The West tried to crush the Russian economy. Why didn't it work?

Varying penalties

Perhaps the most important tool that the United States and its partners have used against Russia is conventional economic sanctions.

These sanctions generally target individuals, companies and state bodies. It can also hit financial institutions, including the central bank of a country with many of its national assets. For example, if Country X imposes financial sanctions on a Russian oligarch, this usually means that the citizens of Country

The United States has a long record of imposing economic sanctions on foreign entities, and because so many people and companies do business using US dollars, Washington's reach is long. Violators are likely to face criminal charges, heavy fines, and frozen assets.

But the United States has also created legislation, resources, and government agencies, such as the Treasury Department's Office of Foreign Assets Control, dedicated to tracking down sanctions violators. Other countries have less robust regulations and are more likely to let violators pass.

“I personally don't know how good the Italian authorities are at enforcing sanctions. I think the Italian banks are more afraid of OFAC and the US Department of Justice,” said Edward Fishman, a former senior State Department official who now works at Columbia University's Center for Global Energy Policy. “From their fear of their own regulatory bodies.”

To deter alternative solutions, Washington is increasingly resorting to “secondary sanctions.” This allows the United States to sanction foreign entities for doing business with sanctioned Russian entities.

In December, President Joe Biden issued
Executive order This, among other things, could result in foreign banks losing access to the US financial system if they do business with the Russian military-industrial complex. Treasury on Friday Additional sanctions were announced under this authority It targeted 26 entities in 11 countries, including China, Serbia, the United Arab Emirates and Liechtenstein.

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These measures represent an aggressive expansion of the administration's strategy against Putin, and could discourage banks from entire sectors in trying to comply with the rules.

Some US allies consider secondary sanctions to be an excess of Washington's authority because they could hit third parties not subject to sanctions.

However, the measures are not as stringent as rules put in place by the United States targeting Iran, which penalize foreign banks for transactions of any kind with an Iranian bank.

One big loophole
An exemption allows energy-related transactions With sanctioned Russian banks. While this prevented major disruptions to global energy markets, it also allowed a large amount of capital to continue to flow into the Russian economy.

Adeyemo said no decision had been made on extending the exemption, but he defended the move as part of a comprehensive strategy to prevent negative impact on developing countries that depend on Russian energy exports while suppressing Russian oil revenues.

“If we were in a place where we cut some Russian oil, and prices went up, they might make more money and maybe sell less oil,” he said.

The European Union is also making efforts to expand its sanctions regime to include other countries. Brussels is sending its special sanctions envoy, David O'Sullivan, to present evidence of evasion and fraud to foreign governments, in the hope that they will then join the bloc's sanctions plan. It also raises the idea of ​​creating an EU-level authority
To supervise the implementation of sanctions – Brussels effectively responded to OFAC.

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But given how sensitive it is to shift responsibilities from national European governments, it may take some time before this is established. O'Sullivan did not respond to a request for comment.

“The time to admire the challenge is over,” said Tom Keating, director of the Center for Financial Crime and Security Studies at RUSI Europe, an international think tank.

“The European Union has more levers to pull than the United States, given that it is the world's largest trading bloc. The economy is raw. It's just a question of how we use that power.”