Via Teleconference

(February 26, 2022)

MODERATOR:  Thanks, everyone, for joining.  As a reminder, this call is on background, attributable to a “senior administration official.”  We’re going to be discussing further restrictive economic measures we’re imposing on Russia today in coordination with Allies and partners.

For your awareness and not for reporting, the speaker on the call today is [senior administration official].

The contents of the call are embargoed until the end of this call.

So with that, [senior administration official], I’ll turn it over to you.

SENIOR ADMINISTRATION OFFICIAL:  Thanks, everybody, for joining.  So as a result of Putin’s war of choice and ongoing assault on Ukraine and the core principles of peace and stability that have prevailed since the Second World War, President Biden and the leaders of the European Commission, France, Germany, Italy, and the United Kingdom decided to take further measures to isolate Russia from the global financial system and the global economy.

In an unprecedented act of global sanctions coordination, our leaders decided to take three actions today: one, to apply the Iran model and disconnect sanctioned Russian banks from SWIFT; two, to undermine the Russian Central Bank’s ability to defend the ruble; and three, to launch a joint task force to collectively hunt down the physical assets of sanctioned Russian companies and oligarchs — their yachts, jets, fancy cars, and luxury homes.

Let me go into some detail on each of these three measures.

First, our leaders decided to follow the Iran model and disconnect key sanctioned Russian banks from SWIFT.  The EU will implement a regulation that removes sanctioned Russian banks from the SWIFT international payments network, effectively shutting them out of the world’s most important financial system.

The reason de-SWIFTing is severe is that this is a network that almost all banks in the world use to transmit financial information to each other as they make payments or receive payments.  The SWIFT code is on the bottom of every check you sign.  About 11,000 banks across the world are members of the SWIFT network.  If one of these de-SWIFTed Russian banks wants to make or receive a payment with a bank outside of Russia, such as a bank in Asia, it will now need to use the telephone or a fax machine.  In all likelihood, most banks around the world will simply stop transacting altogether with Russian banks that are removed from SWIFT.

Two, leaders have committed to target the Russian Central Bank — the single-most important financial institution in Russia.  We are collectively planning to impose measures to ensure Russia cannot use its Central Bank reserves to support its currency and thereby undermine the impact of our sanctions.

This will show that Russia’s supposed sanctions-proofing of its economy is a myth. The 600-billion-plus war chest of Russia’s foreign reserves is only powerful if Putin can use it and without being able to buy the Ruble from Western financial institutions, for example, Putin’s Central Bank will lose the ability to offset the impact of our sanctions.  The Ruble will fall even further, inflation will spike, and the Central Bank will be left defenseless.

Third, this coming week, we will launch a multilateral transatlantic task force to identify, hunt down, and freeze the assets of sanctioned Russian companies and oligarchs — their yachts, their mansions, and any ill-gotten gains that we can find and freeze under the law.

We’ve already seen the impacts of transatlantic cooperation yesterday, when the French government seized a cargo ship owned by the sanctioned Russian bank Promsvyazbank.

As part of our new task force, we’re committed to fully implementing sanctions and other anti-money-laundering financial and enforcement measures to maximal effect on sanctioned Russian officials and elites close to the Russian government, as well as their families and their enablers, to identify and freeze the assets they hold in our jurisdictions.  As I say, we’ll go after their yachts, their luxury apartments, their money, and their ability to send their kids to fancy colleges in the West. 

We’ll also engage other governments so as to detect and disrupt the movement of ill-gotten gains and deny these individuals their ability to hide their assets in jurisdictions across the world.

We’re also announcing our commitment to take measures to limit the sale of citizenship — so-called golden passports that allow wealthy Russians connected to the Russian government to become citizens in certain countries and gain access to our financial systems.

Any current or future sanctioned individual trying to flee the impact of our sanctions by buying their way into Western citizenship will be forced to endure the consequences of supporting Putin’s war of choice.

These unprecedented actions we’re announcing today build on the swift and severe steps we’ve taken jointly with Allies and partners throughout the past week. 

In alignment with the decision by our European Allies yesterday, the United States sanctioned President Putin, Foreign Minister Lavrov, and members of the Russian national security team.

Yesterday, the President also directed the Secretary of the Treasury to impose full blocking sanctions on the Russian Direct Investment Fund in the coming days.  This is a state-owned financial entity that functions as a sovereign wealth fund and attracts capital — is meant to attract capital into the Russian economy in high-growth and high-tech sectors.  Sanctioning this entity will further curtail Putin’s strategic ambitions to expand the instruments of war and repression.

And, in total this week, as you reflect upon the financial sanctions we’ve implemented, we’ve now targeted all 10 of Russia’s largest financial institutions, holding nearly 80 percent of the Russian banking sector’s total assets.  We’ve cut off Russia’s largest bank from the U.S. financial system, a very significant blow to its ability to function and process global trade.

