Stay up to date with free updates
Simply sign in War in Ukraine myFT Digest — delivered directly to your inbox.
The writer is Deputy Secretary of the US Treasury
Vladimir Putin’s appointment of an economist as head of the Russian Ministry of Defense has only one purpose: to focus the country’s economy on the production of military equipment. This is a direct result of deliberate efforts by the United States and our partners to use our sanctions and export controls to target our military industrial complex. Russia. Our collective effort is aimed at limiting the Kremlin’s ability to produce the weapons needed for the war in Ukraine.
Between unprecedented multilateral sanctions and a global private sector exodus, Putin faces a choice: protect the future health of the country’s economy or continue to prosecute his illegal invasion. He clearly chose the second option, turning Russia into a full-blown war economy. At the expense of spending on citizens, Moscow has doubled defense spending from 14% of the 2021 budget to 29% this year. The Kremlin has nationalized industries across the economy – from auto dealers to chemical companies to metal producers. And businesses are reorienting from serving the public to serving the military, such as a former bakery that is now making drones.
I was in Kyiv and Germany this week discussing with my counterparts what we can do to continue to put sand in Russia’s gears. war machine. First and foremost, we must acknowledge that this machine is powered by and depends on vital imported components for the production of ammunition, missiles and tanks. Previously, some sectors of the Russian economy imported dual-use goods to carry out normal economic activity. But now the entire Russian industrial base is in a state of disrepair war firmly, we need to ensure that sensitive dual-use goods – from machine tools to microelectronics – do not enter the country. We need the private sector to help us accomplish this goal.
It is important to recognize that the success of our sanctions and export controls can only be achieved through cooperation with the private sector. Companies have done a lot to help us limit the Kremlin’s access to goods, but we need them to do more. It is vital that our manufacturers take every step in their power to scrutinize their supply chains and prevent Western-made devices from ending up in weapons being used by the Kremlin. deployment.
We also need it financial institutions in our countries to test their correspondent relationships in countries that are providing material support to Russia’s military industrial base. This includes paying special attention to small and medium-sized banks that are often the Kremlin’s preferred means of processing payments for military goods.
We realize that doing this work is not easy and takes time. It could also come at the cost of short-term profits, especially for businesses with long-term ties to Russia. But we should clearly see that the Russian army is supported by mobilized forces economy will only grow in ambition. The costs to our companies, to the American and global economies of an emboldened Russia will dwarf the costs of acting now. We need only look back at the rise in global inflation caused by Russia’s full-scale invasion of Ukraine in 2022 and the lingering effects around the world today.
When I talk to business leaders in our coalition, they understand the concerns and are willing to do their part. They were right to ask us for two things to help them help us. The first is more information. It’s critical that our coalition continues to provide insight, action, and variety to our companies working to do the right thing. The second request is for a risk-based governance and oversight mechanism that allows them to better focus resources on our key concerns. We are prioritizing these reforms to our anti-money laundering regime in the United States. But we also know that other countries need to take steps such as improving customs regimes and export controls.
The top strategic questions for Russia today revolve around centralized military planning, procurement and production. That is why Putin has assigned the new defense minister the task of “opening the defense ministry to innovation.” To be clear, the innovation he sought was newfound efficiency in destroying Ukraine’s communities, infrastructure, and people. Together, we can and must do all we can to stop the Russian war machine.
