Opinion: US capital markets are still funding Russia’s Ukrainian ambitions

It is a saying that history repeats itself. Once again, Washington is on high alert as Russia amass troops on the Ukrainian border. It’s a worrying situation, and it poses a potential repeat of Russia’s 2014 invasion of Crimea. At the time, the Obama administration responded with punishments on Russian companies.

Despite these measures, however, many Russian state-owned companies continue to be actively traded on US capital markets. This allowed them to continue fundraising for the ambitions of Russian President Vladimir Putin. In response, the Biden administration must act and finally end this backdoor access to US capital markets.

After Russia invaded Crimea in 2014, the US government imposed punishments about 735 people and entities linked to Russian industry and Putin’s power brokers. The sanctions were aimed at both limit access to the US financial system and tighten controls on US exports. These were sensible measures. But they left a glaring hole, since US investors can still buy and sell securities and investment products from major Russian companies.

After the invasion of Crimea, eight of Russia’s largest companies were sanctioned, including Gazprom OGZPY,
-0.53%,
Sberbank SBRCY,
,
Lukoil LUKOY,
+0.36%,
VTB VTBR,
+0.38%,
Novatek NOVKY,
-0.11%,
and Rosneft RNFTF,
+10.42%.
However, as former Reagan National Security Council (NSC) Senior Director Roger Robinson Jr. Noted, these companies are still listed on US stock exchanges. And both Gazprom and Sberbank remain state-owned and Moscow-influenced.

A military buildup along the Ukrainian border further strains ties between Russia and the United States, after clashes over cybercrime, expulsions of diplomats and a migrant crisis in Belarus. The WSJ explains what is deepening the rift between Washington and Moscow. Photo Composite/Video: Michelle Inez Simon

In a recent interview, Robinson explained that the US Department of Commerce currently maintains 453 Chinese companies on its “List of entities”. Due to their involvement in programs related to “weapons of mass destruction” or “activities contrary to the national security of the United States”, these companies cannot access American equipment and technology. However, only four of them are actually prohibited from raising funds in US capital markets.

This highlights a larger problem, since Wall Street is not just selling Russian companies. Many leading Chinese companies are also available through US exchanges and other investment products.

Earlier this year, the United States-China Economic and Security Review Commission (USCC) reported that 248 Chinese companies are listed on US stock exchanges. Many of these companies are state-owned and, as the USCC explains, are subject to “pressure and control” by the Chinese Communist Party.

Essentially, Wall Street helps support Chinese companies that directly compete with American companies and workers. For example, China Mobile 941,
+3.04%
is funneling R&D funds to Huawei so it can develop its spy network technology. Others, like Aluminum Corporation of China, build aluminum plants that compete with American aluminum producers. Of most concern, however, are the companies supplying Beijing with cutting-edge technologies to bolster and modernize the country’s military. This includes a new hypersonic glide vehicle tested this summer that is capable of carrying a nuclear warhead.

This is a flagrant breach of American national security. While the federal government prohibits these entities from contracting directly with US individuals and companies, Wall Street still helps them raise funds from US retail and institutional investors. This 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 Ukrainian border, Washington must contend with the fact that Wall Street is helping fund that same aggression. And even as a possible Russian invasion of another sovereign nation looms, Russian companies continue to raise funds from American investors.

In late 2020, President Donald Trump reacted to China’s misleading use of US stock markets. He issued an executive order establishing new rules to prevent Beijing from using US capital markets to finance Chinese military companies. President Joe Biden has largely supported this policy toward companies tied to China’s military and industrial complex.

Now, the Biden administration must use all available deterrent tools and apply capital market sanctions against Russian companies previously punished for Crimea but still enjoying access to US markets.

Ultimately, Biden must expand this executive order to include all foreign companies that aid America’s adversaries, not just those directly tied to China’s military operations. Otherwise, Wall Street’s self-interest will continue to take precedence over US national and economic security.

Michael Stumo is CEO of the Coalition for a Prosperous America (CPA). Follow him on Twitter at @michael_stumo