President Joe Biden on Friday signed an executive order allowing the U.S. to impose another level of sanction enforcement on Russia that will go after financial institutions that have indirectly allowed Russia to keep building its war arsenal.
“The new executive order by the president will simply give us a tool that will allow us to go after financial institutions that failed to make the choice to either stop allowing their companies to ship these goods to the Russia’s military industrial complex, or getting out of business with Russia,” a senior administration official said on a call with reporters.
National security adviser Jake Sullivan said the new sanctions “will make clear to foreign financial institutions that facilitating significant transactions relating to Russia’s military industrial base will expose them to sanctions risk,” noting that the multiple rounds of sanctions imposed by the U.S. and its allies to date “have significantly degraded Russia’s ability to replace the equipment, materials, and technology it needs to fuel its aggression.”
“They have cut into Russia’s financial resilience, forcing Russia to turn to rogue regimes for supplies and make difficult decisions to resource its military spending. And importantly, our measures have also been tailored and targeted to avoid unintended harm for the world economy,” he continued.
Friday’s order — just one approach among many employed by the U.S. in an effort to weaken Russia amid its aggression against Ukraine — is aimed at cracking down on an evasion tactic that has allowed Russia to continue to get access to financial institutions through other, smaller financial institutions, and buy materials they need for war. Russian sanctions have been a constant game of cat and mouse, and the new executive order marks the latest effort to catch Russia in those tactics.
“It gives us a surgical tool that allows us to go after the financial institutions that are doing transactions that further Russia’s military industrial complex,” the senior administration official said on the call with reporters.
Another senior administration official gave an example of some of the “secondary” steps in the sanction process that the U.S. has focused on: Russian diamonds. The U.S. has already banned the import of Russian diamonds directly, but with Friday’s executive order has also banned diamonds shipped from Russia to another country for processing, and then to the U.S.
The officials both cautioned that the executive order was just one tool in the toolkit to weaken Russia, including military and humanitarian aid for Ukraine, and consistently implored Congress to approve the supplemental aid package the White House has requested.
The U.S.’s initial set of sanctions and export controls had a significant impact on Russia, the first official said, but the Kremlin has since built “cutouts and facilitators” through smaller companies. Experts diverge on whether the sanctions have had a strong enough impact on Russia.
“We’ve sanctioned a number of these companies that we’ve found, but ultimately, the choke point for these companies and Russia’s ability to continue to try and circumvent our sanctions is the financial system because ultimately they need to have financial transactions in order to move things from a third party jurisdiction into Russia,” the official said.
“What this tool allows us to do is to target those institutions and give them a very stark choice,” the official said.
The official said it was unlikely any U.S. or European banks will directly be implicated by the executive order, but rather that it could impact some of their partners.
“So part of our goal in issuing — in using this tool is going to be getting banks in Europe in the United States that have relationships with banks around the world and other jurisdictions to help warn them about the importance of taking steps to prevent themselves from being used to move goods into Russia that furthers the military industrial complex,” the official said.
To Sullivan, the new sanctions are a critical messaging tool.
“We are sending an unmistakable message: anyone supporting Russia’s unlawful war effort is at risk of losing access to the U.S. financial system,” he added.
