Last month, a bipartisan group of senators reintroduced a bill designed to expand the range of coercive measures the United States can impose on Russia for its broad range of malign activity, from election interference to ongoing intervention in Ukraine. The updated version of the Defending American Security from Kremlin Aggression Act, or DASKA, contains an array of new measures, including ones targeting the Russian energy and banking sectors. Among the most notable are congressional efforts to expand financial transparency, which would put the U.S. in a much better position not only to counter dirty Russian money flowing through the U.S. financial system, but the illicit financing efforts of a variety of other American adversaries.
DASKA, which was first introduced last summer but was not voted on, reintroduces a measure that had been included in the August 2017 omnibus sanctions law but has generated a great deal of domestic political controversy ever since. By law, the Trump administration was compelled to release a list of Russian oligarchs who were believed to be close to President Vladimir Putin or to be using their economic resources to support his foreign policy. The unclassified list the Treasury Department released in January 2018, however, disappointed many observers, as it closely resembled the Forbes magazine list of richest Russians, and made no effort to publicly address whether any of the individuals named worked closely with Putin or not.
This disappointment was matched with anger when Oleg Deripaska, an oligarch who was added to the U.S. sanctions lists in his personal capacity alongside his three corporate entities in April, cut a deal with the Department of Treasury. In exchange for giving up a significant financial stake and effective control of the sanctioned entities, which include aluminum giant RUSAL and its holding company, those companies were de-listed, taking pressure off of the global aluminum market. While experts on sanctions policy agreed that the deal itself was sound, Congress was not convinced that Deripaska had been sufficiently punished. Lawmakers nearly passed a resolution to annul the deal, lambasting Secretary of the Treasury Steven Mnuchin in the process.
The new Russian sanctions bill asks for an updated version of that report, providing the Treasury Department with another opportunity to release to the public information on targeted Russian oligarchs that includes much more context about why particular individuals are listed. The new report would also be an opportunity to push the reset button on the debate over what sanctioning oligarchs is meant to accomplish. While neither the old report nor the new one is meant to be a comprehensive sanctions list, the individuals and entities listed will face public scrutiny, which could have a chilling effect on their ability to do business abroad. Kicking figures who are closely aligned with Putin out of the global financial system may not solve the outstanding foreign policy problems between the U.S. and Russia, but it would keep those figures from expanding their power and influence in the West.
Despite objections from law enforcement, it is still far too easy to form anonymous corporations in the U.S.DASKA also introduces key measures that would broaden financial transparency in general, which would have important benefits for U.S. economic and national security. The Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, currently requires title insurance companies in certain U.S. urban jurisdictions to report on the ultimate beneficial owner of shell companies that made all-cash purchases of real estate above a value of $300,000. It has been an effective tool against money laundering by a variety of illicit and criminal actors. DASKA broadens that effort nationwide, with the payment thresholds to be indexed to the prevailing market conditions in individual real estate markets. In closing this loophole, Congress would give FinCEN the ability to make it much harder for illicit money to flood the U.S. real estate market. Such authorities would have made it much more difficult, for example, for an Iranian entity to get around sanctions restrictions by buying an ownership stake in a skyscraper on New York’s Fifth Avenue.
The drafters of the new bill in the Senate also want the Trump administration to build on these endeavors, with a Russia-specific “hybrid threats fusion center,” which would coordinate interagency efforts to push back against illicit finance, disinformation and cyberattacks, among other activities. For these efforts to be successful, however, Congress must go beyond those measures. A national fusion center trying to reduce the threat from illicit finance is hamstrung if, for example, the U.S. continues to be a large financial center that does not mandate the collection of ultimate beneficial ownership information when corporate entities are set up. Despite objections from law enforcement, it is still far too easy to form anonymous corporations in the U.S. Congress should address that as part of its efforts to provide the Trump administration with what it needs to implement DASKA.
Congress also needs to ensure that the U.S. is working on the same page as its closest allies and partners. It is important to tighten American laws and regulations, but it means very little if bad actors can simply take their business elsewhere. DASKA requires the State Department to establish an Office of Sanctions Coordination, with adequate staffing and senior leadership. No doubt, this is in recognition of the variety of sanctions issues, involving Russia, Iran and others, that have added to tensions in the trans-Atlantic relationship—for example, around the Nord Stream 2 natural gas pipeline under the Baltic Sea, and the Trump administration’s efforts to stifle any European trade with Iran.
This desire to better align efforts against common threats should extend to general financial transparency measures as well. When the European Commission released a new report in February accusing several U.S. territories of being lax with their anti-money laundering efforts, it caused a vehement backlash from the U.S. side. Federal officials accused the commission of using sloppy methodology to list U.S. territories while omitting Russia and China. EU officials were caught flat-footed by the response, which suggests that there needs to be better communication.
This new Russian sanctions bill will be subject to heated congressional negotiation over the coming months before it may become law. With this first draft, however, a bipartisan group of senators have put down a marker to make financial transparency a national security priority. For far too long, U.S. adversaries, including Russia, have been able to hide illicit money in America’s financial system. Congress is now well-positioned to close off those avenues.