Economic pressure on Putin mounts

One month after the Russian president Vladimir PutinVladimir Vladimirovich PutinPentagon: Russia has lost partial control of the first captured Ukrainian city Ukraine, Taiwan, the Koreas: Is the world leaning towards big wars? Russian Ambassador Files Lawsuit Against Italian Newspaper Over Article Suggesting Putin’s Death MOREUkraine’s horrible war against Ukraine, the Russian strongman has turned his country into a pariah state on a par with Iran and North Korea. We should sanction the Kremlin the same way we sanction those other rogue regimes, isolating Russia and disconnecting it from the global economy. The Biden administration deserves credit for helping Ukrainian President Volodymyr Zelensky mobilize international partners and for announcing several initial sanctions. But so far the White House has settled for a series of half measures and has yet to unleash the full potential of US economic might.

This is what should happen next.

First, the administration should implement crippling sanctions across Russia’s financial services sector and pressure SWIFT, the Society for Worldwide Interbank Financial Telecommunications, to pull the plug on all banks in the country. So far, the White House has imposed fairly modest sanctions on the country’s central bank (even that was reportedly done at the behest of the Canadian government) and a handful of commercial banks, mostly owned or controlled by the government. There is much less here than meets the eye, and Putin has plenty of loopholes to exploit.

With most of Russia’s biggest banks still connected to the international financial system, Putin’s bankers are playing a shell game, moving money around, replenishing foreign currency reserves and propping up the value of the ruble. We need to sanction the entire banking industry, not just a handful of selected targets. We must also impose blockade sanctions, whereby US banks must freeze funds and property associated with designated institutions. And we should authorize secondary sanctions on any foreign party that colludes with these sanctioned banks, to deter others from helping Russia evade our actions and impose consequences on those who do.

Secondly, to truly cripple Russia’s economy, we should target its energy industry, which represents some 63 percent of Russian exports. Germany’s suspension of Nord Stream 2 and President BidenJoe BidenDefense & National Security: Russia’s Tenuous Grip Slips On Money: Biden’s Economic Approval Falls Deeper Balance/Sustainability: US Agency Killed 400,000 Native Animals in 2021 MOREThe decision to ban US imports of Russian oil are welcome steps. But the administration made a huge mistake by expressly exempting all energy payments from US sanctions. Protecting Russian energy only rewards Putin’s strategy of using oil and gas to blackmail Europe; invite more of the same. It also means that consumers in Europe and elsewhere continue to subsidize the Russian bombs that are reducing Ukrainian cities to rubble.

We understand the reluctance to pressure Germany and other EU members on energy imports. But there is a compromise available if the White House simply takes a page from the playbook that the previous two administrations used to great effect against Iran. In exchange for not being sanctioned by the US, countries that persist in buying Russian energy should be forced to deposit payments in frozen escrow accounts, cutting off the flow of hard currency back to Moscow. The deposited funds could only be used for the Russian purchase of local goods or, better yet, kept in reserve to pay reparations and rebuild Ukraine after the war.

Third, we must eliminate Russia’s trade surplus, because that is what is filling Putin’s war chest. In addition to energy, we must impose broad sectoral sanctions on other key industries, including minerals and metals, machinery and equipment, chemicals, and timber. This effective embargo on Russia’s hard-currency-earning exports would cripple the engines of the Russian economy and present Putin and his cronies with a stark choice: cease their ruinous war or see the Russian economy itself reduced to shambles.

These sanctions will undoubtedly have consequences for Western economies, in particular for those European countries that have allowed themselves to become dangerously dependent on Russian energy. We can offset some of that damage by increasing US oil and gas production, encouraging energy-rich partners in the Gulf to do the same, and developing alternative supply chains for materials from Russia. In any case, the US and Europe have economies that are larger, more diversified, and more resilient to shocks. We are better positioned to weather an economic storm.

Finally, the administration has begun sanctioning a handful of Putin cronies, mostly following the lead of the UK and the EU. Stronger action is needed to deny Russian oligarchs safe financial havens abroad. We should impose drastic sanctions on Putin’s family and those in his inner circle, to prevent them from hiding the money they have looted from the Russian people in prosperous and stable Western economies.

The frozen assets must be seized through legal processes and used to rebuild Ukraine. We should also revoke the visas of the Putinists, preventing them from traveling to our countries. No more luxury properties in Miami or Aspen. No more weekend getaways to New York.

Mild sanctions have not induced Putin’s restraint on the battlefield. Instead, he has escalated dramatically, launching scorched earth attacks on civilian targets like maternity hospitals and a theater housing civilians (clearly marked with the word “children”). Biden says the sanctions he has announced will take several months to take effect. Ukraine does not have so much time. In the face of Russia’s war crimes, the time for half measures is over. We must use the most powerful economic weapons in our arsenal, and we must use them now. We need to do to Putin’s economy what he is doing to Mariupol.

Former Ambassador Nathan A. Sales served in the Trump administration as Ambassador-at-Large and Counterterrorism Coordinator, as well as Acting Assistant Secretary of State for Civilian Security, Democracy and Human Rights, among other roles. He is a non-resident senior member of the Atlantic Council.

Marshall Billingslea was chairman of the Financial Action Task Force and undersecretary of the Treasury for Terrorist Financing in the Trump administration. He is a senior fellow at the Hudson Institute.

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