On 23 February, US Treasury Secretary Steve Mnuchin revealed that the Trump administration was working on a series of new economic sanctions targeting Russia. They’re expected to be rolled out within weeks.

The announcement came on the back of the debacle that was the implementation of the ‘Countering America’s Adversaries Through Sanctions Act’ — known, mercifully, as CAATSA — at the end of January. CAATSA was meant to be prime-time punishment for Moscow’s alleged interference in the 2016 US election. The Act was the product of a bipartisan agreement across Congress. This rare display of unity from the legislative branch meant that while a reluctant President Trump regarded the new law as an example of congressional overreach, he had little choice but to sign it into law in August of 2017.

The new law emerged out of growing concern in Washington that Mr Trump was considering rolling back some of the economic sanctions imposed on Moscow after its 2014 annexation of Crimea and invasion of Ukraine. CAATSA sought to reinforce the existing sanctions and introduce some new ones. However, things didn’t quite go according to plan.

Rolling out CAATSA

There was plenty of concern before Donald Trump took office that he might look to weaken the 2014 Ukraine-related economic sanctions against Russia. During the transition period, the incoming White House Chief of Staff admitted that President-elect Trump was undecided on whether to leave the existing sanctions in place. The concern continued after he entered the White House. As the relationship between the Trump team and Moscow began to come under closer scrutiny, Congress decided to take the initiative — as well as the reins — in pushing forward America’s international economic sanctions programme, and let Moscow know that its alleged interference in US democracy would have consequences. The result was CAATSA.

The new law locked-in the previous raft of sanctions against Russia, and also sought to punish Moscow for election meddling. It imposed a deadline of 180 days from signing for the administration to implement a series of new sanctions and publish several reports.

The most important sanctions related to the targeting of countries, companies and individuals engaged in ‘significant transactions’ with elements of the Russian military and intelligence sectors. The US administration finalised a list of these elements at the end of October, which was made up of Russia’s biggest arms manufacturers and exporters like Almaz-Antey and Rosoboronexport. These are the big hitters of the country’s military industrial complex, and are a major source of revenue and foreign policy clout for Moscow.

Another significant components of the new law — section 241 — tasked the Secretary of the Treasury, in consultation with the Director of National Intelligence and the Secretary of State, to submit a detailed report identifying the most significant political figures and oligarchs in Russia. The report was to determine their closeness to, and the nature of their relationships with, the Kremlin and other members of the Russian ruling elite. The list, while not mandating any immediate personal sanction, was to be a warning — it was viewed by some as a ‘blacklist’ or ‘pre-sanction roll call’. No one wanted to be on it for fear of international isolation and reputational damage. The anticipated report was called the ‘Kremlin list’ and it was due at midnight on 29 January.

Russia responds

When it became known what the Kremlin list would reveal, Moscow became spooked. As more information came out about the defence and intelligence sector related sanctions, the Kremlin began to mitigate against any potential fallout. First it was announced that the list of banks working with the Russian defence industry would be classified. Then in January, it was reported that the newly nationalised Promsvyazbank — one of the largest banks in the country — would become a ‘special purpose bank’ for the defence business, removing the risk from other state lenders formerly involved in the defence industry.

Moscow also stepped in to help those worried about appearing on Washington’s ‘Kremlin list’. Since the introduction of targeted sanctions responding to Moscow’s 2014 invasion of Ukraine the Russian government has compensated sections of the elite and oligarch-class for their subsequent financial loses. The reason? Their loyalty is an important factor in sustaining the legitimacy of Mr Putin’s rule.

For those with assets abroad which would be potentially sanctionable, the Kremlin quickly announced, amongst other things, a ‘capital amnesty programme’ — including substantial tax cuts — in an effort to create favourable financial conditions at home, and encourage the repatriation of funds. President Putin even commissioned work to look at the establishment of a cryptocurrency (a ‘cryptorouble’) which would assumedly allow individuals to evade sanctions. Throughout this period, the Russian elite hired lobbyists and lawyers in the US to find out who was on the ‘Kremlin list’, and how — if required — to get off it.

It seems that there was clear, and genuine, concern in Russia in the run up to the 29 January deadline.

