Via Teleconference

7:04 A.M. EST

     MODERATOR:  Thank you.  And thanks, everyone, for joining us early this morning.  This is a background press call to discuss an update on the Russia economic restrictive measures that we announced on Saturday with Allies and partners.  

This call is on background, attributable to “senior administration officials.” And the content of this call are embargoed until 7:30 a.m. Eastern.

For your awareness and not for reporting, the speakers on this call are [senior administration officials].  We’re going to take — we’re going to have some remarks at the top and then just take a few questions at the end. 

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

SENIOR ADMINISTRATION OFFICIAL:  Thanks, [senior administration official].  Good morning, everybody.  I’ll kick off and then hand it over to [senior administration official].

So we’ve been saying it as clearly as we can: This is an unjustified, unprovoked, and premeditated war of choice by Putin and that, alongside Allies and partners across the world, we would make this choice a strategic failure for Russia. 

We said if Putin continued to escalate, we would escalate.  We said all options are on the table, including the most severe sanctions ever contemplated against Russia.  We said that as we implement these costs, we would impose them in an historic and unprecedented show of coordination with countries across the world that wish to defend the core principles that underpin peace and security.

And so, that’s the context in which our actions to sanction the Russian Central Bank should be seen.  We’re doing exactly what we said we’d do. 

As I’ve mentioned before, no country is sanctions-proof when we act together.  Our sanctioning of the Russian Central Bank, which we’re taking with Germany, France, the UK, Italy, Japan, Canada, the European Union, and others — with the culmination of months for planning and preparation across our respective governments; across technical, diplomatic, and political channels, including at the highest levels. 

We were ready, and that’s what allowed us to act within days, not weeks or months, of Putin’s escalation. 

I also want to emphasize the importance of relationships in taking this collective action.  It takes trust and solidarity to sanction the central bank of a one and a half trillion-dollar economy, multiples larger than Iran’s or Venezuela’s.

We built that trust and solidarity over time in dozens of phone calls, meetings, and video conferences since November.

With respect to the impact this action will deliver:

As I mentioned, no — no country is sanctions-proof.  Putin’s war chest of $630 billion in reserves only matters if he can use it to defend his currency, specifically by selling those reserves in exchange for buying the ruble.  And after today’s actions, that will no longer be possible, and Fortress Russia will be exposed as a myth. 

Already, you’ve seen the Russian Central Bank more than doubled its policy rate this morning to 20 percent.  That’s the highest in almost two decades.  The ruble is in freefall, and soon you’ll see inflation spike and economic activity contract.

This is a vicious feedback loop that’s triggered by Putin’s own choices and accelerated by his own aggression.  It’s a very raw deal Putin is giving to the Russian people as the world disconnects Russia from the global financial system and all its benefits, but it’s exactly what we said would be the consequences of his actions.

At the same time that we’re following through on our commitment to deliver overwhelming force, I want to emphasize that we and our Allies will continue to limit the impact back home.  And in particular, we’ll continue to scope our measures to allow for steady energy supplies to global markets — [senior administration official] will say more on this. 

And lastly, I want to remind everyone that, today, we’ll also fully block the Russian Direct Investment Fund and its CEO, Kirill Dmitriev.  This fund and its leadership are symbols of deep-seated Russian corruption and influence peddling globally.  Some of you may know it spun off from V.E.B. — Putin’s slush fund bank that we fully blocked last week — and it’s known to be intimately connected to kleptocracy at the highest levels of the Russian government.

This action will also limit RDIF’s ability to leverage corrupt ties to universities and organizations in the U.S. and the West more broadly.

Let me stop there and turn it to [senior administration official].

SENIOR ADMINISTRATION OFFICIAL:  Thanks, [senior administration official].  And thanks, all of you, for joining. I want to briefly walk through the impact of these actions and why we’re taking them. 

The steps we’re taking today are part of the strategy that the President asked Secretary Yellen to design in order to hold Russia accountable for an invasion in the Ukraine.

Our strategy, to put it simply, is to make sure that the Russian economy goes backwards as long as President Putin decides to go forward with his invasion of Ukraine.  We’re accomplishing this objective by taking a variety of steps targeting Russia’s financial institutions, elites, and now the Russian Central Bank.

These are all sources of the wealth the Kremlin draws on to fund destabilizing activity.  Today’s actions represent the most significant actions that the U.S. Treasury has taken against an economy of this size and assets of this size. 

And I would — I want to point out that what also makes this action significant is not just the amount of assets or the size of the country we’re targeting, but the speed at which our partners and Allies have worked with us to enact this response.

[Senior administration official] is right that we’ve been coordinating with these Allies since November on actions related to Russia.  But since the beginning of President Biden’s term, we’ve been working closely with these Allies on various issues related to the international financial system, which built the trust that was necessary for us to take these actions today.

