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Analysis

How the Russia Sanctions Work and What Congress Needs to Know

President Biden has broad-sweeping power to address foreign threats but that power must be checked by Congress.

This article was origin­ally published in Just Secur­ity

Over the past three weeks, the United States and its allies have deployed a dizzy­ing array of finan­cial weapons against Russia. Those meas­ures, leveled at Russi­a’s govern­ing insti­tu­tions, bank­ing sector, indus­trial core, and busi­ness elite, have already forced Russian pres­id­ent Vladi­mir Putin into a defens­ive economic crouch and gener­ated spillover effects both at home and abroad.

Legal and economic comment­at­ors have framed these sanc­tions in world-historic terms. Indeed, they appear targeted to squeeze a global power out of the inter­na­tional community. But the meas­ures taken by Pres­id­ent Joe Biden are well within the author­ity provided by domestic law. Where the law falls short is in requir­ing the exec­ut­ive branch to artic­u­late, collect, and share the inform­a­tion neces­sary for Congress to perform its over­sight role—a gap that the Biden admin­is­tra­tion should fill through proact­ive disclos­ures.

The Pres­id­ent’s Extraordin­ary Sanc­tions Power

In the United States, most sanc­tions are imposed under the Inter­na­tional Emer­gency Economic Powers Act (IEEPA), part of Congress’s post-Water­gate push to claw back author­ity from a wayward pres­id­ency. The stat­ute, however, spoke in sweep­ing terms: the pres­id­ent may “invest­ig­ate…, regu­late, direct and compel, nullify, void, prevent or prohibit, any acquis­i­tion, hold­ing, with­hold­ing, use, trans­fer, with­drawal, trans­port­a­tion, import­a­tion or export­a­tion” of prop­erty “in which any foreign coun­try or a national thereof has any interest.” All that’s required to unlock those extraordin­ary powers is a pres­id­en­tial declar­a­tion of a “national emer­gency” based on an “unusual and extraordin­ary threat” to the national secur­ity, foreign policy, or economy of the United States. Two such states of emer­gency under­pin the admin­is­tra­tion’s response to Russi­a’s war in Ukraine: then-Pres­id­ent Barack Obama’s 2014 order, issued in response to Russi­a’s purpor­ted annex­a­tion of Crimea (EO 13660), and Biden’s 2021 order (EO 14024) that targets vari­ous “harm­ful foreign activ­it­ies” of the Russian govern­ment.

Pres­id­en­tial orders invok­ing IEEPA (there have been nearly seventy since IEEP­A’s enact­ment in 1977) gener­ally deleg­ate imple­ment­ing author­ity to a small office within the Depart­ment of the Treas­ury, the Office of Foreign Assets Control (OFAC). In turn, OFAC desig­nates the specific persons and entit­ies to be sanc­tioned and issues direct­ives that are bind­ing on all who fall within U.S. juris­dic­tion. The lists of sanc­tioned indi­vidu­als or groups—in­clud­ing the Specific­ally Desig­nated Nation­als (SDN) list (the collec­tion of entit­ies subject to “full block­ing” restric­tions), the Non-SDN Menu-Based Sanc­tions (NS-MBS) list (the class of persons subject to partial freezes), and the Corres­pond­ent Account or Payable-Through Account Sanc­tions (CAPTA) list (the group of foreign finan­cial insti­tu­tions prohib­ited from oper­at­ing accounts that enable access to the U.S. bank­ing system)—run over three thou­sand pages, and the number of entries has been rising stead­ily in recent years.

The Current Russia Sanc­tions

The Biden admin­is­tra­tion’s recent use of IEEPA against Russia has proceeded in tranches. When Putin recog­nized the so-called break­away repub­lics of Donetsk and Luhansk on Feb. 21, Biden expan­ded the 2014 state of emer­gency to prohibit Amer­ican invest­ment in and to block trans­ac­tions with entit­ies oper­at­ing in those regions. Biden made clear that these limited sanc­tions were inten­ded to deter Russian escal­a­tion, pledging that he would imple­ment other “swift and severe economic meas­ures…in response to a further Russian inva­sion of Ukraine.”

