense department has also a good sense of these things because it has a worldwide procurement network. those agencies provide input. i agree that it appears the treasury department has had a freer hand in sanctions policy
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than it has in past administrations. the april 6 designation package was significant. escalation. if you just look at the targets who were hit, but if you also look at what was used. i often talk to the debt and equity restriction under the sanctions authority -- that was already done, restrictive borrowing and it restricted field of equity, purchasing equity by u.s. persons, and it had unrestricted technology to the energy sector. in this round of sanctions, they used that same authority to block, to prohibit any kind of transaction with the people who it named. and anything they owned which is how we ended up. that coordination is very important.
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and then you should be able to predict what the impact of your action is going to be. matthew: ok. again, much more to talk about there, but let me ask sergey you about a bigger question them the political economy about this in russia. putin was reinaugurated today, but over the weekend, there were protests across russia. people were arrested. it seems as if there is some unhappiness in russia with putin. my question is -- to what extent is that a result of economic factors versus other factors, and within the economic, to what extent are saxes -- sanctions a part of that, or to the contrary are sanctions helpful to him because he's able to say i'm pushing back against these outsiders who are trying to pray us down? sergey: it is a completely different topic to discuss russia's political situation,
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but in russia, they had on the same day 100 cities of russia, and many of those were youngsters, people for maybe 15 to 25. they do not understand the real economy. usually they are students, a school, high school, plus they are not business owners, so they assess the sanctions. these sanctions situation is bad for putin because the poverty evel is very high. also, russian people say the most important problem is poverty. those protests that happened yesterday, they have their freedom of speech, economic
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value, right to elect a new leader, change it into power. they are not links to economic trouble. while the poverty is an economic problem, it is a problem for a art of elder people. in fact, half of russia they have no savings. they do not know how the dollar will look like. they are affected by sanctions. they are affected by budget, sanctions, but they do not depend on the economy, and they believe that putin has affected hem. so i do think all in all, i do not anticipate any fallouts because of the economic situation in the short term. what we see is not links to the economy. while in the immediate round, putin was able to get public support saying if these are sanctions, this is the west against russia.
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this is why we need to protect our motherland. so if we talk about sanctions and domestic policy, it is quite opposite. it helps putin. because pressure of sanctions is weak and people do not feel it, economy does not suffer. while putin can use it in his propaganda. matthew: ok, well, we have laid out a smorgasbord, the russian equivalent of a smorgasbord -- i am sure there is such a thing -- with a few little treats on it, so you get to choose what you pick. if you have a question, please raise your hand and wait for the microphone. if you would identify yourself, the gentleman in the front row has a question, and then the lady over there. mike: hi, mike from radio free urope. last week we saw reports that someone had approached the kremlin for some sort of
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financial support as fallout from the sanctions. he follows and seek some sort of state report. matthew: targets, the oligarch. mike: correct. the head of the power machine. what do you think of that now that we have three prominent business leaders seeking state support for their companies, and you anticipate more that sort, billionaires showing a pattern of looking for some sort of support from the kremlin? sergey: of course, it is a table that you can never exit. putin does need to support russian oligarchs. they support putin because they can benefit from commodities and raw materials.
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they need to support the putin regime, because they can benefit from the commodity is, raw materials. putin has the most rated that he is ready to spend public money to help oligarchs as well. russia has dedicated something like $15 billion -- by this time, a significant amount of money, more than 1% of russia gdp -- to help russian oligarchs. when sanctions were introduced said 14, russia partly i- they may deduct personal income tax and be refunded by the treasury. in this situation, where the sanctions were more targeted on the owner of every known company, and the power generation companies of russia, putin said "we will help you," if you are a business owner and the president of russia says "we will help you," what is -- you have to ask much more than you receive.
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that is the game. i am sure that these new sanctions will be important, individual sanctions, on oligarchs. oligarchs will play for money. it doesn't mean putin gives them everything. it may be peanuts, but the power machine, if the company power machine equipment for the crimea region, the owner -- there is a big steel company in russia, and that steel company has a senior in the united states, and his company signed a letter, if you will not remove it from russian steel to the united states, we will close it in the united tates. power machines is on par with general electric in the whole world.