Now, a few things to note about the economic impact on Russia of today’s announcements: It’s clear that when Russia prepared for an invasion of Ukraine, they were counting on using their Central Bank assets to mitigate any economic hardship that came from sanctions. 

Russia has hundreds of billions of dollars of assets in jurisdictions all over the world.  And ever since the leaders made their announcement on Saturday, the Russian Central Bank has been attempting to bring those assets back to Russia or to safe havens so they can be used to support their economy and their currency. 

Today’s announcement to prohibit transactions with the Central Bank of Russia and the National Wealth Fund will significantly hinder their ability to do that and inhibit their access to hundreds of billions of dollars in assets. 

From our actions alone, they will not be able to access assets that are either in the United States or in U.S. dollars. And as you’ve seen, the EU has taken actions that prohibit Central Bank’s transactions in their jurisdiction as well, and we expect the rest of the — our G7 partners to take similar actions.

It’s important to note that with today’s actions, we’re also constricting Russia’s access of those they might turn to for a bailout since we’re also targeting its Ministry of Finance and its rainy-day fund, the National Wealth Fund.  And our directive also makes clear that Russia can’t turn to other banks or companies and use them as agents to evade these prohibitions. 

As a result of today’s coordinated announcement, Russia will experience even further economic consequences.  They will be forced to deplete their limited domestic rainy-day fund far more quickly; experience a weakening of their currency, making funding their war of choice much more expensive; create a real squeeze on Russia’s ability to fund their priorities like invasion in Ukraine; constrict the Central Bank’s routine functions and make financing more difficult since it is locked out of using foreign reserves; and exacerbate liquidity issues.

As with our other actions, we’ve been calibrated and deliberate to ensure our sanctions cost maximum consequences for Russia, while mitigating harm to America and our partners. 

The President made very clear to us it was critical that we target our sanctions in a way that would impose costs on Russia if they continued the invasion, while mitigating those costs on the American people, on our Allies and partners.  And consistent with that, Treasury will issue a general license to authorize certain energy-related transactions by exempting energy-related transactions for preventing unnecessary harm for consumers and preventing spikes in prices that would only pad the pockets of President Putin. 

As I mentioned at the top, these are serious consequences for Russia’s unprovoked invasion of Ukraine, and we wouldn’t hesitate to level more if necessary. 

As I said in the beginning, our objective is to make sure that the Russian economy goes backwards if President Putin decides to continue to go forward with an invasion in Ukraine. And we have the tools to continue to do that.

With that, I’ll end my remarks and hand it back to our host. 

MODERATOR:  Thank you.  Could we please queue up the directions to ask a question, please?

Q    Hi, good morning.  Thank you for doing this.  Can you confirm that basically all the assets of the Central Bank, National Wealth Fund, the Finance Ministry are essentially frozen as a result of this action? 

And then can you say a word about the kind of coordination with the Allies?  Did they move forward on this more quickly than you might have been expecting, or was this all already scripted ahead of time?

SENIOR ADMINISTRATION OFFICIAL:  [Senior administration official], do you want to take the first and I can — I can do the second?

SENIOR ADMINISTRATION OFFICIAL:  Yeah, I’m happy to do that.  So what we’re doing today in the United States is that we are prohibiting transactions with the Russian Central Bank in dollars.  So what that means is that if a U.S. financial institution has Russian Central Bank assets, they can’t do anything with them; they are stuck in that institution.  If an institution outside of the United States has dollars for the Russian Central Bank, they can’t do anything with them. 

So those funds are immobilized.  And the reality is that like any central bank around the world, the Russian Central Bank holds a great number of their assets in dollars.  But in addition to dollars, they’re clearly diversified and they hold assets in euros, in yens, in pound sterling.  And because of the work that we’ve done in coordinating, it means that those assets are also immobilized and unavailable for their use.

But let me turn it over to [senior administration official] to talk a little bit about the work we’ve done over the course of the last several months to coordinate with our Allies and partners so we’d be in a position to take an action like the one that we’re announcing today.

SENIOR ADMINISTRATION OFFICIAL:  Yeah, and I’ll — I’ll touch on the first question as well, because we always thought of Russia’s Central Bank reserves — its $630 billion of foreign reserves — as an insurance policy for Russia.  And that insurance policy was meant for exactly a circumstance like this.  In other words, if their currency was plummeting, they could use those reserves to support the ruble and to defend it.  And so, what this — what this action does is it removes, it negates, it nullifies that insurance policy. 

And so, we’ve been talking about taking this action for months.  We’ve been conceiving of the circumstances in which it would get deployed, the mechanisms by which we could apply it, the coordination that will be required to give it force. 

