By Michael Stumo
It’s an adage that history repeats itself. Once again, Washington is on alert as Russia amasses troops on the Ukraine border. It’s a worrisome situation, and it poses a potential repeat of Russia’s 2014 invasion of Crimea. At the time, the Obama administration responded with sanctions on Russian companies.
Despite these measures, however, many of Russia’s state-owned companies continue to be actively traded on U.S. capital markets. That has allowed them to keep raising money for Russian President Vladimir Putin’s ambitions. In response, the Biden administration must act—and finally end this backdoor access to U.S. capital markets.
After Russia invaded Crimea in 2014, the U.S. government imposed sanctions on an estimated 735 individuals and entities connected to Russian industry and Putin’s power brokers. The sanctions were intended to both limit access to the U.S. financial system and tighten controls on U.S. exports. These were sensible measures. But they left a glaring hole, since American investors can still buy and sell securities and investment products of leading Russian companies.
After the Crimean invasion, eight of Russia’s largest companies were sanctioned, including Gazprom , Sberbank , Lukoil /zigman2/quotes/200301672/delayed LUKOY -42.00% , VTB , Novatek /zigman2/quotes/204778483/delayed NOVKY -23.42% , and Rosneft . However, as former Reagan National Security Council (NSC) senior director Roger Robinson Jr. has noted , these companies are still trading on U.S. stock exchanges. And both Gazprom and Sberbank remain state-owned—and under Moscow’s influence.
In a recent interview, Robinson explained that the U.S. Commerce Department currently maintains 453 Chinese companies on its “Entity List.” Due to their involvement in programs related to “weapons of mass destruction” or “activities contrary to U.S. national security,” these companies are blocked from accessing U.S. equipment and technology. However, only four of them are actually barred from raising money in U.S. capital markets.
This points to a wider problem, since Wall Street isn’t just trading Russian companies. Many of China’s leading companies are also available through U.S. exchanges and other investment products.
Earlier this year, the U.S.-China Economic and Security Review Commission (USCC) reported that 248 Chinese companies are listed on U.S. stock exchanges. Many of these companies are state-owned, and as the USCC explains, are subject to the “pressure and control” of the Chinese Communist Party.
Essentially, Wall Street is helping to prop up Chinese firms that directly compete with American companies and workers. For example, China Mobile /zigman2/quotes/200868736/delayed HK:941 -1.65% funnels R&D funds to Huawei so that it can develop its spying network technology. Others, like Aluminum Corporation of China, build aluminum mills that compete with America’s aluminum producers. Most concerning, though, are the companies that supply Beijing with advanced technologies for the nation’s military buildup and modernization. That includes a new hypersonic glide vehicle tested this summer that’s capable of carrying a nuclear warhead.
This is an egregious lapse for America’s national security. While the federal government bans these entities from directly contracting with U.S. individuals and businesses, Wall Street is still helping them raise money from America’s retail and institutional investors. Doing so has allowed China’s repressive regime to expand its dominance both at home and abroad.
As the Biden administration weighs policy options regarding Russia’s buildup along the Ukraine border, Washington must confront the fact that Wall Street is helping to fund this very aggression. And even as a potential Russian invasion of another sovereign nation looms, Russian companies are continuing to raise money from U.S. investors.
In late 2020, President Donald Trump responded to China’s duplicitous use of America’s stock markets. He issued an executive order establishing new rules to prevent Beijing from using America’s capital markets to fund Chinese military companies. President Joe Biden has largely sustained this policy toward companies connected to China’s military and industrial complex.
Now, the Biden administration must use all the deterrence tools available and apply capital-market sanctions against Russian companies previously punished for Crimea but still enjoying access to U.S. markets.
Ultimately, Biden must expand this executive order to include any foreign companies that aid America’s adversaries—not just those directly connected to China’s military operations. Otherwise, Wall Street’s self-interest will continue to override U.S. national and economic security.
Michael Stumo is CEO of the Coalition for a Prosperous America (CPA). Follow him on Twitter at @michael_stumo