The New Russia Sanctions Are Designed to Hurt
The post-Cold War period is over. What comes next is certain to be a much more troubled and violent age. The question is: How to respond to unprovoked state violence?
The obvious immediate answer is sanctions. The Biden administration promised that a Russian invasion of Ukraine would be met with “swift and severe” sanctions. And very serious sanctions were delivered. The most impressive thing about these sanctions was their multilateral nature. They were coordinated among the G7, creating a grand democratic coalition that confronted Putin together.
After a lackluster showing in the first round of sanctions, the United Kingdom on Thursday sanctioned Russian banks and banned multiple state-owned and state-influenced companies from raising money in the U.K. The U.K. also sanctioned a handful of Kremlin elites and oligarchs—although stopping short of a proper crackdown. Rather, Prime Minister Boris Johnson promised the creation of a new “kleptocracy cell” within the National Crime Agency assigned to investigate and take law enforcement action against oligarchs. The U.K. sanctions also included export controls on dual-use technologies and other specialized items.
The United States issued similar sanctions. The Russian financial sector is cut off. Many state-owned and state-influenced companies are banned from doing business with U.S.-linked entities. So are the elites around Putin. President Biden also promised that more is coming, including sanctions on “corrupt billionaires,” with the goal of degrading the Russian threat for years to come. The president declared, “Putin will be a pariah on the international stage.” The EU and other G7 partners adopted similar sanctions packages.
Notably absent from the list of sanctions was a SWIFT ban. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the body that makes it possible for banks around the world to communicate with one another and process transactions. Cutting Russian banks off from SWIFT has been described as a financial nuclear bomb, but its potential efficacy has been limited as Russia has created an alternative in-country system that could allow Russian banks to operate with each other, even though they would still be largely isolated from international financial networks. Despite the fact that the U.K. sanctions package noted that the government would work with partners to find a way to de-SWIFT Russia, there were objections to the measure from Germany, Italy, Hungary, and Cyprus.
The lack of a SWIFT ban matters more as a political signal than as a financial weapon since it has become a rallying cry in the defense of Ukraine. As President Biden noted in his address, full blocking of Russian financial institutions would achieve the same, or even greater, effect as a SWIFT ban.
The major economic target left untouched is the Russian energy sector. Although state-owned companies have been limited from raising money in G7 countries and the EU, this is not the same as full blocking sanctions because companies like Russia’s state gas monopoly, Gazprom, can still conduct other business in the West. This restraint was also at the request of some European countries, especially Germany, that depend heavily on Russian gas for heating and cooking. Cutting off the Russian energy sector entirely would devastate the Russian economy, but to maintain multilateralism, this option was left for now.
The sanctions against the oligarchs are welcome, but ought to be more thorough. Although a handful of powerful individuals and their families (in whose names the oligarchs and Putin himself regularly hide assets of enormous value) have been sanctioned, there are still many on Alexei Navalny’s list of 35 kleptocrats and human rights abusers yet to be sanctioned. The jailed Russian opposition leader Navalny personally identified those on the list as being responsible for maintaining Putin’s power, looting Russia, and undermining civil society and free elections.
Even beyond the Navalny 35, there are many more oligarchs who could be sanctioned. These corrupt elites act as appendages of the Kremlin kleptocracy abroad, living and spending in our democratic systems and undermining them from within. They serve Putin’s interests, but they are also dependent on him and fear him—hence why they hold so much of their money in the West where Putin can’t touch it. If the free world forced these criminals and their blood money out of our countries, not only would we enhance our own security and advance justice, we would also send them back to Russia where they would have to face the constant threat of Putin’s arbitrary rule and internal rivalry. Confining the system’s pressures of competitive corruption within its borders could eventually lead to a conspiracy to topple Putin and achieve less arbitrary rule in Russia, if for no other reason than to protect the oligarchs’ ill-gotten gains. In the West, too, the rule of law began with nobles trying to protect their property from the unchecked power of the king.
These sanctions are the result of careful and delicate negotiations with scores of countries, all with different interests. There will be more. President Biden stated that he is leaving the option of a SWIFT ban open. He also stated that the United States is working multilaterally with allies to secure energy supplies for Europe. With sufficient attention and investment, Europe could be at a point in a few years where full blocking sanctions on the Russian energy sector would have a minimal effect on the average German.
The incompleteness of the oligarch sanctions is due less to collective action problems than to the difficulty locating where their money is after decades of financial anonymity. In many cases, ironclad legal cases will have to be drawn up—offensively or defensively—against these corrupt billionaires, who have developed deep roots in our democracies and the best lawyers and lobbyists other people’s money can buy.
This will be a long fight. President Biden spoke of years of isolation for Putin. Russia will join the ranks of Iran, North Korea, and Venezuela as rogue states ruled by tyrants, cut out of the global system. This is something that should have been done long ago; it should never have required a full-scale invasion of Ukraine.
These sanctions are no longer about deterrence. They are about reducing Putin’s capacity and disabling his war machine. The United States and its allies should also be exploring other options to degrade Putin’s ability to threaten peace and freedom in Europe and around the world. Everything needs to be on the table.