Enforcement, Implementation Questions Surround Potential Russia Sanctions, Experts Say

Important questions still surround the implementation of a potential multilateral sanctions package against Russia, economic and security experts said, including U.S. efforts to enforce an expansion of the foreign-direct product rule. Although details may not yet be clear, a former State Department official warned that new U.S. sanctions against Russia could soon turn strict enough to mirror trade restrictions against Iran.

“If you look at what the sanctions will look like a few months after a Russian invasion of Ukraine, I suspect that they'll only get stronger,” Ed Fishman, who previously worked on Russia sanctions at the State Department, said during a Feb. 14 event hosted by the Center for a New American Security. “I think it's only a matter of time before we see really almost Iran-level sanctions on Russia.”

The U.S. last month previewed what it said will be a “massive” set of multilateral export controls and sanctions against Russia if President Vladimir Putin decides to invade Ukraine, including the use of the FDP rule and heavy-hitting financial sanctions (see 2201250042 and 2201270049).

Although the FDP rule could cut Russia off from a range of foreign-produced technologies -- including semiconductor equipment -- made with U.S. tools or software, the Biden administration hasn’t said how it would deploy the rule. The rule could be narrowly applied to specific Russian entities -- similar to how it was deployed against Huawei in 2020 (see 2008170029) -- or used to target broad industrial sectors, said Emily Kilcrease, program director of the CNAS energy, economics and security program.

In a less likely scenario, Kilcrease said, the rule could be applied to the entire Russian country. The administration has suggested it's more likely to restrict exports to Russia’s defense, aerospace and emerging technology sectors as opposed to everyday consumers. “It does seem like there's some sort of targeting,” Kilcrease said, “but we don't know exactly what that targeting looks like.”

She specifically pointed to a Bureau of Industry and Security rule earlier this month that reorganized and clarified the scope of the FDP rules in the Export Administration Regulations (see 2202020021), which she said may help the U.S. target specific Russian entities. The rule will “make it a little bit easier bureaucratically to add new entities to essentially the Huawei-type control list,” Kilcrease said. The administration is "ready to do this, and clearly they have some targets in mind.”

Even with clear targets, the rule will be “really complicated” to enforce, Kilcrease said, especially for semiconductor equipment and technologies. “When you look at the semiconductor value chain, even though we have choke points at certain very important nodes along that value chain,” she said, “what we don't have is any country or any company” with entire “control over the value chain.”

Because of this, Kilcrease said, China could “potentially play a bit of a spoiler role.” The State Department earlier this month threatened to penalize China if it tries to help Russia evade impending U.S. export controls (see 2202030068), which could include chip products. “Clearly the administration is worried about that,” Kilcrease said. “I think it is a real open question about how willing China would be to enforce U.S. extraterritorial export controls for goods that flow through China.”

Although the U.S. and the EU are clearly ready to impose stronger export controls against Russia, it’s unclear if those restrictions would necessarily stop or reverse a Russian invasion of Ukraine, said Maria Shagina, a sanctions expert with the Finnish Institute of International Affairs and the Geneva International Sanctions Network. “If we impose sanctions on, let's say, artificial intelligence, how will this change Putin's calculus not to invade Ukraine tomorrow?” Shagina said during the event. “I'm not so sure that this will be a powerful deterrence” in the short-term.

She did say, however, that adding major Russian banks to the Treasury Department’s Specially Designated Nationals List could have an “enormous impact” on the Russian economy. She pointed to Russia’s Sberbank as one candidate for sanctions. “If the bank is on this list,” she said, “no one would touch it.”

Fishman said he isn’t “all that concerned about blowback” from U.S. industry for sanctioning a Russian financial institution such as Sberbank, partly because the Biden administration will likely issue licenses with a wind-down period for American companies. He also said he isn't worried about economic retaliation from Russia. “The U.S. really just has complete escalation dominance,” said Fishman, an energy, economics and security expert with CNAS. “I'm not all that concerned about getting in a tit-for-tat, because it wouldn't be good for Russia if that were to happen.”

But Russia could use other types of retaliatory measures, Shagina said, including cyberattacks and “energy blackmail,” which may be difficult to trace to the Kremlin. “For Russia, it might be easier to use it in a very informal way with plausible deniability, saying that wasn't the government,” she said. “This way there's more room for hitting” the West.