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it has much more leverage in the country. i would of course be loyal to putin in any situation. maybe he will help. matthew: ok, thanks. yes, ma'am. could you identify yourself, please? courtney: courtney leach, i'm from the overseas security advisory council. i'm just wondering, will fifa be in either the short or long term be considered a work around with sports? matthew: the football association? courtney: yes, the game. matthew: because russia is hosting the world cup. i'm sorry, what is the uestion? courtney: working with other conglomerates, would that be a
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work around regarding these sanctions? david: with respect to the american sponsors, none of the money from the american sponsors can flow through, because that would be a prohibited transaction, affecting it directly. you are talking about bigger numbers than they can make up for with the world cup. david: ok. any other reaction? yes, ma'am. there is a woman in blue there. >> thanks very much. my question is with whoever previous opec experience wants to address treasury experience, there is talk already we saw in the ache sanctions really shocking the aluminum market, t there were others also
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identified in april. and i'm wondering in a situation, if gaz were to go to treasury and seek a license extension or even removal from the list, is that something that treasury might be inclined to look more favorably upon given the experience, or are they really sort of a special exception? elizabeth: i will speculate on that. sergey: let me extend the question. matthew: ok. sergey: it is not about gas production, but it is likely about two swiss companies. one had 63% of shares.
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it is sold 60% of its shares to the company. and owned 48.8 percent of the company. and ok, this company, let's leave this company out. indirectly, 48.8%. matthew: you do not have to add a specific question about policy, just in terms of the approach. elizabeth: i think this is interesting, where you're coming from in this question, it goes in an interesting direction. one way to think about this is, well, who was approaching the u.s. treasury department to ask guidance, a tional path towards relief, if not elief itself, and maybe even requesting a specific set of
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actions that could facilitate removal from removal which is what the treasury secretary offered. matthew: special designated names. elizabeth: national. matthew: national. elizabeth: ok, so who came to the u.s. government and asked for relief? if you are talking about it publicly traded company, then you have a lot of lobbyists for you get entangled in all of this and have their own interests, having nothing to do with the particular commercial leaders of his company. they want to know how they can proceed without finding themselves crossways with u.s. sanctions. and if they can sell of their interests, they did not want to
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have to be charged with materially enriching someone who was on the list. then the liability extends to them, etc. when you go after a publicly traded company, suddenly all of this -- anyone who has an interest in this may become a kind of lobbyist for you. that is not the case when you are talking about a privately held company or a smaller institution where the set of potential lobbyists is smaller. it is not necessarily the case that everyone who makes it on he list, particularly in europe who have close connections to european political leaders who are simultaneously having many extensive difficult conversations with u.s. leaders about their concerns over tariffs, in particular, their hand wringing and concerns about nuke leear armed proliferation and the iran deal, and the way the russia sanctions also lined up squeezing them in ncomfortable ways.
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you are lobbying for a different entity. another interesting take away from this question is, how people think about ownership and control and the risk appetite they have for continuing to bank someone who suddenly has less than a 50% stake in a designated company. so there's -- are banks or are lawyers going to look at a situation where someone has an interest but not a majority interest, and think differently about what they can tolerate or how they would interpret ownership or control? which usually, if that can be -- if that label can be on you, you may get stuck with the liability for having been connected to someone on the sanctions blacklist. i think it will change the way people think about that. from a legal and compliance perspective, or geopolitical
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risk perspective, that could mean really big things for the sanctions program. matthew: david? david: i think it is licensing. rusal licensing was not to the benefit of rusal. that licensing was done for the benefit of a bona fide third-party who had access to rusal or have plans to get the -- slies from rusal, and the u.s. government wanted to give them a wigger window to line up -- bigger window to line up a new supply. the bigger thing for rusal was also bigger for them, which is if the bigger person gets to purchase from them, from opec, for example it's an arm's length transaction, they won't get the immediate benefit of the sale of their shares, that would also be a path forward.
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matthew: ok. all right. other questions? i thought i saw a hand, but is everybody shy, or did we answer everything? i cannot believe that. the question of -- i want to go back to something we were talking about very early on. um. but now i cannot remember what it was. did you, liz, have a chance to answer this question about the impact on allies and partners on the sanctions and how you sort of mediate that? i would be interested in a little more ewill be budget reconciliation of that because that does seem to be a major sticking point in actually being able to effectively carry out sanctions. elizabeth: it absolutely is respective of sanctions, and we are headed into a really
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challenging new unprecedented period, i would venture, when it comes to brand-new conflict of law problems. we mentioned this before, so you have a company that gets saddled with your sanctions and that exists legally in the united states and elsewhere, and they are not exactly sure how to proceed, and maybe if they are big enough, powerful enough, they can send their own representatives to talk to the united states government, or there are third parties who may go and have a benefit for the designated entity, and that can work if the u.s. government decides to do that in its interest, to give that relief. usually ofac and the u.s. government says we're only here for u.s. legal persons, natural persons, we're actually only going to help you and give you guidance if you are incorporated in the united states or you are
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a u.s. citizen or you fit the definition of a u.s. person. if you are some german or south korean company, then we are busy, you know. watch the website. good luck and be careful. it has the effect of scaring people and making it really confusing. so hopefully this treasury department and this administration will decide to see it in its interest to offer advice and legal guidance and clarity to some of these non-u.s. persons because there are a lot of these problems where companies get stuck between u.s. law or eu law, and they do not know how to proceed. i think we will see a lot more of that when it comes to russia, because looking forward, i do hink this administration -- we weren't sure at physical whether it was going to wind back russia
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sanctions or wind them up. turns out it was hard to predict, diplomats, laying on your sanctions, looking past the midterms, i do think if one of the houses in the u.s. congress flips, there will be a much more -- an accelerated interest, which is already pretty strong, to adopt more russia sanctions, one, because many legislators think that that's good policy. two, because they want to course correct or add their two cents into what the administration is doing. and three, because they want to make the administration, and the president in particular, bear the political cost of not being serious enough on russia for policy. which would mean a problem between the united states and its allies, if it comes to a conflict, and sanctions get much worse, because that german or that south korean company cannot go to u.s. congress and say how are you going to interpret and enforce me in this?
