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Sanctions against Russia have inflicted a considerable blow, undermining Putin’s ability to sustain military aggression. They include trade restrictions, freezing the assets of Russian oligarchs, restricting Russia’s access to the global payments system, and blocks on Russia’s central bank’s ability to use its foreign reserves.
How can they be strengthened? How can we close the loopholes? What can companies and individuals do?
There are a number of further steps we can, and should, take.
1. Closing the loopholes
First, sanctions are only effective if they are difficult to bypass. There are too many gaps in the recently announced sanctions that will limit their effectiveness unless those gaps can be closed.
For example, the plan to ban Russian banks from the global payments system SWIFT that helps banks pay each other is undermined by not banning all Russian banks from the system. Some European governments such as Germany have pushed to allow some Russian banks to remain connected to the network so they can continue paying for Russian natural gas. This loophole allows Russia’s companies, banks, and government to channel international monetary transfers via the Russian banks that remain connected to the global system, rendering the sanction a mere inconvenience. Extending the ban to all Russian banks would be a more effective measure. Critical payments for essential goods or services can use alternative systems in isolated instances, including the Russian payment system SPFS to which some German banks are already connected.
An even more effective measure would be to prohibit Russian banks and state-owned enterprises from accessing foreign currencies, as was done on the Russian central bank causing a collapse of the ruble. That was perhaps the most damaging sanction imposed to date and could be used against Russian commercial banks and Russian state-owned enterprises. After all, banning Russia from SWIFT does not prevent it from making cross-border payments, it just makes the process less convenient. Cutting off access to foreign currencies and accounts imposes a heavier toll.
Another example is the plans by European and North American countries to freeze Russian oligarch assets – these are undermined by the fact that research shows that most Russian oligarch assets reside elsewhere in tax havens such as the British Virgin Islands, Panama, Cayman Islands, Hong Kong, Singapore, Bahamas, and Bermuda. Cutting off those tax havens from the global financial system unless they also commit to freezing assets of Russian oligarchs and supporters would vastly increase the bite of those sanctions.
Further, the number of sanctioned individuals range between a handful to around 50, with different countries having different lists of sanctioned individuals. These narrow lists miss many of the largest Russian oligarchs, such as those on Forbes' list of the richest Russians and the 2,071 or so Russian owners of shell companies in Panama, exposed by the Panama Papers leak. A broader list of sanctioned individuals, shared globally and sanctioned consistently, would further increase the effectiveness of this sanction.
2. Getting corporates on board
Second, corporations around the world can step up and support sanctions. Particularly large companies that do business with Russia.
Corporations increasingly recognise their responsibilities in promoting social justice and environmental protection rather than simply maximising the bottom line and this is an occasion in which companies can demonstrate their commitment to social justice.
Sporting associations are doing their part. The Russian grand prix has been cancelled. The UEFA football Champions League final has been moved from St Petersburg to Paris. The International Olympic Committee has urged all international sports federations to relocate or cancel events planned in Russia or Belarus.
Some companies have condemned Russia and taken actions. For example, supermarkets in Estonia and elsewhere have removed Russian goods from their shelves and paused contracts with Russian companies.
If other companies followed suit, pausing trade with Russia and ceasing financing of Russian companies until Russia withdraws its military from Ukraine, economic pressure could be expanded beyond existing government measures.
For companies, publicising the actions that they have taken and linking them to the invasion of Ukraine would help signal their corporate conscience to customers and investors who are increasingly looking for socially responsible firms, and send a stronger message to Russia about the breadth and depth of the condemnation. My colleague, Dr Marta Khomyn provides more details on what companies can do.
Consumers can play a role too by demanding these actions of companies. Such demands can be effective. For example, two of Australia's largest liquor retailers, Dan Murphy's and BWS, recently conceded to pressure from Ukrainian Australians and announced they would remove Russian products from their shelves.
3. Sanctions at the second degree of separation
Third, sanctions are undermined by countries that continue to collaborate with Russia and are complicit in Russia’s military aggression.
For example, China is increasing coal and wheat imports from Russia providing a much-needed economic lifeline. It has not condemned the invasion of Ukraine. It holds more than 14% of Russia’s foreign currency reserves that could blunt efforts to block Russia’s access to foreign currencies. Belarus has been instrumental in enabling Russia's invasion from its border. India and the UAE joined China in abstained from a U.N. Security Council resolution demanding that Russia cease its invasion of Ukraine.
A step towards closing these loopholes is to extend condemnation to Russia’s supporters and countries that are undermining global efforts through complacency or inaction. Targeted sanctions of such countries aimed at limiting Russia’s ability to use those countries to circumvent current measures could help close the loopholes and cause them to rethink their support for Russia.
Doing so harnesses the power of network structure - many governments and companies have limited or no direct interactions with Russia, which means their sanctions against Russia will have little impact. But extended to the second degree of separation expands the economic power of sanctions because there are many more countries and companies that do business with those that have not condemned Russia's aggression.
Collateral damage and catalysts for a regime change
As a form of economic warfare, sanctions against Russia seek to cripple Putin’s ability to continue his invasion of Ukraine, reduce the chances that Russia’s military incursions are expanded to other neighbouring countries, and strengthen domestic opposition to Putin’s policies in a way that could threaten or topple his regime.
Broader and harsher sanctions come with costs. First, there are costs to the countries and companies imposing the sanctions. For example, lost revenue for companies ceasing business with Russia, higher oil and commodity prices, losses to investors. But those are the cost of assisting Ukraine in the first instance and protecting democracy and sovereignty at the broader level.
Many sanctions also come with collateral damage, including to the Russian people irrespective of whether they support or oppose Putin’s actions. Many of them are also victims in this war. But the cost of inaction is much graver.
While some sanctions will undoubtedly affect Russian citizens that do not support Putin’s actions, the civil unrest caused by such sanctions can destabilise Putin’s regime and undermine his power as he is forced to grapple with civil unrest.
Ultimately, an end to the Putin regime is likely to be the only way to bring sustainable peace to the region. Given the reluctance of western nations to directly intervene, a regime change can only come from the collective want of the Russian people when they decide “enough is enough”. Signs of this are emerging with Russians taking to the streets to protest against Putin, despite risking arrest and possibly worse.
The rest of the world can only hope the current events and sanctions will serve as enough of a catalyst for a large scale civilian uprising within Russia.
Takeaways:
- A number of loopholes in current sanctions should be closed to give them more effect
- Sanctions can be strengthened against Russian banks, state-owned enterprises, and oligarchs
- Countries that continue to support Russia undermine the global efforts - should be condemned and can be restructed with targeted sanctions
- Companies can help by ceasing business with Russia
- Individuals can help by calling on companies and governments to do their part