Background Press Call by Senior Administration Officials on New Economic Costs on Russia

Via Teleconference

10:05 A.M. EDT

MODERATOR: Thank you. And thanks, everyone, for joining us today.

So, as a quick reminder, this call is on background, attributable to a "senior administration official," and the contents of this call are embargoed until the end of the call.

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

So, with that, I'll turn it over to you for some opening remarks.

SENIOR ADMINISTRATION OFFICIAL: Thank you, [moderator]. Thanks, everybody, for joining. Yeah, I'll say a few things at the top, and then happy to jump into your questions.

The sickening brutality in Bucha has made tragically clear the despicable nature of the Putin regime. And today, in alignment with G7 allies and partners, we're intensifying the most severe sanctions ever levied on a major economy.

All of you have seen the factsheet, so I'm going to step back and just explain the rationale for choosing these actions in the context of the five pillars that underpin our sanctions strategy.

So, number one, as all of you know, we've sought to generate a financial shock by cutting off Russia's largest banks and its central bank from doing any business with the U.S. and freezing any of its assets that touch the U.S. financial system or those of our allies.

And today, we're dramatically escalating the financial shock by imposing full blocking sanctions on Russia's largest financial institution, Sberbank, and its largest private bank, Alfa Bank.

Sberbank is the main artery in the Russian financial system. By itself, it holds nearly one third of Russia's total banking sector assets; that's over $500 billion. That's roughly twice the size of the second-largest Russian bank, which we previously fully blocked.

And in total, we've now fully blocked more than two thirds of the Russian banking sector, which, before the invasion, held $1.4 trillion in assets.

Number two, we said we would cut off cutting-edge exports to Russia to disable Putin's military and deny him the ability to diversify and modernize his economy.

So, today, in alignment with the G7 and the EU, we're announcing a ban on new investment in Russia, which President Biden will implement with an executive order. And this will make sure that the mass exodus from Russia that we're seeing from the private sector, which is now over 600 multinational companies and growing -- that it will endure.

And without investment from our private sector, Putin will lose private sector know-how and skills that travel with investment, and the knock-on effects to the ongoing brain drain from Russia will be profound.

Third, we've said we're methodically ejecting Russia from the international economic order to deny the privileges and benefits it once enjoyed, such as its most-favored-nation trading status, its borrowing privileges from the IMF and the World Bank.

And in that spirit, on Monday we cut off Russia's ability to use its frozen central bank funds to make debt payments. And so, Russia will now have to find new sources of dollars from outside the U.S. and to find a new payment route, other than U.S. banks, to avoid falling into default. And that's Russia's choice as to how it proceeds.

And of course, even if Russia taps into other sources of hard currency to remain current on its debt obligations, that will translate into fewer resources available to Putin to fund his war machine.

Fourth, we've said we'd degrade Russia's status as a leading energy supplier and thereby cut off its largest source of export and budget revenue. We've done that previously by banning U.S. imports of Russian oil, gas, and coal; by working with the Germans and the EU to shut down Nord Stream 2; and by cutting off energy technologies that Russia needs to sustain its oil and gas production.

And today, just as a preview, you'll hear more from the EU on their efforts to take this a step further.

Lastly, we said we'd expose Russia's kleptocracy and show that Putin and his cronies have been ripping off the Russian people for decades. Already, before today, we had sanctioned more than 140 oligarchs and their family members, and over 400 Russian government officials. These are the key architects of the war.

And today, we're sanctioning Putin's adult children, Minister Lavrov's wife and his daughter, and members of Russia's Security Council.

In terms of impact -- and we can get into this in the questions if you'd like -- I mean, as all of you have seen, these sanctions are generating the impact we warned Putin about for months prior to the invasion. Russia's GDP is projected to shrink by double digits this year. And to put that in perspective, that's more than twice the contraction it suffered after it defaulted in 1998.

But unlike then, when Russia was in the process of getting integrated into the global economy, it's now in the process of being isolated as a pariah state.

The economic shock this year alone is projected by the IEF to wipe out the past 15 years of economic gains. Russia used to be the 11th-largest economy in the world. It's now very likely to drop out of the top 20.

Inflation: The latest print this week was that inflation in Russia is already above 15 percent and projected to hit 20 percent or more. Interest rates in Russia are already 20 percent.

And so, this combination of sky-high inflation and interest rates will cripple Russia's long-term growth potential and so will the exit of the more than 600 companies that I referenced earlier.

And the sad reality is Putin's war will make it harder for Russians to travel abroad. It means their debit cards may not work. They may only have the option to buy knockoff phones and knockoff clothes. The shelves at stores may be empty. The reality is the country is descending into economic and financial and technological isolation. And at this rate, it will go back to Soviet-style living standards from the 1980s.

