Markets Wired

As Prepared for Delivery

Introduction

It’s an honor to be here today to discuss the price cap on Russian oil alongside our other efforts to limit Putin’s ability to finance his illegal war. It’s especially an honor to do so in India, alongside our government and industry partners. As one of the most significant global consumers of oil, we know that the Indian economy has much at stake in the Russian oil trade, and has much at stake from the global supply disruptions that the price cap is designed to avoid. The price cap’s goals are to limit Putin’s revenue and maintain global oil supply—essentially by creating a mechanism for India and other partners to access Russian oil at discounted prices.

The price cap’s first year was a successful one by those standards: global oil markets remained well-supplied while Russian oil traded at a significant discount to global oil. This past summer and fall, we saw Russia’s investments in new infrastructure to sell oil outside the price cap’s jurisdiction begin to bear fruit, and the discount on Russian oil narrowed. In response, the United States and the Price Cap Coalition have reinvigorated our enforcement efforts and focused on constraining Russia’s options to sell outside the price cap. Today, even the Kremlin has acknowledged that these efforts are forcing Russia to sell at bigger discounts to global consumers like India.

Adoption and successful implementation of such a novel policy is an important diplomatic achievement, reflecting the unity of the Coalition opposed to Putin’s war. Our engagement with Indian partners—in the public and private sectors—was an essential part of the process given India’s critical role in the global oil trade.

Today, we will review the inception of the price cap policy and the economics behind it. Then, we will move into a discussion of how enforcement of the price cap has evolved and how we are continuing to support its success through expanded and targeted enforcement actions.

Origins of the Price Cap

Over two years have passed since Putin launched his illegal full-scale invasion of Ukraine.  The United States and the global Coalition opposed to Russia’s war then faced an important choice on how to address Russian oil exports, the Kremlin’s most important revenue source. Permitting an unrestricted Russian oil trade was and remains unacceptable: it would allow Putin to profit from a price spike he created. However, taking steps to suddenly remove Russian oil from the market—such as by banning the use of Coalition services in any Russian oil trade—would risk spiking global oil prices further for the emerging economies most dependent on imported energy. 

The Coalition identified the price cap as the way to best navigate these risks. The price cap has two goals: to limit Putin’s oil profits and to maintain stable global oil supply. Effectively, the price cap is designed to force Russia to continue selling its oil but for lower prices than it could otherwise obtain.

The price cap leverages an important feature of global oil markets: G7 service providers (like insurers and ship owners) are central to the Russian oil trade, even when the Coalition is not the buyer. The price cap permits service providers in Coalition countries to support the Russian oil trade only if the oil is sold at or below a specific cap. The price cap is designed to foster a market in which Russia supplies energy at a heavily discounted price: maintaining the volume of energy supplied, while minimizing Putin’s profit earned from it.

In 2022, the price cap was met with considerable skepticism.  But over the year following its announcement, the United States and our international coalition were pleased with the effectiveness of the policy.  We saw the Kremlin’s tax revenue from oil drop more than 40 percent over the first nine months of 2023, compared to the same period a year earlier, and we were gratified to see that the price cap worked in practice as well as in theory—that this policy mechanism made it possible to stunt a major source of funding for Putin’s war machine was possible while also maintaining a stable energy supply to Europe and to emerging markets.  Emerging markets like India benefited from the discounted price of Russian oil relative to global markets. 

The Price Cap’s Second Phase

In the second half of 2023, we observed Russian efforts to build up an infrastructure of ships, insurers, and other maritime services with providers with opaque ownership structures and a history of sanctions evasion activities: sometimes colloquially known as the “shadow fleet.” It’s a standard feature of sanctions regimes that the target will invest to avoid the legal reach of sanctions. Indeed, Russia’s investments diverted money from the battlefield: they were forced to buy tankers rather than tanks. Nonetheless, the changing market conditions did result in a narrowing of the discount on Russian oil, and they drove us to expand our approach to enforcing and implementing the price cap regime.

Beginning in October 2023, the Coalition tightened enforcement of the price cap by 1) imposing more stringent enforcement on oil trade using Coalition services and 2) increasing the costs to the Kremlin of selling oil via the “shadow fleet.” For Treasury’s part, we began and have continued to publicly sanction vessels involved in oil trade above the price cap.

The United States has designated vessel owners, shipping companies, and an oil trader that used Coalition services to trade above the cap, as well as identified several of these companies’ vessels as blocked property. We have designated obscure and opaque supply chain intermediaries supporting Russia’s oil trade.

