Treasury Sanctions Members of the Russia-Based Cybercriminal Group Evil Corp in Tri-Lateral Action with the United Kingdom and Australia
10/01/2024
U.S. Department of the Treasury
Office of Public Affairs
Press Release: FOR IMMEDIATE RELEASE
October 1, 2024
Contact: Treasury Public Affairs; Press@Treasury.gov
Treasury Sanctions Members of the Russia-Based Cybercriminal Group Evil Corp in Tri-Lateral Action with the United Kingdom and Australia
The United States takes additional action against the Russia-based cybercriminal group Evil Corp, identifying and sanctioning additional members and affiliates
WASHINGTON — Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating seven individuals and two entities associated with the Russia-based cybercriminal group Evil Corp, in a tri-lateral action with the United Kingdom’s Foreign, Commonwealth & Development Office (FCDO) and Australia’s Department of Foreign Affairs and Trade (DFAT). On December 5, 2019, OFAC designated Evil Corp, its leader and founder Maksim Viktorovich Yakubets and over a dozen Evil Corp members, facilitators, and affiliated companies pursuant to Executive Order (E.O.) 13694, as amended by E.O. 13757 (“E.O. 13694, as amended”). The United Kingdom and Australia are concurrently designating select Evil Corp-affiliated individuals designated by OFAC today or in 2019. Additionally, the U.S. Department of Justice has unsealed an indictment charging one Evil Corp member in connection with his use of BitPaymer ransomware targeting victims in the United States. Today’s designation also coincides with the second day of the U.S.-hosted Counter Ransomware Initiative summit which involves over 50 countries working together to counter the threat of ransomware.
“Today’s trilateral action underscores our collective commitment to safeguard against cybercriminals like ransomware actors, who seek to undermine our critical infrastructure and threaten our citizens,” said Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence Bradley T. Smith. “The United States, in close coordination with our allies and partners, including through the Counter Ransomware Initiative, will continue to expose and disrupt the criminal networks that seek personal profit from the pain and suffering of their victims.”
Evil Corp is a Russia-based cybercriminal organization responsible for the development and distribution of the Dridex malware. Evil Corp has used the Dridex malware to infect computers and harvest login credentials from hundreds of banks and other financial institutions in over 40 countries, resulting in more than $100 million in theft losses and damage suffered by U.S. and international financial institutions and their customers. In a concurrent action with OFAC’s December 2019 sanctions designations, the U.S. Department of Justice indicted Maksim and Evil Corp administrator Igor Turashev on criminal charges related to computer hacking and bank fraud schemes, and the U.S. Department of State’s Transnational Organized Crime Rewards Program issued a reward for information of up to $5 million leading to the capture and/or conviction of Maksim.
Additionally, Maksim used his employment at the Russian National Engineering Corporation (NIK) as cover for his ongoing criminal activities linked to Evil Corp. The NIK was established by Igor Yuryevich Chayka (Chayka), son of Russian Security Council member Yuriy Chayka, and his associate Aleksei Valeryavich Troshin (Troshin). In October 2022, OFAC designated Chayka, Troshin, and NIK pursuant to E.O. 14024.
EVIL CORP MEMBERS AND AFFILIATES
Eduard Benderskiy (Benderskiy), a former Spetnaz officer of the Russian Federal Security Service (FSB), which is designated under numerous OFAC sanctions authorities, current Russian businessman, and the father-in-law of Evil Corp’s leader Maksim Viktorovich Yakubets (Maksim), has been a key enabler of Evil Corp’s relationship with the Russian state. Benderskiy leveraged his status and contacts to facilitate Evil Corp’s developing relationships with officials of the Russian intelligence services. After the December 2019 sanctions and indictments against Evil Corp and Maksim, Benderskiy used his extensive influence to protect the group.
While he has no official position in the Russian government, Benderskiy portrays himself as an aide to the Russian Duma. Around 2017, one of Benderskiy’s private security firms was involved in providing security for Iraq-based facilities operated by the Russian oil company Lukoil OAO. This same private security firm has been lauded by the FSB, the Russian Ministry of Foreign Affairs, the Russian Duma, and other Russian government bodies.
From at least 2016, Maksim had business interactions with Aleksandr Tikhonov (Tikhonov), former commander of the FSB Special purpose Center, Russian government leaders, including OFAC-designated persons Dmitry Kozak (Kozak) and Gleb Khor, and leaders of prominent Russian banks like OFAC-designated person Herman Gref (Gref), the Chief Executive Officer of Sberbank. In 2019, Benderskiy used his connections to facilitate a business deal that included Maksim and Kozak, which they believed would earn tens of millions of dollars per month. In the same year, Benderskiy hosted a meeting with Maksim and Gref to discuss business contracts with NIK.
After the December 2019 sanctions and indictments against Evil Corp and Maksim, Maksim sought out Benderskiy’s guidance. Benderskiy used his extensive influence to protect the group, including his son-in-law, both by providing senior members with security and by ensuring they were not pursued by Russian internal authorities.
OFAC designated Benderskiy pursuant to E.O. 14024 for being owned or controlled, or having acted or purported to act for or on behalf of, directly or indirectly, the Government of the Russian Federation, and pursuant to E.O. 13694, as amended, for having materially assisted, sponsored, or provided financial, material, or technological support, or goods or services in support of, Maksim, a person whose property and interests in property are blocked pursuant to E.O. 13694, as amended.
Benderskiy is the general director, founder, and 100 percent owner of the Russia-based business and management consulting companies Vympel-Assistance LLC and Solar-Invest LLC. OFAC designated Vympel-Assistance LLC and Solar-Invest LLC pursuant to E.O. 14024 and E.O. 13694, as amended, for being owned or controlled, or having acted or purported to act for or on behalf of, directly or indirectly, Benderskiy, a person whose property and interests in property are blocked pursuant to E.O. 14024 and E.O. 13694, as amended.