And so, as we saw the events unfold last week, we sent clear signals to the world about our willingness to take the most severe actions in our toolkit, and we deployed them.

Q    Thanks very much for doing this.  I just wanted to ask if you could comment on anything related to, you know, action with Belarus — any future sanctions action — and reports that they’re preparing to get involved in this conflict.

SENIOR ADMINISTRATION OFFICIAL:  Alan — [senior administration official], I’ll just start with this one — you know, we’re watching those events very carefully.  We’ve said if — to the extent Belarus continues to aid and abet Russia’s aggression in Ukraine, they will also face consequences.  We’ve already rolled out some of those measures.  Those costs will continue to ratchet much higher.

Q    Hey, thanks so much.  I’m just wondering if you could talk a little bit about the timing of this.  You’re taking this action today.  How quickly will it actually kick in?  Is there any danger of Russia taking actions before these measures actually go into effect that would, you know, make these actions not as forceful and damaging to Russia?  And how quickly do you expect that these measures will actually have an impact on the Russian economy and potentially start to change Putin’s calculus here?  Thanks.

SENIOR ADMINISTRATION OFFICIAL:  Let me just make this clear that these actions will be effective immediately.  We’re talking to you now because we wanted to put these actions in place before our markets opened, because what we learned over the course of the weekend from our Allies and partners was that the Russian Central Bank was attempting to move assets and there would be a great deal of asset flight starting on Monday morning from institutions around the world.

So, we took these ac- — we’re taking these actions in a way that they will be effective immediately.  And I think the thing — to [senior administration official’s] earlier point, the Russian government, after the actions we took in 2014 — and I was here in 2014 when we took those actions — decided that they were going to try and build a war chest to try and defend against the actions that we may take if they were to take further actions in Ukraine or elsewhere in the world.

We knew that this existed and we knew that, ultimately, one of the things that we would need to do to ensure that our sanctions would be effective is at some point take — go after that war chest.  And that’s exactly what we’ve done today.

And you — you asked a question as to how soon will this be effective, and we’re seeing the effect of that today: The Russian stock market isn’t open.  The ruble has depreciated a great deal.  Russia is taking unprecedented actions to try and support their economy. 

And what I would say is that we have always thought about how we would escalate as President Putin moved forward with the invasion in Ukraine.  And we continue to have additional steps that we could take that will continue to have an impact on the Russian economy, because as they move forward with the invasion, we’re committed to working with our Allies and partners to make sure that their economy continues to move backwards so that they have less money to fund their projections of power going forward.

SENIOR ADMINISTRATION OFFICIAL:  And I’ll just — I’ll just add a little bit. 

I mean, as [senior administration official] said perfectly right, the — these actions are immediately effective, and the impact is also immediate. 

You know, I think the ruble is already more than 30 percent weaker today.  The Central Bank already more than doubled its policy rate from 9 and a half percent to 20 percent.  There’s talk about Russia imposing capital controls. 

That — these choices that Russia has been forced into are a reflection of the fact that inflation is now very likely to spike, purchasing power is likely to plummet, investment is likely to plummet.  These are — this is a negative and vicious feedback loop that Putin has triggered.

And as to whether it affects his calculus: I mean, all we can do is make sure this is a strategic failure.  And the evidence of this failure is becoming more clear by each moment.

Q    Hi, there.  Good morning.  Can you say how much of the $630 billion is affected by the U.S. moves?  In particular — in other words, how much of that 630 is either, I guess, linked to U.S. companies or held in U.S. dollars? 

And can I ask — on a separate but related issue on the measures with regards to SWIFT: Can you give us an update on the latest on that and, in particular, whether you’re considering adding restrictions to new banks beyond those amounts previously?  Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Let me start with —

SENIOR ADMINISTRATION OFFICIAL:  What I can tell you is that —

SENIOR ADMINISTRATION OFFICIAL:  Yeah.

SENIOR ADMINISTRATION OFFICIAL:  Oh, do you want — I’ll take Central Bank, [senior administration official], and handover SWIFT to you.

SENIOR ADMINISTRATION OFFICIAL:  Yeah, great.

SENIOR ADMINISTRATION OFFICIAL:  Okay.  Well, what we know is that the Russian Central Bank, like all central banks around the world, has their assets diversified, with hundreds of billions of dollars located outside of Russia in central banks, in financial institutions around the world.

After the invasion of Crimea, Russia decided to move a great deal of its assets out of the United States — but to keep them in dollars but to move them into other jurisdictions. 

What we’ve done today is not only preventing them from using those dollars in the United States, but preventing them from being able to use those dollars in other places, like Europe or Japan, to defend their currency and prop up their institutions.