The export control measures we took in lockstep with Allies and partners across the world, both in Europe and in Asia, will cut off more than half of Russia’s high-tech imports, restricting Russia’s access to vital technological inputs, atrophying its industrial base, and undercutting Russia’s strategic ambitions to exert influence on the world stage.

We’ve also sanctioned Russian oligarchs and Putin’s inner circle and their family members, including Putin’s cronies who sit atop Russia’s largest financial institutions and are responsible for providing the resources necessary to support Putin’s further invasion of Ukraine.

This has been the worst week for the Russian stock market on record.  This has been the worst week for the Russian Ruble since March 2020, and the currency hit an all-time low against the Dollar earlier this week.  Russia’s government borrowing costs have more than doubled to almost 17 percent.  The S&P credit rating agency has downgraded Russia to junk status.  Within 24 hours of our actions, the demand for cash in Russia spiked 58-fold, according to reports, and the Russian government scrambled to deplete its own resources to try and shore up its banks and its currency.

In short, Russia has become a global, economic, and financial pariah.  Over 30 countries representing well over half the world’s economy have announced sanctions and export controls on Russia.  Putin’s government is getting kicked off the international financial system.

To be clear, this is a sad outcome for the people of Ukraine, the people of Russia, and many others.  This is not where we wanted to be, but this is Putin’s war of choice, and only Putin can decide how much more cost he is willing to bear.  The United States and our allies and partners are unified and will continue to impose costs.

Let me stop there.

MODERATOR:  Great. Could we queue up the directions to ask a question please?

Q    Can you explain the move on the Central Bank?  Are you putting it on the SDN lists?  And if not, what mechanism are you using?

And then just more broadly, can you give us some sense about why everyone has moved quickly on Saturday to do this?  Was there something that prompted you to go so quickly beyond what was happening in Ukraine in terms of Russia moving assets to avoid sanctions preemptively?  Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Yes, thanks, Demetri.  Well, we said all along: If Putin continues to escalate, we’ll escalate, and that all options remained on the table.  We’re delivering on what we said.

And specifically, with respect to the Central Bank, today’s statement was a commitment by the leaders that I mentioned across the world to restrict the actions that the Russian Central Bank can take to undermine the impact of our sanctions.

So, as I mentioned at the outset, you heard about Fortress Russia — the war chest of 630 billion of foreign reserves.  It’s impressive, but it’s only impressive if Russia can use those reserves.  And that means Russia has to be able to sell those reserves and buy Ruble to support its currency.

And so, what we’re committing to do here is to disarm the Central Bank.  And the way we can do that, for example, is by preventing U.S., EU, UK persons from selling Rubles to the Central Bank of Russia.  That means very simply, the Russian Central Bank can’t support the Ruble, full stop, and that means our sanctions will have much greater force.

There are other measures, too, we could take against the Central Bank, and you’ll be hearing more about that later.

Q    Thank you, [senior administration official]. And just to follow up on Demetri’s question: Are you, in fact, placing the Central Bank of Russia on the SDN list — or, in other words, are you freezing their assets?  Or is it something less?

And does the SWIFT cutoff affect only banks that are already sanctioned, and which Russian banks are selected and how did you select them? Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Yes, thanks, Ellen. We’re still finalizing the specific execution modality for the Central Bank sanctions, and it could involve both the flows that the Russian Central Bank is allowed to undertake, as well as the assets they have.

With respect to SWIFT and which banks will be de-SWIFTed, there’s a process underway, Ellen, to finalize the list of banks that will be cut off from the SWIFT system.  There are several banks that Europe and the U.S. have sanctioned, and those will be the first ones considered.

And ultimately, as a matter of regulation, the list of banks that will be de-SWIFTed will be finalized by the EU, since SWIFT is under Belgian jurisdiction.

But we’re going to work very closely, as we have throughout this process, with our European partners to finalize that list.

Q    Thank you very much for doing the call.  Can you tell us if you have any indications from China or other countries that they’re going to help Russia soften the blow of these sanctions?  Have you seen any sign of any transactions, for instance, that indicate —

SENIOR ADMINISTRATION OFFICIAL:  Hi, Andrea.

Q    — what China is going to do?

SENIOR ADMINISTRATION OFFICIAL:  I’m sorry to interrupt. Yeah, so, if anything, I would say, Andrea, the latest signs suggest that China is not coming to the rescue.  I think it was reported yesterday or the day before that China was actually restricting some of its banks to provide credit to facilitate energy purchases from Russia, which suggests that, much like has been the pattern for years and years, China has tended to respect the force of U.S. sanctions.