Viktor Grigoryevich Yakubets (Viktor) is Maksim’s father and a member of Evil Corp. In 2020, Viktor likely procured technical equipment in furtherance of Evil Corp’s operations. OFAC designated Viktor pursuant to E.O. 13694, as amended, for having materially assisted, sponsored, or provided financial, material, or technological support, or goods or services in support of, Evil Corp, a person whose property and interests in property are blocked pursuant to E.O. 13694, as amended.
Maksim has been careful about exposing different group members to different areas of business, however, he placed a lot of trust in his long-term associate and second-in-command, Aleksandr Viktorovich Ryzhenkov (Aleksandr Ryzhenkov). Maksim started working with Aleksandr Ryzhenkov around 2013 while they were both still involved in the “Business Club” group. Their partnership endured, and they worked together on the development of a number of Evil Corp’s most prolific ransomware strains. In 2016, Aleksandr Ryzhenkov, who is associated with the online moniker “Guester” (a pseudonym he has used while conducting operations on behalf of Evil Corp), sought to acquire internet bots in an Evil Corp operation targeting Switzerland-based targets. Since at least mid-2017, Aleksandr Ryzhenkov served as an interlocutor for Maksim with most of the Evil Corp members and oversaw operations of the cybercriminal group. In mid- 2017, Aleksandr Ryzhenkov targeted a New York-based bank. Following the December 2019 sanctions and indictment, Maksim and Aleksandr Ryzhenkov returned to operations targeting U.S.-based victims. In 2020, Aleksandr Ryzhenkov worked with Maksim to develop “Dridex 2.0.”
Sergey Viktorovich Ryzhenkov (Sergey Ryzhenkov), Aleksey Yevgenevich Shchetinin (Shchetinin), Beyat Enverovich Ramazanov (Ramazanov), and Vadim Gennadievich Pogodin (Pogodin) are members of Evil Corp who have provided general support to the cybercriminal group’s activities and operations.
In 2019, Sergey Ryzhenkov, the brother of Aleksandr Ryzhenkov, helped to move Evil Corp operations to a new office. In 2020, after Evil Corp’s sanctions designation and indictment, Sergey Ryzhenkov helped Aleksandr Ryzhenkov and Maksim develop “Dridex 2.0” malware. In 2017 through at least 2018, Shchetinin worked with several other Evil Corp members, including Denis Igorevich Gusev, Dmitriy Konstantinovich Smirnov, and Aleksei Bashlikov, to purchase and exchange millions of dollars’ worth of virtual and fiat currencies. In early 2020, Pogodin played a crucial role in an Evil Corp ransomware attack, and in mid-2020, he contributed to an Evil Corp ransomware attack on a U.S. company.
OFAC designated Aleksandr Ryzhenkov, Sergey Ryzhenkov, Shchetinin, Ramazanov, and Pogodin pursuant to E.O. 13694, as amended, for having materially assisted, sponsored, or provided financial, material, or technological support, or goods or services in support of, Evil Corp, a person whose property and interests in property are blocked pursuant to E.O. 13694, as amended.
In addition to today’s sanctions designations, the U.S. Department of Justice has unsealed an indictment charging Aleksandr Ryzhenkov with using the BitPaymer ransomware variant to target numerous victims throughout the United States. Aleksandr Ryzhenkov used a variety of methods to intrude into computers systems and used his ill-gotten access to demand millions of dollars in ransom. The Federal Bureau of Investigation’s published a wanted poster for Aleksandr Ryzhenkov for his alleged involvement in ransomware attacks and money laundering activities. Also today, the United Kingdom designated 15 and Australia designated three Evil Corp members and affiliates.
SANCTIONS IMPLICATIONS
As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons.
In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned persons may expose themselves to sanctions or be subject to an enforcement action. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person.
The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the SDN List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.
See OFAC’s updated Advisory on Potential Sanctions Risk for Facilitating Ransomware Payments for information on the actions that OFAC would consider to be mitigating factors in any related enforcement action involving ransomware payments with a potential sanctions risk. For information on complying with sanctions applicable to virtual currency, see OFAC’s Sanctions Compliance Guidance for the Virtual Currency Industry.
Click here for more information on the individuals and entities designated today.
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Treasury Designates Extremist Settler Group in West Bank
10/01/2024
U.S. Department of the Treasury
Office of Public Affairs
Press Release: FOR IMMEDIATE RELEASE
October 1, 2024
Contact: Treasury Public Affairs; Press@Treasury.gov
Treasury Designates Extremist Settler Group in West Bank
WASHINGTON — Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating Hilltop Youth, a violent extremist group that has repeatedly attacked Palestinians and destroyed Palestinian homes and property in the West Bank, pursuant to Executive Order (E.O.) 14115. Through these violent activities, Hilltop Youth is actively destabilizing the West Bank and harming the peace and security of Palestinians and Israelis alike. Hilltop Youth has devastated Palestinian communities and carried out killings, mass arson, and other so-called “price tag” attacks to exact revenge and intimidate Palestinian civilians, and has repeatedly clashed with the Israeli military as it counters their activities.
“The worsening violence and instability in the West Bank are detrimental to the long-term interests of Israelis and Palestinians, and the actions of violent organizations like Hilltop Youth only exacerbate the crisis,” said Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence Bradley T. Smith. “The United States will continue to hold accountable the individuals, groups, and organizations that facilitate these hateful and destabilizing acts.”
As noted in FinCEN’s February 1, 2024 Alert and July 11, 2024 Supplemental Alert, the United States has consistently opposed violence in the West Bank, including attacks by Israeli violent extremist settlers against Palestinians and attacks by Palestinian violent extremists against Israelis. The United States will continue to seek accountability and justice for all acts of violence against civilians in the West Bank, regardless of the perpetrator or the victim. Treasury remains concerned by reports of escalating violence in the West Bank and encourages continued reporting by financial institutions of suspicious activity potentially related to the financing of these violent acts.