And our goal was to make sure that not only would they not have access to dollars, but also not have access to other currencies that would be critical to their ability to support their economy.  That’s why doing this in a multilateral way with our Allies and partners is so important and is so crippling for the Russian Central Bank, which is now struggling to figure out ways to continue to support its economy in the face of these sanctions.

SENIOR ADMINISTRATION OFFICIAL:  On the SWIFT question: We’re — we remain in close consultations with our EU partners 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 fully blocked; those will be the first ones considered.

Just as a regulatory matter, the list of banks will get finalized by the EU because SWIFT is under Belgian authority. And so, once the list is finalized, the Europeans will issue a directive that will go to Belgium for a vote of the SWIFT Board of Directors and then the de-SWIFTing will be complete.

Q    Hi, guys.  Quick question is: Is the Bank for International Settlements part of this?  And also, is the Swiss government part of this?

And as a broader question: Are you worried about any kind of ripple effects for the financial system?  The — you know, are dollar funding markets likely to come under pressure from this?  What are some of the possible kind of ripple effects and blowbacks?

SENIOR ADMINISTRATION OFFICIAL:  So, Neil, let me start with the second part of your question.  I think one of the things that we’ve been doing in addition to coordinating and collaborating with our Allies and partners is telling — is telling our regulators the actions that we’ve been contemplating.

Since the end of last year, the Secretary and I have been spending time with regulators, both talking to them about the actions that the President is contemplating in order to better understand some of the impacts that you just mentioned and working with our team to make sure that we scenario plan for these actions. 

With regard to the Bank of International Settlements and other institutions, our prohibition applies to — any U.S. dollar that exists in an institution around the world is now — cannot be transacted with the Russian Central Bank.  That is applicable to international institutions, as well as foreign countries, as well as financial institutions — foreign financial institutions that have dollars.  So, effective immediately as — when this directive goes out, transactions with the Russian Central Bank in dollars by anyone is prohibited.

Q    Thanks so much for doing the call.  I guess this first one is for [senior administration official].  On the carveouts, you know, including all the banks that are being sanctioned, can you share what percentage of the carveouts, particularly for energy — what percentage of those make up the overall transactions? 

And, I guess, for [senior administration official]: I wanted to ask — you mentioned again — or maybe it was [senior administration official]; I apologize — that, again, it will miti- — and energy impacts will be mitigated.  Considering, you know, the moves in Germany and just support in Europe overall, is there potential or is it being considered to take a more stronger action against Russia’s energy sector? 

But first, the percentage of the carveouts if you could.

SENIOR ADMINISTRATION OFFICIAL:   So the energy market is an important one, and it’s a place where Russia plays a major role.  But the truth is that, for these financial institutions, that the — they are doing billions of transactions each day, many of which are not energy related. 

And to be frank, the fact that it will take them time to figure out how to segregate those actions will lead to additional disruption of the Russian economy.

Look, while the carveout will make sure that people are able to get — to make energy payments, it’s not going to stop the — stop the impact that we’re seeing on the Russian economy.

Today, you’ve seen European headlines talking about the fact that there’s been a run on Sberbank, Russia’s European affiliate, which is under pressure because of deposit withdrawals. 

So, part of what we’ve done is, when we looked at the Russian financial system, we decided to take a variety of actions against the top 10 institutions.  We did some — we did some debt and equity blocking.  We did some full blocking.  And we did some dollar-clearing blocking in order to make sure that the Russian Central Bank wasn’t in a position where they could find a one solution to each one of these challenges. 

And for the full-blocked institutions, they’re not able — their assets have been frozen.  For those where dollar clearing has been blocked, we’re starting to see runs on those institutions by depositors. 

So, in addition to the fact that we may have the energy carveout, which is providing the ability for energy to flow — energy to flow and to help mitigate some of the risks both to Europe but also to the global energy markets, the variety of actions we’ve taken are still ensuring that these — each one of these institutions are under a variety of different types of pressure, which, because of the actions we’re taking against the Central Bank today, the Central Bank is going to be unable to mitigate in a meaningful way.

SENIOR ADMINISTRATION OFFICIAL:  On the — on the second question, Franco: We have a — we have a collective interest in ensuring that the current supply of energy to the world remains steady, A, because we want to support the global economic recovery, but, B, because we don’t want prices to spike for the benefit of President Putin as a major energy exporter.

Over the long term, though — and this is important — we also have a collective interest to degrade Russia’s capacity to be a leading energy supplier over the long term.  And over the long term, that requires critical technology inputs that allow — that would allow Russia to remain a leader in energy production.  And there you’ve already seen some actions taken by the EU and a scenario we’re exploring actively.

MODERATOR:  Great.  Thanks, everybody, for joining today.  As a reminder, this call was on background, attributable to “senior administration officials.”  And the embargo lifts in about a minute.  Have a good rest of your day. 

Thank you.

  7:30 A.M. EST

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