And, you know, as we’ve said — just lifting up a little bit, as we said from the start, it really would be an unfortunate signal for China’s vision of the world if it gave tacit or explicit accommodation to Russia’s invasion of a sovereign country in the heart of Europe.  It would do profound damage to its reputation in Europe, but really across the world.

Q    Thanks, [senior administration official].  We have a question about energy carveouts in the de-SWIFTing process. Is there going to be carveouts for energy companies in Russia to still do business outside of Russia, similar to how Venezuela was de-SWIFTed a few years ago?

And also, how much of the 630 billion or -40 billion or so in reserves in the Central Bank do you think you’ll be able to really freeze?

SENIOR ADMINISTRATION OFFICIAL:  Yeah, so when an institution is de-SWIFTed, there tends not to be a carveout for the product type.  And so, we are going to go institution by institution, in terms of those that are removed from the network, and we’ll pick those very carefully to maximize the impact on Russia and minimize the spillovers to Europe and the global economy.

I’m sorry, the second question?

MODERATOR:  Can we open up the line again, please, for Jordan Fabian?

SENIOR ADMINISTRATION OFFICIAL:  Oh, you know what?  I just remembered.  It was a question about how many of the 630 billion are subjected to the sanction, and — all of it.  All of it.

So, right now, all 630 billion of Russia’s foreign reserves could be used theoretically to — they could sell those reserves and buy ruble.  And that would offset some of the impact of our sanctions.  I mean, as you know, the Russian ruble has already fallen 15 percent in this episode, and the Central Bank intervened already this week for the first time since 2014.

What this measure does, among other things, is it prevents Russia from transacting with Western banks, U.S. banks, European banks, UK banks, which it needs to do to actually intervene in foreign exchange markets.  It must buy the ruble and sell its hard currency reserves to support its currency.  That’s why I say we’re disarming — we’re disarming Fortress Russia by taking this action.

And there may be other actions, too, that are unveiled with respect to the Russian Central Bank, and we’ll be finalizing those over the weekend.

Q    Hi, thanks for doing this.  Can you say how quickly you believe that we will see the impact from these actions?  I realize you’re still finalizing which banks will be impacted, but does this mean, on Monday, Moscow wakes up and feels the difference?  And when you say you’re trying to minimize the impact to the global economy, what’s the risk you’re trying to minimize here, specifically?

SENIOR ADMINISTRATION OFFICIAL:  Yeah, I have great confidence the effects of these measures will be felt immediately in Russian financial markets.  I think market participants understand that without Russia having the ability to defend its currency, it will go into free fall.

The actions with respect to SWIFT do require the Europeans to issue a directive that will then go to Belgium for a vote of the SWIFT Board of Directors.  Those are the specific requirements under Belgian law.  But with this decision made, I think you will immediately see a chilling effect fall over the Russian banking sector, even beyond what’s already occurred.

With respect to spillovers and costs and so forth, look, I mean, our judgment here, our calculus is that we have two choices: either we continue to ratchet costs higher to make this a strategic failure for President Putin, or, you know, the alternative, which is unacceptable — and that would be allowing unchecked aggression in the heart of Europe, in defiance of the core principles that have kept the peace and security across the continent for 70 years.

And those costs of doing nothing and allowing those uncertainties to fester, and the chilling effect to take hold, and the questions that will be asked about which country is next to be bullied and which autocrat is next to exert a sphere of influence — those costs are unacceptable to us.

Q    Thanks so much for doing this, [senior administration official].  I just wanted to follow up on Jordan’s question about the carveouts.  The U.S. and Allies have been very careful to have carveouts on the previous sanctions to limit the impact on energy.  Are you saying that it’s not going to be — that energy is not going to be — there’s not going to be a carveout with SWIFT for energy?  Or is that the plan to go back and do one by one, and energy will be carved out?  Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Yeah, thanks, Franco.  So, I mean, I’ll give you as much detail as I can.  There are really two paths from here.  One is we are trying, over this weekend and around the clock, to work with SWIFT to figure out if they have the capability of identifying the product type.

I mean, so let’s remember: SWIFT is like a — it’s like Gmail for banks.  And what we’re trying to understand is: In those messages that are sent from one bank to another to make or receive payments, is there a marking which denotes that an energy payment is being made?  If so, we could exempt those payments.  So that’s one path.

But the second path is to choose our institution — choose the institutions that we de-SWIFT wisely.  So, we know where most of the energy flows occur, through which banks they occur.  And if we take that approach, we can simply choose the institutions where most of the energy flows do not occur.

MODERATOR:  Great.  All right.  Well, thanks everyone for joining the call.  As a reminder, this call was on background, attributable to a “senior administration official.”  The contents of the call are embargoed until the end of the call.

If you have any more questions, please feel free to reach out to me and we’ll make sure to get back to you.

Thanks, everyone. Have a good night.

END

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