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 deposits, expelled 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, Syria, North Korea, Venezuela, 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.
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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.