The Biden administration is ramping up its efforts to hold Russia accountable for its invasion of Ukraine in February 2022. On Friday, President Joe Biden will sign an executive order that empowers the United States to impose sanctions on financial institutions that aid Russia in evading existing sanctions. U.S. Treasury Secretary Janet Yellen announced this new measure, emphasizing the administration’s commitment to using “new and powerful tools” against Russia’s war machine.
This executive order not only targets financial institutions but also grants the U.S. the authority to ban products that originate in Russia but are processed in third countries. Examples of such products include seafood and diamonds. By expanding the scope of the crackdown, the Biden administration hopes to effectively disrupt Russia’s ongoing activities and weaken its defense sector.
Senior administration officials have made it clear that financial institutions must make a pivotal decision: either cease allowing their companies to export components and goods to the Russian defense sector or face severe consequences in the form of significant sanctions. The U.S. and its allies, including the European Union and Britain, have been imposing sanctions on Russia since its invasion of Ukraine, targeting key figures like Russian President Vladimir Putin, the financial sector, and numerous oligarchs.
It is important to note that this executive order is not a unilateral action by the United States. Instead, it is issued in coordination with allies who share the Biden administration’s commitment to holding Russia accountable. This collective effort demonstrates a united front against Russia’s destabilizing actions and increases the effectiveness of the imposed sanctions.
The United States has repeatedly advised companies against evading U.S. sanctions imposed on Russia. U.S. officials have even traveled to countries like Turkey and the United Arab Emirates to caution businesses that engaging with entities subject to U.S. curbs could result in losing access to G7 markets. Furthermore, the U.S. has targeted firms in various countries that have been accused of assisting Russia in circumventing the imposed measures.
Senior U.S. officials have highlighted the significant impact of the initial round of sanctions and export controls. As a result of these measures, Russia’s economy is now 5% smaller than anticipated prior to the war, and the country is grappling with a benchmark interest rate of 16%. However, despite these successes, it has become evident that the financial system is the primary “choke point” for companies and Russia’s attempts to evade sanctions.
To further hinder Russia’s evasion tactics, the new executive order equips the U.S. Treasury and its allies with additional tools to target the networks and front companies established by Moscow. These entities are used as intermediaries to circumvent sanctions. By exposing and targeting them, the Biden administration seeks to tighten its control on Russia’s illicit activities.
Once President Joe Biden officially signs the executive order, its provisions will go into effect immediately. However, senior officials have stated that they are not aware of any U.S. or European institutions currently in violation of the order. Most U.S. and European firms have already significantly scaled back their business with Russia, aligning with the administration’s objectives. Compliance with the order is crucial for financial institutions to avoid severe sanctions and maintain access to global markets.
In addition to financial institutions’ scrutiny, the executive order enables Washington to ban products that are “substantially transformed” outside of Russia, including diamonds. This measure aligns with the recent decision of the Group of Seven countries to directly ban Russian diamonds starting January 1st, followed by phased-in restrictions on indirect imports from around March 1st. While the United States has already prohibited the direct import of non-industrial Russian diamonds, this new order extends the ban to encompass Russian-origin diamonds processed outside the country.
The Biden administration’s new executive order demonstrates a strong commitment to combatting Russia’s war machine by cracking down on sanctions evasion. By targeting financial institutions and expanding the ban on certain products, including diamonds, the U.S. aims to disrupt Russia’s activities and weaken its defense sector. Through collaboration with allies and a warning to businesses, the administration seeks compliance and alignment with the imposed sanctions. With immediate effect, the executive order equips the Treasury and its allies with new tools to expose and target Russia’s networks. This comprehensive approach aims to hold Russia accountable and maintain pressure on its destabilizing actions.
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