That even­ing, Putin dispatched a “peace­keep­ing” mission to the separ­at­ist territ­or­ies, and Biden ratcheted up pres­sure. OFAC added two state-owned devel­op­ment and milit­ary banks to its SDN list, effect­ively block­ing Russi­a’s defense industry from access­ing Amer­ican finan­cing. It prohib­ited U.S. persons from parti­cip­at­ing in the market for sover­eign debt issued by the Russian Cent­ral Bank, and it froze the personal funds of five Russian elites, includ­ing the Director of the Federal Secur­ity Service. Finally, OFAC issued “full block­ing” penal­ties against the Nord Stream 2 pipeline corpor­a­tion and its chief exec­ut­ive. Up to this point, the orders were largely – though not exclus­ively – focused on indus­tries and person­nel inter­twined with Russian milit­ary aggres­sion.

On Feb. 24, Putin launched a frontal assault on Ukraine. Biden ordered a cascad­ing response under IEEPA. Describ­ing its own actions as “unpre­ced­en­ted and expans­ive,” OFAC restric­ted trans­ac­tions with Russi­a’s three largest banks, respect­ively lever­aging CAPTA bans, SDN freezes, and NS-MBS list­ings. Although the mech­an­isms differed, the upshot was the same: OFAC decap­it­ated 80% of total bank­ing assets in Russia, impos­ing “deep and long-last­ing” costs “on the Russian economy and finan­cial system.”

The admin­is­tra­tion went further still. It ordered freezes on the personal wealth of Putin, his domestic allies, and high-rank­ing offi­cials in the national-secur­ity sphere; it sought to pull the finan­cial rug out from under intel­li­gence-backed disin­form­a­tion campaigns; it imposed severe penal­ties on Belarus­ian banks, milit­ary enter­prises, and defense offi­cials, in light of Belarus’s facil­it­a­tion of Russi­a’s inva­sion; it banned the import­a­tion of key Russian products, from oil to alco­hol; and it seized upon export-control author­it­ies — another main­stay of the Amer­ican emer­gency-power regime — to stem the flow of defense, aerospace, mari­time, and refin­ing tech­no­logy to Russia.

One meas­ure stood out. Since the turn of the century, Russi­a’s cent­ral bank has stock­piled $640 billion in reserve assets, most of which are dollars, euros, pounds, and yen held in the coffers of over­seas finan­cial insti­tu­tions. This “Fort­ress Russia” anchored confid­ence in Russi­a’s finan­cial system and could be harnessed when neces­sary to stabil­ize a flail­ing currency. But, embra­cing an action some schol­ars described as the economic “nuclear option,” OFAC prohib­ited U.S. insti­tu­tions from trans­act­ing with those funds — and, for good meas­ure, with Russi­a’s $130 billion of monet­ary gold. It there­fore “immob­il­ized” Russi­a’s finan­cial safety net within the United States, expos­ing the govern­ment and its people to signi­fic­ant economic insec­ur­ity.

In short order, Biden sought to sequester the world’s elev­enth-largest economy from the global system. While the United States’ transat­lantic allies have matched its sanc­tions in certain areas — block­ing cent­ral-bank reserves held within the European Union (EU), for one, and creat­ing a “transat­lantic task force” to identify the assets of sanc­tioned indi­vidu­als, for another — they have also enacted distinct­ive policies. The EU has placed limit­a­tions on Russi­ans’ bank­ing depos­itsexpelled certain Russian banks from the SWIFT plat­form (which enables rapid commu­nic­a­tion among global finan­cial insti­tu­tions), and led the charge in clos­ing airspace to Russia-affil­i­ated aircraft. And private corpor­a­tions around the world have rushed to fill whatever blank spaces remain. Even in the absence of govern­mental mandates, investors, manu­fac­tur­ers, consult­ing firms, and retail stores have with­drawn from Russia en masse.

