May 4th, 2014

Cohen: Sanctions path is “strong and strategic”

CNN’s FAREED ZAKARIA GPS features an interview with the Under Secretary for Terrorism and Financial Intelligence in the U.S. Treasury Department, David S. Cohen. Cohen spoke about the U.S. sanctions on Russia and why he thinks they will work. 

A transcript of the interview is available after the jump.


TRANSCRIPT:

FAREED ZAKARIA, HOST: On Friday, President Obama and German Chancellor Angela Merkel stood together in the White House Rose Garden to make the case for sanctions against Russia and argue that coordinated sanctions will make President Putin change course.

This came four days after the U.S. announced a third round of Russian sanctions against seven high-ranking Russians all said to be in Putin’s “inner circle”. They were hit with asset freezes and travel bans.

And seventeen Russian companies were also sanctioned. 

Russia’s deputy foreign minister declared the sanctions “meaningless, shameful and disgusting.”

All the while the violence in Ukraine has spiraled.

The American official responsible for sanctions joins me now to talk about existing and future measures.

David Cohen is Under Secretary for Terrorism and Financial Intelligence at the United States Treasury Department.

David, the United States seems very committed to this path.  And yet most observers, experts don’t think these sanctions will work, that they’re too limited, too narrow, just a few people in banks.

Why are they wrong?

DAVID COHEN, UNDERSECRETARY FOR TERRORISM AND FINANCIAL INTELLIGENCE AT THE UNITED STATES TREASURY:  Well, the sanctions path that we are pursuing is a — I think a strong and strategic path.

What we have been doing is imposing sanctions on those who are involved in violating the sovereignty, in the territorial integrity of Ukraine.  We’re going to continue to do that.

But more broadly, also imposing sanctions as you noted on some very significant business people in Russia, on some banks in Russia and on some significant energy companies in Russia in part to cause some damage and President Putin himself has said that the sanctions are causing damage, but also in part to signal that we are prepared to do more, to create really frankly an uncertainty in the marketplace. And that uncertainty is in fact punishing the Russian economy.

If you look at the numbers, and we can go through this, the GDP numbers, the stock market,

the cost of borrowing from the Russian government, it’s all having a very significant toll.

ZAKARIA:  So explain how these sanctions, particularly the American sanctions, you know, that are really sanctions that do not allow these companies, the Russian companies, to in some way participate in the American financial system. Why do you think they’re so effective?

COHEN:  Well, they’re very effective because the dollar is the dominant currency in which all international trade occurs.

And when we impose a sanction on a company, that means that they cannot have access to U.S. financial institutions, to U.S. businesses, or really to trade in the dollar.  So if they are purchasing a tractor or selling a tractor, it is likely that that transaction will be — the currency used in that transaction will be the dollar.  And if that company is sanctioned and is frozen out of the U.S. financial system, they won’t be able to complete that transaction.

ZAKARIA:  And we can do that unilaterally without anybody else involved because the U.S. financial system is really at — the kind of central nervous system of global commerce.

COHEN:  Exactly.  The vast majority of global commerce uses the dollar, either directly or because whatever currency is being used, they need to trans — they need to change the currency into dollars in the course of the transaction for the transaction to go forward. 

ZAKARIA:  Is that — was that your experience with the Iran sanctions, that this was the most powerful piece of the — you know, that because the United States could close off that dollar transaction?

COHEN:  Yes, absolutely.  The sanctions that we’ve imposed on the Iranian financial system which has largely isolated it from the international financial system, has had a dramatic impact on Iran’s ability to transact with the world and it has reverberated through the Iranian economy.  There are obviously other additional important aspects or sanctions against Iran.  But the financial sanctions which, you know, prevented Iran essentially from being able to trade freely with the world has had a very significant impact.

ZAKARIA:  When you talk about ratcheting up the pressure, do you believe — are you watching on a sort of daily basis? In other words, should we expect that there might be additional sanctions not in the next several months, but in the next several weeks.

COHEN:  Yes.  Look, we can apply sanctions at the time and the place of our choosing and in the fashion of our choosing.  So I think everyone ought to expect that we will continue to watch the situation carefully and will choose our steps in response to what’s happening there.

I think it’s an important point.  What we’re trying to achieve here is to change the calculus of the Russian government.  We’re trying to create an incentive for the Russian government to recognize that what they need to do is to deescalate the situation in Ukraine, to take a different path.

And we’re going to continue to work on creating those conditions in the Russian economy and in the people close to President Putin to try and encourage them to make the right choice there.

ZAKARIA:  Do you think Putin cares about economic costs? I mean, he is 20 points up in the polls by some measures.

COHEN:  I don’t think any leader can blithely ignore the fact that their GDP, which was at the beginning of the year thought to be growing, their economy growing at about 2 percent rate; the consensus estimates now are essentially no growth in Russia.  The IMF has significantly reduced its projections for growth in Russia.

The fact that they tried to do a bond offering last week in rubles, just try to raise money in rubles and there was so limited interest in lending money to the Russian government they had to pull back the bond offering.

The fact that the stock market is down 13 percent this year, I don’t think any leader can just ignore those sorts of very significant economic weaknesses.

ZAKARIA:  You’ve been very explicit in saying that you’re going after Putin’s inner circle; you even made a reference once to certain entities in which Putin had investments.  So lots of people wonder do you know where Putin’s money is?

COHEN:  I’m not going to talk about what is an intelligence matter.

ZAKARIA:  But you do know?

COHEN:  I’m not going to comment one way or the other.

ZAKARIA:  David Cohen, pleasure to have you on.

COHEN:  Thank you.  Good to be here.

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