Concurrently, the Department of State is designating two individuals pursuant to E.O. 14115. Eitan Yardeni is being designated for his connection to violence or threats of violence targeting civilians in the West Bank. Avichai Suissa leads Hashomer Yosh, a West Bank-based entity designated by the United States in July 2024 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of individuals and entities blocked pursuant to E.O. 14115.
VIOLENT ORGANIZATION ENGAGED IN “PRICE TAG” ATTACKS AND OTHER VIOLENCE
Hilltop Youth is a violent group comprised of extremist Israeli settlers. In organized group violence and “price tag” attacks—a term created by violent settler extremists indicating that acts against their interests would carry a price—Hilltop Youth has conducted a campaign of violence against Palestinians, engaging in killings, arson, assaults, and intimidation intended to drive Palestinian communities out of the West Bank. In the April 2024 attack on the Palestinian town of al-Mughayyir, for example, Hilltop Youth set fire to homes, buildings, and vehicles, beat villagers, looted property, including livestock, and left one Palestinian dead. In June 2023, hundreds of members of Hilltop Youth attacked the Palestinian town of Turmus Aiya and burned homes, cars, and fields, leaving another Palestinian dead and others injured. Hilltop Youth has also vandalized churches and mosques, spray-painted hateful graffiti messages on Palestinian-owned property, and uprooted olive trees in its effort to intimidate and spread fear. Israel has declared that perpetrators of “price tag” attacks constitute an illegal organization and Hilltop Youth has been sanctioned in various jurisdictions around the world.
OFAC is designating Hilltop Youth pursuant to E.O. 14115 for being a foreign person that is responsible for or complicit in, or has directly or indirectly engaged or attempted to engage in planning, ordering, otherwise directing, or participating in an act of violence or threat of violence targeting civilians, affecting the West Bank.
SANCTIONS IMPLICATIONS
As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. U.S. persons may face civil or criminal penalties for violations of E.O. 14115. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation.
Financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person.
The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the Specially Designated Nationals and Blocked Persons (SDN) List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior.
For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.
Click here for more information on the persons designated today.
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Five facts on IMF governance … and what we should do about them
10/01/2024
U.S. Department of the Treasury
Office of Public Affairs
Press Release: FOR IMMEDIATE RELEASE
October 1, 2024
Contact: Treasury Public Affairs; Press@Treasury.gov
Five facts on IMF governance … and what we should do about them
As Prepared for Delivery
It’s October. Here in DC, that means that the annual meetings of the World Bank and the International Monetary Fund (IMF) are here! For me and my team at the U.S. Department of the Treasury, this is like Christmas or, perhaps, the Super Bowl.
Finance ministers and central bankers from all over the world come to town. Secretary Yellen meets counterparts. Think tanks and investment banks hold workshops. Distinguished academics debate various hot topics. It requires an immense amount of preparation. But it’s great.
The annual meetings are also a time to review the international economic policymaking process. One of my core responsibilities is to help oversee our relationship with the IMF, an institution that lends out tens of billions of dollars each year, tied to economic policy advice, and often with the goal of helping countries avoid, or recover from, crises. The IMF is clearly one of the most impactful elements of the global financial system, so it’s important to reflect on how to make it work even better.
In that spirit and toward that end, I wanted to kick off the season with what I consider to be five underappreciated facts on how the IMF is run – or what I refer to in the title as governance – and what I think we should do about them.
Fact 1: The IMF staff, and the IMF board, are (too) polite.
Don’t get me wrong, I’m a Midwesterner. I love politeness. But Keynes is reported to have said that the IMF had to serve as a “ruthless truth teller”. And I agree that it should do so even when it is uncomfortable, whether for borrower countries with programs or for their official creditors.
For example, the Fund often lends based on promises made by official bilateral creditors to forgive debt or to offer new financing, promises referred to as financing assurances. But even though this financing can be central to hold the IMF program together, the details on financing assurances – who gave them, when, in what form, and any failures to deliver on these commitments – are not always publicly disclosed.
In recent years, programs in Argentina, Ecuador, and Suriname, for example, all moved ahead on the basis of financing assurances that ultimately were either not delivered, or delivered with significant delays, something that was only addressed in passing by the Fund.
Just this past year, I traveled to Quito and to Islamabad to discuss with their reform-minded Finance Ministers the possible design of new IMF programs for Ecuador and Pakistan. In both cases, real resolve and decisive action will be needed to sustainably improve their fiscal situations, and the path of their adjustment will depend on the delivery of official financing. And yet, as with those earlier programs, the Fund’s papers on these new programs were similarly “polite”.
In the case of Ecuador, China has not provided financing assurances beyond the required first 12 months of the program. Rather than plainly detailing the risks this implies, including mentioning China by name, the program documents obliquely state that authorities are in discussions with their “main bilateral creditor.” In the case of Pakistan, program documents describe the total pooled financing coming from official bilateral lenders, but do not offer a creditor-by-creditor breakdown. We strongly support both of these programs, but for insiders and outsiders alike, this politeness can obscure key factors determining a program’s success. It also reduces the incentive for creditors to deliver, and ultimately to honor, their assurances in a timely manner.
Helpfully, the IMF recently took some big steps to fix this. Financing assurances reviews will now be more intensive in programs involving debt restructurings. This is an important improvement, but why stop there? A clear articulation of the details around financing assurances makes sense in all programs. I hope the Fund rigorously applies this new policy, plainly characterizes the relevant promises made and fulfilled or unfulfilled by official creditors, and ultimately, considers expanding its application so it becomes standard practice.
Another area where brutal, if impolite, honesty will be increasingly important relates to the IMF’s precautionary lending programs, notably the Flexible Credit Line (FCL). Countries that the IMF staff and Board judge to have very strong macroeconomic fundamentals and institutional quality, with sustained track records of sound policies, can pre-qualify for access to financing. Those countries can then draw down that line if needed without undertaking any required reforms or meeting other conditions, akin to a credit line from a bank. To date, six countries have had these FCLs, and some are quite large – Mexico’s 2016 FCL, for example, was for nearly $90 billion.