Our enforcement efforts continue:

• On February 1, the U.S. Treasury issued a Price Cap Coalition Compliance and Enforcement Alert directed at both government and industry stakeholders. This alert reflects our commitment to support governments and industry stakeholders to comply with the cap.  The enforcement alert provides examples of specific evasion methods, and potential mitigation measures. It also provides avenues to report suspected oil price cap breaches to each of the Coalition members.
• And on February 23, Treasury designated Joint Stock Company Sovcomflot, Russia’s state-owned shipping company and fleet operator, and publicly identified 14 of Sovcomflot’s crude oil tankers as blocked property.  As Deputy Secretary Adeyemo said when these designations were announced, this is part of our plan to increase the costs on Russia, but do so in a responsible manner to mitigate risks to the broader market.

 

Since our enforcement push began four months ago, we’re seeing strong indicators of the success of this approach: Russian oil prices have fallen, even relative to global prices, which reduced Putin’s revenue. The discount on the loading price of Russian Urals oil moved from a low of $12-13 below world prices, to a peak of $18 in January 2024 and around $17-18 in February, the latest month with data available.

Oil markets are complex, but for several months, market commentators and analysts—including the International Energy Agency—have credited our enforcement actions with hurting the Kremlin’s budget. Quoting IEA’s January 2024 Oil Market Report^[1]: “Russian oil export revenues lowest since June 2023: Crude price discounts to benchmarks for Urals have deepened under pressure from the expanded US Treasury investigation into ships, their owners and related traders that have transported Russian oil purchased above the G7 price cap.”

Further, in January, Clear View Energy Partners also wrote: “Notwithstanding our usual caveats regarding small sample sizes and energy data quality limitations, OFAC’s [Treasury’s sanctions administration and enforcement arm] ramp-up of enforcement actions appears to be achieving its stated goals: preserving Russian export flows while diminishing proceeds to the Kremlin. Per Bloomberg ship-tracking data on a four-week moving average basis, seaborne crude volumes have risen back towards mid-October levels[.] Meanwhile, Urals – Brent differentials appear to have widened—either a little, or materially, depending on the data source used[.]”

Beyond this industry validation, even the Kremlin’s own oil czar acknowledged that the sanctions issued to enforce the price cap were forcing Russia to sell at lower prices. On January 31, Bloomberg reported that “Deputy Prime Minister Alexander Novak told reporters in Moscow that Russian prices have seen bigger reductions relative to global prices since the most recent sanctions packages were brought into effect at the end of last year.”

And, in addition to all this, Russian oil export volumes have remained stable in recent months. The price cap is helping maintain a steady supply of energy to global consumers and businesses.

Our efforts are bolstered by international support for these enforcement actions, like the recent decision from private and publicly owned refineries to halt imports on Sovcomflot ships.

Conclusion

We continue to monitor the price cap, and we acknowledge that oil markets are complex and can be opaque.  As we saw last summer, Russia will react to an effective price cap by continuing invest money to avoid our sanctions, requiring us to continue to adapt and innovate in our strategy.

We’ve seen evidence of Russia’s revenue losses – the discount between Brent and Urals, the acknowledgement of the costs from their own political leadership, and their willingness make substantial investments in a shadow fleet for the sole purpose of evasion of the price cap. This has been achieved without significant losses to global oil supply.

The United States, together with the rest of the Coalition, will need to remain vigilant and ensure that the policy, its implementation, and enforcement are deployed to inflict financial burden on Russia and keep global energy markets stable.

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WASHINGTON — Yesterday evening, U.S. Deputy Secretary of the Treasury Wally Adeyemo and Chief Implementation Officer for the Inflation Reduction Act Laurel Blatchford held a virtual roundtable conversation with six taxpayers from California, New York, Texas, and Washington who have filed their taxes using the new, free IRS Direct File tool. Participants included a college student, military veterans, as well as nonprofit and government employees.   

In the conversation, taxpayers shared feedback on their experiences with Direct File and suggestions for how to continue to improve the product if the Direct File Pilot is expanded in the 2025 Filing Season.   

Taxpayers relayed that Direct File was straightforward to use, and they valued features that allowed them to learn more about different tax situations, credits, and deductions. Taxpayers emphasized their appreciation for the fact that Direct File is always free and there are no hidden fees or attempts to upsell users as they moved through the filing process. Taxpayers also shared that filing directly with the IRS gave them confidence, they were able to quickly fix mistakes, and get their taxes filed accurately.   

If the Direct File pilot continues past this Filing Season, taxpayers encouraged Treasury and the IRS to expand tax situations covered by Direct File and explore the ability to import information already known to the IRS. Overall, all taxpayers said that they have recommended Direct File to friends and family who may be eligible and said they would use Direct File again.  

