Markets Wired

As Prepared for Delivery

Good afternoon and thank you to the American Chamber of Commerce Vienna for bringing this group of business leaders together to discuss the effects of sanctions on Russia and our strategic priorities to deny Vladimir Putin the revenue and supplies he needs to continue his unjust war against Ukraine.

The multilateral sanctions regime on Russia is complex. Businesses have had to adapt quickly. But this event today is an example of how our economic measures have been so successful thus far: close collaboration not only between allies and partners, but also between governments and the private sector.

Our coalition relies on your efforts to make our sanctions work. That’s why I’m grateful for opportunities like this, to engage in open and frank discussion about successes, challenges, and best practices to ensure that economic measures continue to disrupt and degrade Russia’s ability to prosecute its war against Ukraine.

We know that sanctions and export controls are having a greater effect than Putin could have imagined. A few key metrics:

– Russia saw the second highest deficit in its post-war history last year, with sizable fiscal deficits persisting through the first part of this year.

-Thanks in part to the price cap and sanctions, Russian budget revenue from oil and gas – their most important source of revenue – fell by more than 40% in January and February compared to last year.

-Russia spent more than $35 billion from the National Wealth Fund in December alone to cover its deficits.

-We have significantly degraded Russia’s military-industrial complex and defense supply chains, caused its advanced manufacturing industries to fall behind, and clouded its macroeconomic outlook.

As these measures continue to bite, I want to share a little more about next steps and how we are ramping up our efforts to choke off Russia from key inputs for its military industries, including by cracking down on sanctions evasion.

One of the ways we know sanctions and export controls are working is that the Kremlin has tasked its intelligence services with finding ways to circumvent them to replace what’s been lost.

Right now, Russia has lost over 9,000 pieces of equipment on the battlefield and is struggling to replace them.In the face of intelligence-run sanctions evasion efforts, we are only as strong as our weakest links. 

Senior Treasury officials are traveling all over the world this month to convey how critical it is at this moment not to let our guards down, but rather to increase our vigilance. Together, we can stem the flow of defense-related and dual-use goods to Russia by targeting evasion.

For our part, Treasury is increasingly targeting sanctions evaders and illicit procurement networks that are attempting to circumvent U.S. and multilateral sanctions on Russia. We are tightening the vice everywhere – in fact, an evasion-focused action we took last week had touchpoints in over twenty jurisdictions.

As we continue this campaign, those who facilitate sanctions evasion and Russian defense procurement will increasingly attempt to obfuscate their activities. We must remain on alert for both familiar and novel tactics, from money laundering typologies to fraud to other deceptive practices.

We need to hear from you about what your firms are seeing in this space, and how you are managing the overlapping sanctions evasion risks, money laundering and fraud risks, and export controls requirements.

As you know, much of this risk involves transshipment and intermediated trade and financial flows with third countries. Treasury is prioritizing monitoring and engagement with countries where we observe Kremlin-linked actors seeking to use those countries’ financial systems or trade infrastructure to evade sanctions, and we are using data on trade flows and financial connections to identify and close vulnerabilities.

This is of course a complex challenge. While we support increased scrutiny, we also want to ensure that jurisdictions are not subject to unnecessary de-risking, which could have significant unintended economic and financial consequences, especially in smaller jurisdictions.

Our intent is to share information with you to help your compliance teams hone their own efforts to mitigate the highest risk activity, rather than broadly de-risking. We know that risk assessments are not a science, and that risk professionals often must prioritize among many factors.

Your firms should be carefully communicating with your financial and trade counterparts in jurisdictions that are at higher risk for evasion of Russia sanctions. Vigilance against sanctions evasion needs to occur at every step of the value chain.

In addition to your own controls, you need to understand how your counterparties have enhanced their processes and procedures to avoid supporting trade of weapons or dual-use goods to Russia, which in turn increases your own compliance and reputational risk. Again, our intent is to promote effective due diligence; not wholesale de-risking.

As I said at the outset, we are grateful for your efforts and the efforts of your compliance professionals to implement the multilateral sanctions and export controls on Russia. 

I’m here today because I want to hear your insights, your feedback, and your questions, particularly if there are specific types of information that government authorities can provide to support your efforts.

With that, I look forward to our discussion.

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