The deadline arrives

After months of tension, what happened at the end of January surprised everyone. The mandatory defence and intelligence related sanctions were not triggered. Instead, the State Department declared that the mere threat of imminent economic punishment was already deterring defence deals with Russian companies. No other immediate action was necessary.

The reaction to this announcement from Congress was a mix of anger and confusion. And this only got worse after the ‘Kremlin list’ was published. At the last minute, the decision was taken by someone from within the Trump administration (precisely who remains unknown) to cast aside the detailed report that government experts had put together in identifying President Putin’s inner circle and the wealthy oligarchs who make money from his kleptocracy. The administration released instead a cut-and-paste job from the Russian government website and the Forbes Russia 2017 rich list. It was more reminiscent of lazy high-school plagiarism than the work of a US government department. Yet it was still signed off by the Treasury Secretary Steven Mnuchin. Quizzed by the Senate Banking Committee the next day, Mr Mnuchin deflected criticism. “There will be sanctions that come out of this report”, he said.

The list’s publication was the nightmare-writ-large for anyone hoping the Trump administration was going to take its responsibilities on Russia seriously. Its ‘Kremlin list’ contained well-known faces like Kremlin spokesman Dmitry Peskov, Rosneft CEO Igor Sechin, and ‘businessman’ Oleg Deripaska. The report lacked subtlety and critical analysis. It also contained material which suggested a fundamental ignorance of Russian domestic politics. It included individuals who have not set foot in Russia for years; others who are relatively apolitical; and even those who have clashed with the Kremlin in the past. To make the ‘oligarch’ section of list, all you had to be was worth over one billion dollars. Your political affiliations were not important.

The ‘Kremlin list’ may yet backfire on the US. It was quickly mocked by Moscow, where it was described as the ‘Kremlin phonebook’. It also risks playing right into President Putin’s hands. The lack of nuance not only deprives the list of political leverage and incentive, it could have a rally-around-the-flag effect as members of the Russian elite close ranks; this is the opposite of what Washington intended. After the list’s release, Mr Putin portrayed it as an indiscriminate attack on all Russians. The Bell spoke to several of the billionaires who made the cut, one of whom said, “The one good thing is that we’re all in the same boat now, all in the same situation”.

Indeed, it will be difficult for those who would think of themselves as distant from the Kremlin to understand why they’re on the list — let alone how to get off it. It doesn’t so much deter as confuse.

What are President Trump’s motives?

All this begs some serious questions. Why would the Trump White House go up against Congress like this? Why would it hijack a serious report, ridiculing the efforts of those government experts who had compiled the original ‘Kremlin list’? It is impossible to know for sure. But there are a few talking points worth considering.

First of all, it is possible that the Trump administration may genuinely have concluded that no new sanctions against Russia were necessary. In relation to those targeting countries, companies or individuals doing business with the Russian defence and intelligence sectors, unless there were recent defence-related transactions of ‘significant’ value, the administration could legitimately have decided that there was no need to take further action.

It’s also likely that the White House would have been aware of the potential unintended consequences in applying the tenets of CAATSA too strictly. While Russia continues to be one of the world’s top arms exporters, it has recently courted US allies including Qatar, Saudi Arabia, and Turkey. Enforcing the new law against, for example, a NATO ally, would have opened up a very public can of worms.

The Trump administration might claim that its measured approach has paid off: it has since declared that several countries are reconsidering military deals with Russia, and that a three billion dollar hole has opened up in the Kremlin’s military sales book. Until more information is released, however, the jury should remain out.

What is more puzzling still — and potentially more worrying — is the motivation behind the botching of the ‘Kremlin list’. The US Treasury is not a mickey mouse department — it is full of smart people who would have known how to put together a detailed, comprehensive, damaging report. And they had six months to work on it. Yet the end result looked very much like the product of a 10-minute Google search.

What happened in the drawing up of this list? What was behind the Trump administration’s replacing of the ‘Kremlin list’ at the last minute with a version of its own? Is it possible to see anything other than nefariousness in it?