Last year, IMF staff recommended that, up to a size limit, these be treated as permanent, subject to periodic Board renewal, with no expectation or encouragement of qualifying countries to drop their credit lines. After all, countries pay a fee for these lines, and their strong macroeconomic positions and institutions merit a conditionality-free facility. The United States was proud to support this recommendation. It is good economics for countries to be able to purchase insurance in this way, and it is appropriate for the IMF to be the institution to provide it.
But this new policy will only constitute an improvement if the IMF staff and Board do not politely rubber stamp requests to renew these credit lines and, instead, seriously assess whether the country, in fact, remains qualified. If policies, or politics, or even shocks out of a countries’ control impair its economic situation or governance so that the borrower should no longer qualify for the credit line, the Fund must be prepared to acknowledge this.
The Fund is also sometimes too polite in its surveillance responsibilities. For example, as described in its Articles of Agreement, the IMF was established in part to “facilitate the expansion and balanced growth of international trade” and to “maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation”. However, if you read the Fund’s Article IV Reports, you will find that these sorts of topics get less attention than they deserve, including in globally significant economies like China’s. For example, the IMF does not publicly comment on the role of state-owned banks in managing China’s exchange rate or on why changes in the People’s Bank of China’s (PBOC’s) balance sheet don’t line up with reserve transactions in China’s balance of payments data. And while the Fund has built admirable expertise in compiling alternative measures of China’s local government debt, far beyond what authorities publish, it has neglected to apply this same analytical rigor to quantifying China’s industrial policies.
Finally, we the shareholders are also often too polite when voting on programs. A norm at the IMF Board has been to abstain, rather than vote no, to express disagreement. Why are “no” votes so rare? Perhaps early engagement between Board members, staff, and IMF leadership means that most programs only reach a vote if they command broad support. But it is important for the governance of any organization to have the ability to clearly voice opposition, in a non-stigmatized way, that is also reflected in the final tally. While I still expect it to be a very rare occurrence, I am convinced there are times when IMF members should ignore the niceties of an abstention, and vote “no” rather than accept a weak or problematic program.
Fact 2: The IMF is (sometimes) too risk averse!
Given the IMF’s role as a global lender of last resort to troubled economies, it may not shock to learn that, in many ways, it, and its Board, have a very conservative approach to risk. And for the most part, that makes sense and is what we support. But there are a few ways in which, by slightly relaxing its approach, the Fund may be more effective in accomplishing its mission.
One example is the Fund’s perspective on the possibility of having to tolerate some period of arrears. If the alternative is making disbursements to an off-track program where a country has not completed needed reforms, the IMF must choose arrears – the threat of arrears should not outweigh the need to maintain high standards. Only by designing strong programs and standing firmly behind required conditions can the IMF credibly affirm that countries are on a sustainable path. If a program is clearly off-track and disbursements are made simply so the country can pay back the Fund, it may in fact worsen the poor performance and make ultimate repayment less likely. Such behavior could also reduce other countries’ motivations to enact reforms and keep their own programs on track.
Another example is the Fund’s heavy reliance on co-financing from official bilateral creditors and multilateral development banks rather than having larger exposures on its own. Co-financing certainly has benefits – it can help share risk and marshal pressure and advice from other creditors to help the borrowing country adjust. But there are downsides too. Countries on the brink of macroeconomic disaster are sometimes forced to go hat-in-hand to bilateral creditors, which are often hesitant to lend more. In the worst cases, creditors use their significant leverage over the debtor, which correctly views the creditor’s co-financing as key to advancing their Fund program.
Though a more thorough analysis should consider factors such as the scale of shocks hitting program countries and compositional differences in program recipients, by some metrics, it appears that the size of IMF programs might be declining. Financing from the Fund averaged about 1.5 to 2 percent of GDP in the 1980s and 1990s before jumping above 3 percent during the global financial crisis. Average program sizes have since fallen to around 1 percent over the past few years, a period when we have assessed several IMF programs to potentially be too small and relying too much on co-financing. The IMF should keep a careful eye on this dynamic and, in appropriate cases, increase its exposure with bigger programs and a commensurate increase in associated conditionality and required reforms. In this vein, we also welcome a review on the IMF’s Exceptional Access policy, which was last reviewed more than twenty years ago, to make sure the IMF is bearing risk appropriately in these critical cases.
The IMF and its shareholders should also think through other possibilities to get more out of their existing resources. It should continue to guard its rock-solid balance sheet, a bedrock protection that we and other major shareholders have long relied on to keep lending costs low and predictable. But the IMF’s precautionary balances -- the buffer it keeps to protect against large-scale defaults on its lending -- significantly exceed the Fund’s target. As such, the Fund might consider using some of these excess funds to shore up the sustainability of the Poverty Reduction and Growth Trust, the IMF’s tool to lend concessionally to low-income countries.
Lastly, earlier this year the IMF completed a helpful review of its Lending into Official Arrears policy. The updated policy will afford the IMF with new options in some cases to move ahead with programs even if a large creditor does not agree to restructure its debt along with other creditors in a timely manner. Though such cases inherently involve more risk to the Fund, we encourage the IMF to use this policy when needed to support its membership.
Fact 3: Not all financing flows supporting IMF programs are created equal.
In April, Under Secretary Shambaugh spoke about the U.S. Vision for Global Debt and Development Finance, which has since formed the basis for the Nairobi-Washington Vision. He called on the official creditor community to provide net positive financing flows on a coordinated basis in support of borrower countries with IMF programs. If resources flow out of countries trying to pursue appropriate reforms, they may have to forgo needed investments for their development, and will have a harder time keeping their programs on track. Our hope is that official bilateral creditors, who are themselves IMF members and part of a global community aiming to support development, collectively maintain their financing support to countries during a program. That would be the right thing to do.
The Vision specifically calls for new support to be transparent and readily accessible. The reason this is so important is that not all financing flows are the same. In particular, the purchase of strategic assets or opaque project lending with conditions attached – such as requirements on how inputs are sourced or which labor is used – are generally not in line with the Vision, even though they may technically result in net inflows.