Many have char­ac­ter­ized these finan­cial sanc­tions against Russia as unpre­ced­en­ted. That’s not entirely correct. Iraq’s inva­sion of Kuwait in 1990 led to a near-total block on its assets and imports by the inter­na­tional community for more than a decade. More recently, SyriaNorth KoreaVenezuela, and Iran have each witnessed their cent­ral banks and state-run indus­tries frozen under the pres­id­ent’s emer­gency prerog­at­ives. To be sure, Russi­a’s war chest is an order of magnitude larger than those of the so-called “rogue states.” But the real depar­ture here lies in the private sector’s compre­hens­ive divest­ment, in the speed and depth of transna­tional coordin­a­tion, and in the volume of export restric­tions that have been brought to bear along­side tradi­tional finan­cial controls. Layered atop each other, these impos­i­tions have already brought the Russian economy to its knees.

The Impact of the Sanc­tions on Russia, Russi­ans, and the Rest of the World

The Biden admin­is­tra­tion prom­ised in late Febru­ary that Russi­a’s economy will “go[] back­wards as long as Pres­id­ent Putin decides to go forward with his inva­sion.” The threat of wide­spread finan­cial distress was borne out imme­di­ately after insti­tu­tional block­ades and asset freezes took effect. The ruble lost almost half of its value, spur­ring the cent­ral bank to double its key interest rate, imple­ment draconian restric­tions on capital conver­sion, and shut­ter the stock market for nearly a month. It was as if more than $300 billion in cent­ral-bank reserves had evap­or­ated overnight, limit­ing Putin’s abil­ity to weather the effects of sanc­tions. Soon, one senior Amer­ican offi­cial sugges­ted, we will “see infla­tion spike and economic activ­ity contract.” Expert assess­ments are sober­ing: Russi­a’s GDP will shrink 9% in 2022, its debt has been down­graded to “junk,” and a default may be immin­ent.

Total finan­cial collapse, however, is less certain. Under­stand­ing that the United States and its allies retain a weighty interest in Russian energy produc­tion, OFAC exemp­ted trans­ac­tions “related to energy” from the lion’s share of its sanc­tions pack­age. Bipar­tisan push­back led the admin­is­tra­tion to ban imports of Russian oil and natural gas, but whether this meas­ure will choke “the main artery of Russi­a’s economy” remains unclear. As OFAC conceded, Russi­a’s energy sector remains relat­ively unen­cumbered, partic­u­larly since European nations have been mostly unable to follow Biden’s lead. That means — at least in theory — Putin can still rely on some west­ern finan­cing to prolong his war posture. Moreover, Russia has found recept­ive trad­ing part­ners beyond the West. India, for instance, has begun snap­ping up discoun­ted oil, thereby extend­ing Russi­a’s economic viab­il­ity.

In the mean­time, ordin­ary Russi­ans will exper­i­ence the sharp sting of sanc­tions. Fear that the ruble will collapse has already precip­it­ated a race to with­draw depos­its, draw­ing long lines across the coun­try; restric­tions on consumer banks have left trav­el­ers stran­ded abroad, their credit cards worth­less; PayPal no longer processes trans­ac­tions in Russia, cutting freel­an­cers off from their incomes; and export controls have contrib­uted to soar­ing prices of consumer goods, commen­cing a vicious cycle of price-gouging. Secret­ary of State Antony Blinken expli­citly acknow­ledged this dynamic: “We regret that tens of millions of Russi­ans will suffer because of the danger­ous decisions made by a tiny circle of corrupt lead­ers.”

To its credit, OFAC has issued general licenses for human­it­arian aid. It has author­ized the oper­a­tion of certain nonprofits, includ­ing the Inter­na­tional Commit­tee of the Red Cross, and approved the limited flow of agri­cul­tural commod­it­ies and medi­cine. Never­the­less, as experts have observed time and again, sanc­tions nomin­ally targeted at govern­ing elites often exact the most severe toll on the people most atten­u­ated from govern­mental decision-making. These sanc­tions on Russia — issued in response to brazen viol­a­tions of inter­na­tional law — will likely be no excep­tion.

Indeed, that might be the point. Rather than an unin­ten­ded byproduct of sanc­tions aimed at govern­ment actors, mass hard­ship might repres­ent an inten­ded “vector of influ­ence” to Putin. Declin­ing stand­ards of living in Russia could gener­ate a groundswell of popu­lar pres­sure, force Putin’s atten­tion inward, and sap the energy and resources required for war. This is “sanc­tions from the bottom up,” and it appears to be a larger part of the United States’ play­book with each passing day.