But look, don't take my word for it: Putin himself has said the sanctions will require deep structural changes to the Russian economy to deal with the new realities, including inflation and unemployment. Minister Lavrov has said "no one could have predicted" the central bank actions.

They simply weren't prepared for their economic fortress to crumble. And that's what's happened.

Let me stop there and take your questions.

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

Q: Thanks for doing this. My question is about India. You were [redacted], and that's been reported on extensively. Where does India stand on the second set of sanctions? And how far have they come towards convergence on the U.S. view regarding the sanctions (inaudible) applied?

SENIOR ADMINISTRATION OFFICIAL: Thanks for the question. You know, India is our friend; India is our partner. And we share -- we share interests, and we share core principles that are at stake in this conflict. And we've had extensive discussions about ways to further our cooperation on global food security, on global energy supplies, and certainly in terms of recognizing that Putin's brutality affects all of us. And the geopolitical implications of Russia's actions do have ripple effects.

So, we -- India is not part of the G7. It's a guest country this year. So, we will certainly collaborate with India and share the details of our measures. And, of course, we remain hopeful that we can have alignment to the maximum extent possible. Thank you.

Q: Hi, thanks. I'm just wondering if you could clarify on Putin's adult children. Are you sanctioning his two daughters, Mariya Putina and Katerina Tikhonova? Or are there any additional children that you have identified that you are applying sanctions to? Thank you.

SENIOR ADMINISTRATION OFFICIAL: Yeah, you've got it right. Those are the two.

Q: Hi there. Thank you for taking our questions. Can you speak a little bit more about these full blocking sanctions come on the major SOEs that are coming tomorrow? Is that, sort of like, all major SOEs or a certain major? Are there particular sectors? Thank you.

SENIOR ADMINISTRATION OFFICIAL: Sure. So these are not all Russian SOEs. And they will not be energy -- they will not be SOEs in the energy sector. You'll hear more from Treasury tomorrow on the specific institutions, and that will likely come later today or tomorrow.

Q: Hi there. Thanks for doing this call. I wanted to just ask if you could say whether you saw, currently, that China is complying with sanctions that you've implemented so far, and what the thinking is on applying secondary sanctions to Chinese or other foreign companies or entities. Thank you.

SENIOR ADMINISTRATION OFFICIAL: Sure. So as I think everyone is aware, we've had a series of private consultations, going up to the highest level of our government and China's government, about the importance of respecting the sanctions regime that we've put in place as well as the export controls. And I don't have anything new to tell you, other than we've been really clear about the consequences of any efforts to circumvent or backfill those sanctions.

And you've seen, I think, in the public rhetoric from China that they're not, openly at least, indicating any intention to do so. And we're watching that very closely.

Q: Thank you very much for doing this call. Can you tell us whether you think these sanctions and all the impact on Russia will actually stop Russia's military advances given the projection to Congress yesterday from General Milley that this war could last years? And Vladimir Putin -- it doesn't seem signs of slowing down.

SENIOR ADMINISTRATION OFFICIAL: I think -- yeah, thanks, Andrea. I mean, I'll say it this way: I mean, sanctions are never a standalone solution. We don't impose these costs as an end to themselves. And, you know, in our judgment, sanctions work when they're embedded in a broader strategy, and you referenced this. It has to -- these sanctions have to work alongside doing all we can to support Ukraine's fight for freedom. They work alongside doing all we can to help the rest of the world deal with the spillovers of Putin's war.

And that's why we've surged supplies of energy. It's why we're coming together to welcome the millions of refugees that are fleeing Ukraine, and trying to come together with the rest of the world to deal with the disruptions to global food supply.

And if we execute on all those fronts -- and that's our that's our plan; that's our strategy -- that's how we create staying power in these sanctions. And staying the course is how we think we'll create leverage for the outcome that we're seeking.

And I'll -- let me add one more point on the sanctions impact: I mean, even an autocrat like Putin has a social contract with the Russian people. He took away their freedom in exchange for promising stability. And so he's not giving them stability at the moment; he's giving them instability and insecurity, and he's imposing that upon them. And at some point, that ought to matter to any leader if only because they care about staying in power.

So the question really is not so much, "What can we do and when will that have an effect?" I think it's, "What's the endgame here for Putin? What's he playing for?"

This is very clearly becoming a failure for him. And at some point, he will have to recognize that reality.