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-- enforcement on this? matthew: way will air from senator cardin later, and we may hear a touch on this. there is a lady in the back. before you ask your question, i want to ask you about alexei-s kudrin, who may be coming back in some senior role. he seems to have a close relationship with putin, but here may be a few that he is -- there may be a view that he may be brought in to try to reach out and resolve some of these issues s that your understanding? or worked with him. yes, ma'am. >> good afternoon. my question is about the international monetary fund, the imf, of which russia is a member, the u.s. is a member, and all of the 180 some countries. what is the official position of
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the imf on sanctions imposed by one powerful member on another? matthew: that is a good question. maybe sergey, or does anyone know the answer to that, what is the imf position? sergey: there is no way of knowing the imf official position on sanctions. it is a ban on the administration by the u.s. and company. it is not a violation of any nternational law, because it prohibits doing it for its own ntities. you may say a violation, but i wonder, can can they plame, you violate -- blame, you can violate something.
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matthew: whether it can or not, it seems unlikely that it is going to. sergey: in today's russia, you may either be a member of putin's team and follow his narrative or be out of putin's team and be out of his narrative. -- and be independent person. if you decide to be in putin's team, you follow this narrative. were we at war with the united states, we have sanctions, we have not invaded ukraine, and we have not violated any agreement. if the west wants to remove sanctions, please do it. we have to adjust ourselves to the sanctions. sanctions is an environment. mr. putin do not fight foreign policy. mr. putin do not touch freedom of speech. you can do whatever you want in the democratic economic reform, nd you may get some results.
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that is if you join his administration. matthew: i get that, but on the just economic stuff, is to going to do something that is helpful? he seems to have some interesting ideas about reform. sergey: you have a car with a broken engine. as well you have broken glass. repairing glass will help you, yes, of course. putin will repair glass and leave something else but not the engine. matthew: that is a good metaphor. to end with. we'll take a break here for literally 10 minutes and 32 seconds, i think. 2:30 you need to be back here. in the meantime, if you can join me in thanking this wonderful panel. there is a lot more to cover, but thank you, guys. [applause] [captions copyright national cable satellite corp. 2018] [captioning performed by the national captioning institute,
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which is responsible for its caption content and accuracy. visit] >> c-span, where history unfolds daily. in 1979, c-span was created as a public service by america's cable television companies.
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and today we continue to bring you unfiltered coverage of congress, the white house, the supreme court, and public policy events in washington, d.c., and around the country. c-span is brought to you by your cable or satellite provider. >> president trump will announce his decision regarding the iran nuke leear deal this afternoon. -- nuclear deal this afternoon. "the new york times" reporting president trump's told president macron of france this morning, he plans to draw the united states from the iran nuclear deal. we'll have live coverage live when it comes on c-span2. u.s. house is in recess at the moment. they will be back at noon eastern. members will consider a rule governing three measures. and a bill requiring a pretrial services report. both of which will be completed tomorrow. and one disapproving an obama
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era consumer protection board auto finance bill. also today, seven small business related measures. more live house coverage when the gavel comes down. next right here on c-span. and to get us to the house, live coverage at the top of the hour, here's a look at some of the primary elections taking place today. o be marked democrat or republican. host: now we go to the hoosier chrissie thompson joining us from the "cincinnati inquirer. " take us to the senate race in indiana. how vulnerable is the joe donnelly consider this fall? guest: i am actually joining you from ohio from the "cincinnati inquirer." i am a native hoosier, so i can talk and little bit about joe donnelly. host: [laughs] yes, talk to us about sherrod brown and the buckeye state.


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