Biden’s advisors had previ­ously disclaimed “even the appear­ance of target­ing” ordin­ary Russi­ans. Testi­fy­ing about the meas­ures imposed on Russia follow­ing its inva­sion of Crimea, Daleep Singh, now a core member of Biden’s economic team, stressed the import­ance of “limit[ing] unwanted spillovers” and “avoid[ing] caus­ing wide­spread panic and impov­er­ish­ment among the general public.” But speak­ing from the White House podium last month, Singh took a conspicu­ously differ­ent tack: “any leader, whether you’re an auto­crat or a small-‘d’ demo­crat, has to pay atten­tion to the living stand­ards of your coun­try. And already, we’re seeing the effects of these meas­ures.”

It is clear that spillover effects will not be limited to the Russian people. The uncer­tainty induced by war and the shock of sanc­tions have already driven a global surge in oil and gas prices, raised the cost of some grains and metals, and dimin­ished supply-chain capa­city for crit­ical commod­it­ies. Amer­ican famil­ies will likely continue to notice higher prices at the gas pump and the grocery store, despite Biden’s efforts to blunt market disrup­tions. In the longer term, sanc­tions might fuel infla­tion and curtail economic growth across the United States and Europe. The contours of sanc­tions’ second-order effects are, as always, unpre­dict­able, but global rever­ber­a­tions are all but certain.

What Congress Needs to Know

As the past several weeks demon­strate, IEEPA arms the pres­id­ent with enorm­ously power­ful tools to address foreign threats. Emer­gency sanc­tions under IEEPA can cripple entire nations, impos­ing tremend­ous hard­ship on popu­la­tions inside—and occa­sion­ally even outside—the target coun­try. Any such power should be exer­cised only in a true crisis. It should also be accom­pan­ied by mean­ing­ful checks against poten­tial abuse; in partic­u­lar, Congress should be able to termin­ate sanc­tions if it believes the pres­id­ent has gone too far. And in all cases, Congress should perform care­ful over­sight of IEEP­A’s exer­cise.

Few would dispute the exist­ence of a crisis here. For decades, IEEP­A’s require­ment of an “unusual and extraordin­ary threat” to the national secur­ity, foreign policy, or economy of the United States has been honored in the breach, with sanc­tions being used as a routine lever of foreign policy. But Russi­a’s inva­sion of Ukraine is truly an extraordin­ary occur­rence—one that threatens to upend the geopol­it­ical order.

As for Congress’s abil­ity to curtail sanc­tions powers if lawmakers believe they are being misused, the law makes this quite diffi­cult. Termin­at­ing an IEEPA order effect­ively requires Congress to pass a law by a veto-proof super­ma­jor­ity. That flaw in IEEP­A’s design is not currently caus­ing concern, however, as Congress over­whelm­ingly supports Biden’s sanc­tions. Indeed, in areas ranging from energy imports to Russi­a’s “most favored nation” trad­ing status, many lawmakers have pushed the admin­is­tra­tion to go further.

A more relev­ant issue, at least for now, is whether Congress has the inform­a­tion it needs to conduct over­sight in the weeks and months ahead. Under IEEPA, the pres­id­ent must inform Congress of the circum­stances trig­ger­ing the sanc­tions, why the pres­id­ent feels that those circum­stances consti­tute an “unusual and extraordin­ary threat,” and why the pres­id­ent believes sanc­tions are a neces­sary response. But the pres­id­ent need not specify the end goal of the sanc­tions or what condi­tions would have to be met for the sanc­tions to be lifted. Moreover, while the exec­ut­ive branch is required to submit peri­odic reports on the status of sanc­tions, these reports need not include inform­a­tion about key issues like the sanc­tions’ cost to the U.S. economy or their human­it­arian impact.

Without this inform­a­tion, it is impossible for the commit­tees of Congress that over­see sanc­tions policy to assess whether the sanc­tions are work­ing and whether their bene­fits outweigh their costs over time. This basic over­sight func­tion is neces­sary for all exer­cises of emer­gency author­ity, but it is partic­u­larly crit­ical when a sanc­tions regime will directly affect millions of people and have poten­tially long-term impacts on the world economy.