Q: Hello. Hi, [senior administration official]. Thank you for doing this. Earlier, you mentioned that you have worked with senior Chinese officials regarding those sanctions. Do you also find that China is also learning how United States and allies are using the financial sanctions right now and possibly find ways to counter those measures in the future if, one day, China has to face similar sanctions? Thank you.

SENIOR ADMINISTRATION OFFICIAL: No, I think, you know, China has become -- has gained an economic prominence by engaging with the world, by integrating itself with the global economy and with the global financial system.

And the United States -- because of the quality of our financial markets, the transparency of our regulations, the effectiveness of our corporate governance, and really the soft power that we've enjoyed for decades and decades -- is the central player in the global financial system. And so we will remain integrated with China as long as it continues to engage with the world.

And so, you know, that's the way in which we have leverage with financial sanctions. And we don't use that leverage in an arbitrary way. We use that leverage when we're defending a core international principle. And that's certainly what's going on in the crisis in Ukraine.

We're using these sanctions because we want to demonstrate resolve and say, "You can't redraw your neighbors' borders at the barrel of a gun. You can't subjugate their free will. Countries have the right to set their own course and choose their own destiny." That's -- those are the conditions in which we use these sanctions. We know how severe they are. And our message to China is: We hope you respect those principles.

Q: Hi. Thank you guys for doing the call. I just had a more, sort of, technical question. Could you clarify specifically the sanctions that are being placed on Sberbank: how those differ or what is being done, compared to what had already been put on them earlier this month? I'm just unclear on that.

SENIOR ADMINISTRATION OFFICIAL: Sure. Yeah. And thanks for asking that, because previously we had imposed what are called "dollar-clearing prohibition" with Sberbank, which meant that any transactions that Sberbank tried to undertake with a U.S. financial institution using dollars would not be allowed.

So now, this is a full blocking sanction, which means that any transaction in any currency with a U.S. person or a U.S. institution is prohibited, and also any of Sberbank's assets that touch the U.S. financial system are now frozen.

So, it's a -- it's a much more severe action. This is the most severe action we can take in terms of financial measures.

And in practice, the history of sanctions show us that when we impose a full blocking sanction on a financial institution, that the rest of the world, even in other jurisdictions that have not yet imposed a full blocking sanction, they respect the regime and so there tends to be a multiplier effect. That's what we expect to happen here as well.

Q: Okay, thank you. And to be clear, there's no carve-outs there?

SENIOR ADMINISTRATION OFFICIAL: I'm sorry, I should have said there is a carve-out for energy, yes. Just like the other full block -- full blocking sanctions. It's the same carve-out.

Q: Hi, thanks very much. I was wondering if there has been discussion of the downside effects of so detaching the Russians from the global economy that their investment in it over the long term basically becomes so diminished that they become more interested in disruptive action than any hope that they would get back in?

SENIOR ADMINISTRATION OFFICIAL: Well, I mean, I would say this, David -- is the sanctions are designed to be quite flexible. We can escalate and we can de-escalate depending on the circumstances.

And -- but really, the way to think of it, if you want a metaphor, it's a negative feedback loop. So, we deny capital, we deny technology, we deny talent that can flow into Russia. And the combination of the steps that we're taking create this downward spiral that accelerates the more that Putin escalates.

And if he were to change course, someday, that negative feedback loop would slow and could possibly reverse. None of this is permanent. The only aspect that's permanent are the lives that he's taken away, and he can never bring those back.

But the sanctions -- the sanctions are designed to be able to respond to the conditions on the ground and to create leverage for the outcome we seek.

Q: Hi. Thanks again for doing the call. About the sanctions against Putin's daughters: Are these symbolic sanctions or do you have reason to believe that they do have assets either in the U.S. or in Europe?

SENIOR ADMINISTRATION OFFICIAL: Well, we have reason to believe that Putin and many of his cronies and the oligarchs hide their wealth, hide their assets with family members, that place their assets and their wealth in the U.S. financial system but also many other parts of the world. And that's why the coordination -- the coordinated effort to freeze their assets and seize their physical luxury goods -- their cars, their yachts, their homes, et cetera -- that's why it's so important that we act together.

But to answer your question directly: Yes, we believe that many of Putin's assets are hidden with family members, and that's why we're targeting them.

Q: Thank you.

MODERATOR: So, thanks, everyone, for joining.

Given the call is ending a little bit earlier than 10:30, we're going to go ahead and lift the embargo on the factsheet as well. So, now that the call has ended, you know, both the content of the call and the factsheet embargo will lift.

And as a reminder, this call was on background, attributable to a "senior administration official." So, thanks, everyone, for joining.

SENIOR ADMINISTRATION OFFICIAL: Thank you.

10:25 A.M. EDT