Bilateral swap lines that carry onerous use restrictions or where the terms are not publicly disclosed are also not generally in line with the Vision. And IMF data on gross reserves often include the value of PBOC swaps, even though such swaps often come with opaque restrictions on their use and potentially do not satisfy the IMF’s rule that reserve assets must be “readily available and controlled by the monetary authorities.”
IMF country teams have approached this issue in different ways. In the case of Sri Lanka, IMF staff have noted in footnotes that the central bank’s PBOC swap assets are currently unusable. For Laos, Fund staff indicated in a footnote that it is uncertain whether swap assets are tied to specific purposes, but that “if [PBOC swap] disbursements are tied to specific uses or not under full control of [the central bank], then they should not be counted” as reserves. In Suriname, staff created a “usable gross reserves” category that excluded the PBOC swap, while still counting swap assets toward gross reserves. Meanwhile, in Argentina, staff have continued to accept Argentina’s classification of its full PBOC swap line in its gross reserves, but staff exclude the “unactivated share of the PBOC swap” from their estimate of Argentina’s “FX liquidity.”
This confusing and inconsistent treatment partly reflects a lack of reporting by the PBOC on the details of each of its swap arrangements. The IMF’s treatment of swaps should be consistent and compliant with its stated policy when it calculates reserves, analyzes debt sustainability, and secures financing assurances.
Collectively, we should continue to cultivate enthusiasm and secure commitments from the official sector to invest in support of Fund programs. But we must make sure the result is the expansion of transparent, credible, and on-budget financing flows or debt relief to countries undertaking reforms, not potentially damaging forms of lending.
Fact 4: Third-party providers can sometimes help IMF programs, but sometimes can’t.
Supporting low-income countries, including those covered under the Fund’s Fragile and Conflict-Affected States strategy or where a government has a history of misuse of funds, is one of the most important things the IMF does. But programs in these countries are often also the most difficult because the IMF must minimize any chance of unwittingly abetting the drivers of corruption, violence, or illegal activity.
In these cases, the IMF has sometimes appealed to third party implementation as a way to spend funds or administer reforms without overly relying on the government or other risky actors. This is generally a good idea. If the third party is assessed to be more transparent, more efficient, and more law abiding, it is, by construction, a less risky way to provide critical government services or to address urgent humanitarian needs than simply cutting a check to the local authorities.
But we must remember that money is fungible. And this means that third-party implementation is no panacea. Imagine the IMF wishes to support a country whose budget has deteriorated due to rising prices of social spending, but where it worries that the government might misdirect IMF resources to buy weapons. Giving money to a third party may not help, even if it faithfully and transparently implements as promised. After all, with that social spending now off the government’s budget, the government’s fiscal constraint will be relaxed. It can simply reallocate that amount of money however it wants.
Third party implementation will be most effective, and is more likely to successfully act as a safeguard, when it is designed to perform a service that the government would otherwise not be doing, or where it can be additive to the government’s efforts, rather than simply substituting funds so the government can shift its spending. Given the importance of the IMF’s work in Fragile and Conflict-Affected States, and given the subtleties of this issue, the IMF should consider developing a policy on when and how best to use, or to avoid, third-party implementation.
Fact 5: The IMF’s got a really tough job … and thankfully has great people doing it!
Perhaps I should have started with this one. I’ve just encouraged the Fund to communicate more directly even when uncomfortable, to take more risk in certain situations but to be extra careful while doing so, to be nuanced in discerning which financial flows to encourage and which to discourage, and to actively deploy safeguards while staying attentive to their limitations. Each issue is obviously subtle and tricky. Like I said, the IMF has a really tough job.
Luckily, the Fund’s staff are passionate, hard-working, well-trained, and dedicated caretakers of the international financial order. They are open to feedback, and more than capable of pushing back when it’s off the mark. At Treasury, I have a fantastic and experienced team, deep in the issues, and able to brief on macroeconomies all across the globe. Even still, while preparing to visit a country, I find the advice of the experts at the IMF and its Article IV surveillance reports to be an obvious first stop and an indispensable resource.
I can’t think of another institution as successful as the IMF in promoting stability and growth and spreading macroeconomic expertise, and it has now been doing so for more than 80 years. I am confident that, with continued support and commitment to the institution, and with occasional tweaks to its policies and governance, the IMF will continue to do so for a long time to come.
Thank you.
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Remarks by Assistant Secretary for International Finance Brent Neiman on IMF Governance
10/01/2024
U.S. Department of the Treasury
Office of Public Affairs
Press Release: FOR IMMEDIATE RELEASE
October 1, 2024
Contact: Treasury Public Affairs; Press@Treasury.gov
Remarks by Assistant Secretary for International Finance Brent Neiman on IMF Governance
As Prepared for Delivery
It’s October. Here in DC, that means that the annual meetings of the World Bank and the International Monetary Fund (IMF) are here! For me and my team at the U.S. Department of the Treasury, this is like Christmas or, perhaps, the Super Bowl.
Finance ministers and central bankers from all over the world come to town. Secretary Yellen meets counterparts. Think tanks and investment banks hold workshops. Distinguished academics debate various hot topics. It requires an immense amount of preparation. But it’s great.
The annual meetings are also a time to review the international economic policymaking process. One of my core responsibilities is to help oversee our relationship with the IMF, an institution that lends out tens of billions of dollars each year, tied to economic policy advice, and often with the goal of helping countries avoid, or recover from, crises. The IMF is clearly one of the most impactful elements of the global financial system, so it’s important to reflect on how to make it work even better.
In that spirit and toward that end, I wanted to kick off the season with what I consider to be five underappreciated facts on how the IMF is run – or what I refer to in the title as governance – and what I think we should do about them.
Fact 1: The IMF staff, and the IMF board, are (too) polite.
Don’t get me wrong, I’m a Midwesterner. I love politeness. But Keynes is reported to have said that the IMF had to serve as a “ruthless truth teller”. And I agree that it should do so even when it is uncomfortable, whether for borrower countries with programs or for their official creditors.