Whatever happened, and whatever the rationales, the list’s release discredited the law and was hugely disrespectful to the government experts who had researched and compiled the original report. But perhaps this was the point. Mr Trump was never a fan of CAATSA. It jarred with his softly-softly approach towards Moscow. And we know that he regarded it as an example of Congress overstepping the line on a serious, and sensitive, area of international statecraft. However, at a time when partisanship seems more pronounced than ever in American politics, what appears to be a deliberate undermining of the law to cynically reaffirm executive power should surely concern both Republicans and Democrats.

And then there’s the elephant in the room: is President Trump stymieing any action against Russia because he is keen to move America’s focus away from a country that he and his close associates are accused of colluding with? As with so much else, current investigations in the US may shed light on these questions at some point in the not-too-distant future.

Some have tried to put a positive spin on the list’s publication, arguing that its vagueness may be a deliberate strategy to keep pressure up on Moscow and leave room for manoeuvre. Others have put faith in the report’s more detailed and unpublished classified annex. But it would be wrong to intellectualise the ambiguity and confusion which consistently emanates from the Trump administration’s actions and statements. Sending vague, unclear messages when you are trying to influence an adversary’s behaviour makes little sense. Nor does keeping ‘the best bits’ of a report intended to name and shame in a hidden annex that few will see.

Do sanctions matter?

Of course, the other elephant in the room is whether sanctions even matter. Often we discuss their application without assessing their utility, or whether they meet the ambitious expectations often placed upon them. Criticism or enquiry of their function should not be seen as waving away the need to respond to perceived Russian aggression. Indeed, if anything, a better understanding of how economic sanctions have performed should help policy makers formulate a more effective response.

The idea behind sanctions is simple. Apply enough economic pressure and the target will change its political behaviour. Sanctions have become a significant part of the diplomatic and foreign policy dialect, particularly since the end of the Cold War. Their record of making a difference where it matters however, is questionable.

The Russian sanctions that CAATSA reinforces are those introduced following the 2014 annexation of Crimea and invasion of Ukraine. They target Russian companies — including energy firms and arms manufacturers –, as well as individuals through asset freezes and travel bans. They also squeeze some important financial institutions. Have the sanctions been successful? It depends what you’re measuring. But as they were rolled out, Russia decided to tighten its grip on Crimea and increase tensions across eastern Ukraine. While some commentators suggest sanctions have stopped Moscow taking more territory, it’s unlikely the Kremlin would be interested in getting bogged down in further advances across the country, especially against an improving Ukrainian military (not to mention the headache of having to deal with divided and amateurish pro-Russian rebels).

Have the sanctions had any economic impact? Probably. But it is tricky to assess the extent in isolation. The fluctuation in oil price (which dropped by 48% in 2014), and the absence of much needed structural reforms will dictate the long term health of the economy more than sanctions. And, in general, most of the initial international business concern has faded. Investment has returned. Russia has hardly become a financial pariah.

This is not to say that sanctions cannot be a rhetorically powerful tool of disapproval. In many ways their real asset is in communication; showing unity, displaying authority, reaffirming values. When there are few options between talk and military force, they can be a vehicle to display moral outrage and stigmatise. They can be an important part of a broader policy toolkit to put pressure on a target country. But they must be implemented properly, with purpose and vigour.

What next?

CAATSA now looks like a missed opportunity for the US administration. The ‘Kremlin list’ in particular was designed to put pressure on Moscow by gently threatening — through potential sanctions — the Putin regime and the various elites within its orbit. There are certainly wedges to chip away at here — it is hardly a monolithic group and there are varying levels of commitment to Mr Putin’s rule. But instead of playing a deft hand in the game of hard diplomacy and economic warfare, this episode has revealed the various internal conflicts which have been stewing in Washington since Mr Trump won the presidency.

What happens next will be important. If no new sanctions appear, or if those that do are seen to be merely symbolic in impact, the US will look weak and rudderless — and not just to Moscow. The roll-out of limited, targeted, tough sanctions, however, would likely see the ‘Kremlin list’ debacle forgotten. Any sanctions should be made public. If visas are to be revoked — say who it is and why.

But sanctions are a short term tool, not a long term strategy. Recognising their limitations is just as important as understanding where they can make a difference. If Washington does decide to roll out a series of new sanctions, they will need to be part of a broader, imaginative, and layered policy — of both carrots and sticks — addressing Russia. Without this, they may not matter all that much at all.

Published February 2018

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