Clar­ity on Goals of Sanc­tions

At first blush, the purpose of sanc­tions against Russia might seem obvi­ous. On reflec­tion, though, there are several stra­tegic goals they could be meant to serve, and the Biden admin­is­tra­tion’s public state­ments have occa­sion­ally seemed to shift among them. The sanc­tions could be designed to pres­sure Putin to reverse course and with­draw from Ukraine. They could be inten­ded to deter future milit­ary adven­tur­ism. They could be aimed at turn­ing the Russian people against their leader and bring­ing about regime change. They could be a means of weak­en­ing Russi­a’s capa­city to “project power abroad.” Or they could simply be punit­ive. Know­ing what the sanc­tions are meant to accom­plish is crit­ical to assess­ing whether they have worked—or, conversely, identi­fy­ing a point at which they have conclus­ively failed—and thus when they might be lifted.

Indeed, clar­ity on sanc­tions’ goals can render them more effect­ive. In the usual case, where sanc­tions are meant to change the beha­vior of the sanc­tioned entity (for instance, pres­sur­ing Iranian offi­cials to aban­don their nuclear ambi­tions), inform­ing the targets of how their beha­vior needs to change – and what they can expect in return – is a key part of the strategy. But even in the unusual case where the pres­id­ent wants to conceal sanc­tions’ purpose from their target, he can and should provide that inform­a­tion to those in Congress who are respons­ible for over­see­ing pres­id­en­tial uses of IEEPA.

It’s certainly possible that is happen­ing now—but exper­i­ence suggests other­wise. Many of the peri­odic reports required under IEEPA have been made public. They are strik­ingly anemic and contain scant detail, even with respect to the matters on which report­ing is required. With few excep­tions, there is no indic­a­tion that the relev­ant commit­tees have probed for further inform­a­tion.

Clar­ity on Sanc­tions’ Collat­eral Impacts

The exec­ut­ive branch also should meas­ure and report sanc­tions’ collat­eral impacts, includ­ing their economic impact on the United States (and, in this case, the rest of the world) and their human­it­arian impact in coun­tries that are directly or indir­ectly affected by the sanc­tions. This inform­a­tion can facil­it­ate making needed adjust­ments to the sanc­tions pack­age—­for instance, broad­en­ing the licenses for human­it­arian aid if it becomes clear that the exist­ing licenses are inad­equate.

It also enables a clear-eyed cost-bene­fit analysis. Without an accur­ate and complete picture of sanc­tions’ costs, it is far too easy to allow them to continue regard­less of their effect­ive­ness. No admin­is­tra­tion wants to admit that sanc­tions have failed or to be seen as with­draw­ing objec­tions to the offend­ing conduct by virtue of having termin­ated sanc­tions. Under­stand­ing the draw­backs of leav­ing sanc­tions intact can help ensure that they don’t linger through iner­tia.

* * *

To be clear, Putin’s beha­vior poses a signi­fic­ant threat not just to Ukraine’s sover­eignty, but also to the safety and stabil­ity of the global community. Although stud­ies have shown that most sanc­tions regimes fail to change their targets’ beha­vior, there is a chance that the current sanc­tion­s—broad as they are—­could succeed. Congres­sional over­seers might well assess that the possib­il­ity of chan­ging Putin’s beha­vior in a mean­ing­ful way outweighs even wide­spread and severe economic and human­it­arian consequences (although the pres­id­ent and Congress should do everything in their power to mitig­ate those harms). But the over­seers would be remiss in abdic­at­ing that assess­ment entirely to the pres­id­ent, and they cannot make it without much more inform­a­tion than IEEPA oblig­ates the pres­id­ent to furnish.

Ulti­mately, IEEPA should be amended to require the pres­id­ent to provide Congress with the specific goals of each sanc­tions regime, along with peri­odic reports on sanc­tions’ economic and human­it­arian effects. For now, the Biden admin­is­tra­tion should proact­ively make this inform­a­tion avail­able to over­sight commit­tees. Extraordin­ary deploy­ments of exec­ut­ive power, however appro­pri­ate they may seem, must be subject to close over­sight. And if an informed Congress concludes that sanc­tions are work­ing and their bene­fits outweigh their costs, that can only strengthen the moral force of the sanc­tions in the eyes of the world.