For example, the Fund often lends based on promises made by official bilateral creditors to forgive debt or to offer new financing, promises referred to as financing assurances. But even though this financing can be central to hold the IMF program together, the details on financing assurances – who gave them, when, in what form, and any failures to deliver on these commitments – are not always publicly disclosed.
In recent years, programs in Argentina, Ecuador, and Suriname, for example, all moved ahead on the basis of financing assurances that ultimately were either not delivered, or delivered with significant delays, something that was only addressed in passing by the Fund.
Just this past year, I traveled to Quito and to Islamabad to discuss with their reform-minded Finance Ministers the possible design of new IMF programs for Ecuador and Pakistan. In both cases, real resolve and decisive action will be needed to sustainably improve their fiscal situations, and the path of their adjustment will depend on the delivery of official financing. And yet, as with those earlier programs, the Fund’s papers on these new programs were similarly “polite”.
In the case of Ecuador, China has not provided financing assurances beyond the required first 12 months of the program. Rather than plainly detailing the risks this implies, including mentioning China by name, the program documents obliquely state that authorities are in discussions with their “main bilateral creditor.” In the case of Pakistan, program documents describe the total pooled financing coming from official bilateral lenders, but do not offer a creditor-by-creditor breakdown. We strongly support both of these programs, but for insiders and outsiders alike, this politeness can obscure key factors determining a program’s success. It also reduces the incentive for creditors to deliver, and ultimately to honor, their assurances in a timely manner.
Helpfully, the IMF recently took some big steps to fix this. Financing assurances reviews will now be more intensive in programs involving debt restructurings. This is an important improvement, but why stop there? A clear articulation of the details around financing assurances makes sense in all programs. I hope the Fund rigorously applies this new policy, plainly characterizes the relevant promises made and fulfilled or unfulfilled by official creditors, and ultimately, considers expanding its application so it becomes standard practice.
Another area where brutal, if impolite, honesty will be increasingly important relates to the IMF’s precautionary lending programs, notably the Flexible Credit Line (FCL). Countries that the IMF staff and Board judge to have very strong macroeconomic fundamentals and institutional quality, with sustained track records of sound policies, can pre-qualify for access to financing. Those countries can then draw down that line if needed without undertaking any required reforms or meeting other conditions, akin to a credit line from a bank. To date, six countries have had these FCLs, and some are quite large – Mexico’s 2016 FCL, for example, was for nearly $90 billion.
Last year, IMF staff recommended that, up to a size limit, these be treated as permanent, subject to periodic Board renewal, with no expectation or encouragement of qualifying countries to drop their credit lines. After all, countries pay a fee for these lines, and their strong macroeconomic positions and institutions merit a conditionality-free facility. The United States was proud to support this recommendation. It is good economics for countries to be able to purchase insurance in this way, and it is appropriate for the IMF to be the institution to provide it.
But this new policy will only constitute an improvement if the IMF staff and Board do not politely rubber stamp requests to renew these credit lines and, instead, seriously assess whether the country, in fact, remains qualified. If policies, or politics, or even shocks out of a countries’ control impair its economic situation or governance so that the borrower should no longer qualify for the credit line, the Fund must be prepared to acknowledge this.
The Fund is also sometimes too polite in its surveillance responsibilities. For example, as described in its Articles of Agreement, the IMF was established in part to “facilitate the expansion and balanced growth of international trade” and to “maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation”. However, if you read the Fund’s Article IV Reports, you will find that these sorts of topics get less attention than they deserve, including in globally significant economies like China’s. For example, the IMF does not publicly comment on the role of state-owned banks in managing China’s exchange rate or on why changes in the People’s Bank of China’s (PBOC’s) balance sheet don’t line up with reserve transactions in China’s balance of payments data. And while the Fund has built admirable expertise in compiling alternative measures of China’s local government debt, far beyond what authorities publish, it has neglected to apply this same analytical rigor to quantifying China’s industrial policies.
Finally, we the shareholders are also often too polite when voting on programs. A norm at the IMF Board has been to abstain, rather than vote no, to express disagreement. Why are “no” votes so rare? Perhaps early engagement between Board members, staff, and IMF leadership means that most programs only reach a vote if they command broad support. But it is important for the governance of any organization to have the ability to clearly voice opposition, in a non-stigmatized way, that is also reflected in the final tally. While I still expect it to be a very rare occurrence, I am convinced there are times when IMF members should ignore the niceties of an abstention, and vote “no” rather than accept a weak or problematic program.
Fact 2: The IMF is (sometimes) too risk averse!
Given the IMF’s role as a global lender of last resort to troubled economies, it may not shock to learn that, in many ways, it, and its Board, have a very conservative approach to risk. And for the most part, that makes sense and is what we support. But there are a few ways in which, by slightly relaxing its approach, the Fund may be more effective in accomplishing its mission.
One example is the Fund’s perspective on the possibility of having to tolerate some period of arrears. If the alternative is making disbursements to an off-track program where a country has not completed needed reforms, the IMF must choose arrears – the threat of arrears should not outweigh the need to maintain high standards. Only by designing strong programs and standing firmly behind required conditions can the IMF credibly affirm that countries are on a sustainable path. If a program is clearly off-track and disbursements are made simply so the country can pay back the Fund, it may in fact worsen the poor performance and make ultimate repayment less likely. Such behavior could also reduce other countries’ motivations to enact reforms and keep their own programs on track.
Another example is the Fund’s heavy reliance on co-financing from official bilateral creditors and multilateral development banks rather than having larger exposures on its own. Co-financing certainly has benefits – it can help share risk and marshal pressure and advice from other creditors to help the borrowing country adjust. But there are downsides too. Countries on the brink of macroeconomic disaster are sometimes forced to go hat-in-hand to bilateral creditors, which are often hesitant to lend more. In the worst cases, creditors use their significant leverage over the debtor, which correctly views the creditor’s co-financing as key to advancing their Fund program.
Though a more thorough analysis should consider factors such as the scale of shocks hitting program countries and compositional differences in program recipients, by some metrics, it appears that the size of IMF programs might be declining. Financing from the Fund averaged about 1.5 to 2 percent of GDP in the 1980s and 1990s before jumping above 3 percent during the global financial crisis. Average program sizes have since fallen to around 1 percent over the past few years, a period when we have assessed several IMF programs to potentially be too small and relying too much on co-financing. The IMF should keep a careful eye on this dynamic and, in appropriate cases, increase its exposure with bigger programs and a commensurate increase in associated conditionality and required reforms. In this vein, we also welcome a review on the IMF’s Exceptional Access policy, which was last reviewed more than twenty years ago, to make sure the IMF is bearing risk appropriately in these critical cases.
The IMF and its shareholders should also think through other possibilities to get more out of their existing resources. It should continue to guard its rock-solid balance sheet, a bedrock protection that we and other major shareholders have long relied on to keep lending costs low and predictable. But the IMF’s precautionary balances -- the buffer it keeps to protect against large-scale defaults on its lending -- significantly exceed the Fund’s target. As such, the Fund might consider using some of these excess funds to shore up the sustainability of the Poverty Reduction and Growth Trust, the IMF’s tool to lend concessionally to low-income countries.
Lastly, earlier this year the IMF completed a helpful review of its Lending into Official Arrears policy. The updated policy will afford the IMF with new options in some cases to move ahead with programs even if a large creditor does not agree to restructure its debt along with other creditors in a timely manner. Though such cases inherently involve more risk to the Fund, we encourage the IMF to use this policy when needed to support its membership.
Fact 3: Not all financing flows supporting IMF programs are created equal.
In April, Under Secretary Shambaugh spoke about the U.S. Vision for Global Debt and Development Finance, which has since formed the basis for the Nairobi-Washington Vision. He called on the official creditor community to provide net positive financing flows on a coordinated basis in support of borrower countries with IMF programs. If resources flow out of countries trying to pursue appropriate reforms, they may have to forgo needed investments for their development, and will have a harder time keeping their programs on track. Our hope is that official bilateral creditors, who are themselves IMF members and part of a global community aiming to support development, collectively maintain their financing support to countries during a program. That would be the right thing to do.
The Vision specifically calls for new support to be transparent and readily accessible. The reason this is so important is that not all financing flows are the same. In particular, the purchase of strategic assets or opaque project lending with conditions attached – such as requirements on how inputs are sourced or which labor is used – are generally not in line with the Vision, even though they may technically result in net inflows.
Bilateral swap lines that carry onerous use restrictions or where the terms are not publicly disclosed are also not generally in line with the Vision. And IMF data on gross reserves often include the value of PBOC swaps, even though such swaps often come with opaque restrictions on their use and potentially do not satisfy the IMF’s rule that reserve assets must be “readily available and controlled by the monetary authorities.”
IMF country teams have approached this issue in different ways. In the case of Sri Lanka, IMF staff have noted in footnotes that the central bank’s PBOC swap assets are currently unusable. For Laos, Fund staff indicated in a footnote that it is uncertain whether swap assets are tied to specific purposes, but that “if [PBOC swap] disbursements are tied to specific uses or not under full control of [the central bank], then they should not be counted” as reserves. In Suriname, staff created a “usable gross reserves” category that excluded the PBOC swap, while still counting swap assets toward gross reserves. Meanwhile, in Argentina, staff have continued to accept Argentina’s classification of its full PBOC swap line in its gross reserves, but staff exclude the “unactivated share of the PBOC swap” from their estimate of Argentina’s “FX liquidity.”
This confusing and inconsistent treatment partly reflects a lack of reporting by the PBOC on the details of each of its swap arrangements. The IMF’s treatment of swaps should be consistent and compliant with its stated policy when it calculates reserves, analyzes debt sustainability, and secures financing assurances.
Collectively, we should continue to cultivate enthusiasm and secure commitments from the official sector to invest in support of Fund programs. But we must make sure the result is the expansion of transparent, credible, and on-budget financing flows or debt relief to countries undertaking reforms, not potentially damaging forms of lending.
Fact 4: Third-party providers can sometimes help IMF programs, but sometimes can’t.
Supporting low-income countries, including those covered under the Fund’s Fragile and Conflict-Affected States strategy or where a government has a history of misuse of funds, is one of the most important things the IMF does. But programs in these countries are often also the most difficult because the IMF must minimize any chance of unwittingly abetting the drivers of corruption, violence, or illegal activity.
In these cases, the IMF has sometimes appealed to third party implementation as a way to spend funds or administer reforms without overly relying on the government or other risky actors. This is generally a good idea. If the third party is assessed to be more transparent, more efficient, and more law abiding, it is, by construction, a less risky way to provide critical government services or to address urgent humanitarian needs than simply cutting a check to the local authorities.
But we must remember that money is fungible. And this means that third-party implementation is no panacea. Imagine the IMF wishes to support a country whose budget has deteriorated due to rising prices of social spending, but where it worries that the government might misdirect IMF resources to buy weapons. Giving money to a third party may not help, even if it faithfully and transparently implements as promised. After all, with that social spending now off the government’s budget, the government’s fiscal constraint will be relaxed. It can simply reallocate that amount of money however it wants.
Third party implementation will be most effective, and is more likely to successfully act as a safeguard, when it is designed to perform a service that the government would otherwise not be doing, or where it can be additive to the government’s efforts, rather than simply substituting funds so the government can shift its spending. Given the importance of the IMF’s work in Fragile and Conflict-Affected States, and given the subtleties of this issue, the IMF should consider developing a policy on when and how best to use, or to avoid, third-party implementation.
Fact 5: The IMF’s got a really tough job … and thankfully has great people doing it!
Perhaps I should have started with this one. I’ve just encouraged the Fund to communicate more directly even when uncomfortable, to take more risk in certain situations but to be extra careful while doing so, to be nuanced in discerning which financial flows to encourage and which to discourage, and to actively deploy safeguards while staying attentive to their limitations. Each issue is obviously subtle and tricky. Like I said, the IMF has a really tough job.
Luckily, the Fund’s staff are passionate, hard-working, well-trained, and dedicated caretakers of the international financial order. They are open to feedback, and more than capable of pushing back when it’s off the mark. At Treasury, I have a fantastic and experienced team, deep in the issues, and able to brief on macroeconomies all across the globe. Even still, while preparing to visit a country, I find the advice of the experts at the IMF and its Article IV surveillance reports to be an obvious first stop and an indispensable resource.
I can’t think of another institution as successful as the IMF in promoting stability and growth and spreading macroeconomic expertise, and it has now been doing so for more than 80 years. I am confident that, with continued support and commitment to the institution, and with occasional tweaks to its policies and governance, the IMF will continue to do so for a long time to come.
Thank you.
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U.S. Department of the Treasury Announces More Than $2 Billion in Upfront Savings for Consumers on Electric and Plug-In Hybrid Vehicle Sales Under Biden-Harris Administration’s Inflation Reduction Act
10/01/2024
U.S. Department of the Treasury
Office of Public Affairs
Press Release: FOR IMMEDIATE RELEASE
October 1, 2024
Contact: Treasury Public Affairs; Press@Treasury.gov
U.S. Department of the Treasury Announces More Than $2 Billion in Upfront Savings for Consumers on Electric and Plug-In Hybrid Vehicle Sales Under Biden-Harris Administration’s Inflation Reduction Act
Total Consumer Savings on Fuel and Maintenance of Up To $6.3 billion; Estimated Fuel and Maintenance Savings of $18,000 to $24,000 Over Life of Vehicle
WASHINGTON – Today, the U.S. Department of the Treasury and IRS announced consumers have saved more than $2 billion in upfront costs on their purchase of more than 300,000 clean vehicles since January 1, 2024, marking a major milestone in the Biden-Harris Administration’s work to lower transportation costs for Americans.
Consumers could save $1,750 annually on average on fuel and maintenance costs, according to a 2022 analysis by Energy Innovation, which would total $21,000 of discounted savings over the typical 15-year lifespan of a vehicle compared to a comparable gasoline vehicle.[1] For the more than 300,000 vehicle sales that have used the upfront discount to date, this equates to around $525 million annually on fuel and maintenance costs and up to $6.3 billion in costs over the life of the vehicles.
Since the passage of President Biden’s Inflation Reduction Act, the U.S. has experienced significant growth in the clean vehicle industry. In 2023, the U.S. saw around 1.5 million passenger clean vehicle (battery electric, fuel cell, plug-in hybrids) sales – the highest annual total ever, and a 50% year-over-year increase from 2022. Today’s announcement demonstrates the significant related cost savings Americans are benefitting from as a result.
“The Biden-Harris Administration’s Inflation Reduction Act is lowering upfront costs for electric and plug-in hybrid vehicles, saving Americans more than $2 billion since January. These savings are giving consumers new choices and helping automakers and dealers to attract new customers and grow their businesses,” said Secretary of the Treasury Janet L. Yellen. “Consumers will save an average of $21,000 on fuel and maintenance over the lifetime of their vehicles and be protected from the volatility of gasoline prices.”
The Inflation Reduction Act created a mechanism to transfer the 30D clean vehicle credit of up to $7,500 and 25E previously owned clean vehicle credit of up to $4,000 to registered dealers. This mechanism gives consumers a significant upfront discount and extends the reach of the credits by making the credit available at the point of sale rather than when buyers file their taxes. Researchers have found that consumers overwhelmingly prefer an immediate rebate at point of sale.
Since this mechanism went into effect on January 1, 2024, more than $2 billion in financial benefits to consumers at the point-of-sale have been realized through the clean vehicle advance payment program for both new clean vehicles and used clean vehicles. Of the more than 300,000 advance payments that have been issued, more than 250,000 are for tax credits related to new clean vehicles. The option to transfer the tax credit to the dealer is very popular, with 93% of new clean vehicle transactions and more than 85% of used clean vehicle transactions reported through IRS Energy Credits Online involving a transfer of the credit to the dealer.
Building on analysis from Energy Innovation Policy & Technology, Treasury’s Office of Economic Policy estimates that, when discounting expected annual savings over the 15-year lifespan of a vehicle, owners of electric vehicles will save $18,000 to $24,000 more than if they had purchased a comparable gasoline vehicle instead. Fuel is the largest contributor to these savings.[2] Although both gas and electricity costs vary markedly by geography, fuel costs per mile are typically substantially lower for electric vehicles than for similar gas-powered vehicles. For example, for a set of cars that have both electric and gas-powered versions, as of June 2024, the average gasoline cost per 1000 miles is $120 for the gas-powered versions, twice as much as the $60 cost for electricity per 1000 miles for the electric versions.[3]
In addition, maintenance costs are typically 40% lower for EVs than for gas-powered cars. According to the same report by Energy Innovation: Policy & Technology, vehicle maintenance costs are assumed to be roughly $0.06 per mile for EVs and $0.10 per mile for gas-powered cars, due in part to expenditures on engine oil, transmission service, spark plugs, and engine filters.
For more information on the Inflation Reduction Act’s clean vehicle tax credits, please click here.
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[1] https://energyinnovation.org/wp-content/uploads/2022/05/Most-Electric-Vehicles-Are-Cheaper-Off-The-Lot-Than-Gas-Cars.pdf
[2] Applying a 3.5 percent discount rate to annual fuel and maintenance savings of $1,500 to $2,000 per year.
[3] To calculate this, we used the published fuel ratings MY2022 electric- and gas-powered versions of the Hyundai Kona, Ford F150, Kia Niro, Volvo XC40 and the Nissan Versa/Leaf, and the average U.S. residential cost of $0.17 per kWh, and $3.49 per gallon as published here and here, pulled on June 6, 2024