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Secretary Yellen: I think as everyone knows President Biden talked to President Xi yesterday and my trip to meet with my counterpart should be seen as a continuation of a dialogue that we’ve been engaged in and deepening ever since President Xi and President Biden met in Bali. President Biden charged me with attempting to stabilize our economic relationship, to deepen our communication, and we’ve been doing that over the last year, year and a half. This will be my third meeting with my counterpart, He Lifeng, the Vice Premier. We have set up two working groups, an Economic Working Group and Financial Working Group. We have met three times and [are] scheduled to meet again during the IMF/World Bank meetings next week and I think we’ve certainly have had an opportunity to discuss in depth our economic relationship and we’ve agreed that it’s important to both of us that we don’t want to decouple our economies. We want to continue – and we think we both benefit from – trade and investment, but that it needs to be on a level playing field. And I think it’s important at all levels, and for me, at the level of the Vice Premier to communicate both the value we place on our relationship but also the concerns we have – and have agreed that we need to have a level playing field. In particular, we’re concerned about massive investment in China and a set of industries that’s resulting in overcapacity, and we’re concerned about the spillovers that Chinese subsidies to these industries are having on the United States and other countries as well. So, this will be one of the topics of discussion. We’ve also agreed it’s important for each of us, and for the world as a whole, that we cooperate on a wide range of issues, and we’re doing that too. We will discuss illicit finance and the progress that we are making together on anti-money laundering and countering illicit finance. In addition, our Financial Working Group is undertaking joint exercises and technical work with colleagues in the People’s Bank of China relating to financial stability. How would we coordinate our efforts if there were to be stress on a large global banking institution? We’re also discussing how we go about assessing the risks from climate change. So, those are some of the things that we’ll be talking about. So, deepening our communication and attempting to have productive and constructive discussions through our differences. 

 

Q: Secretary Yellen, Brian Cheung with NBC News, can you tell us about how this meeting came together? And with the President’s phone call with President Xi yesterday, and your visit, is the expectation that there are going to be other bilateral meetings later on this year? And what might those dialogues look like?

 

Secretary Yellen: Well, I think our expectation is that we will at senior levels, and increasingly at all levels, continue to have ongoing and deepening dialogue. We went for too long with too little communication, and misunderstandings developed. So, President Biden and President Xi agreed when they met in California that they would continue to stay in touch periodically and my understanding is yesterday’s call was understood to be one of the periodic meetings, and my counterpart and I have commissioned these workgroups that report to us and we’re gathering, and I expect that we will continue to meet periodically as well as the work groups. So, I expect this to be an ongoing set of interactions.

 

Q: Secretary, you mentioned the concerns about the overcapacity in China. Will you be bringing a message that if there are not changes, that trade barriers might be considered that the need to protect these industries in the U.S. and Europe, that China will face increasing pressures for trade barriers and tariffs?

 

Secretary Yellen: I don’t have anything specific to offer on that, but I will emphasize that the United States takes resiliency of supply chains seriously as an issue that we feel it’s important to have some domestic presence in clean energy, clean energy technologies. The Inflation Reduction Act is both intended to advance our emissions reduction goals, but also to reduce our extreme dependence on China with respect to clean energy supplies. So, we are trying to nurture an industry in, for example, solar cells, electric batteries, electric vehicles, and these are actually all areas where we think that massive investment in China is creating some overcapacity. So, we’re providing tax subsidies to these, and to some of these sectors, and I wouldn’t want to rule out other possible ways in which we would protect them. But, you know, I think it’s not just the United States, but quite a few countries, including Mexico, Europe, Japan that are feeling the pressure from massive investment in these industries in China.

 

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WASHINGTON – From April 3-9, Secretary of the Treasury Janet L. Yellen will travel to the People’s Republic of China (PRC) for bilateral meetings and other engagements.

Secretary Yellen’s visit to China will build on the intensive diplomacy she has engaged in to responsibly manage the bilateral economic relationship and advance American interests. Following initial meetings with the PRC’s new economic team last July in Beijing, Secretary Yellen met with her counterpart Vice Premier He Lifeng in San Francisco, California, in advance of President Biden’s meeting with President Xi. At Secretary Yellen and Vice Premier’s direction, both sides jointly launched Economic and Financial Working Groups, which report to the Secretary and Vice Premier, and which have met three times.

In an April 2023 speech, Secretary Yellen laid out three principles guiding America’s economic relationship with the PRC. These principals continue to guide our engagement today. The United States proceeds with confidence in our economic strength thanks to our historically strong recovery and the investments the Biden Administration is making in America’s productive capacity. In the context of this relationship, America first seeks to secure our national security interests along with those of our allies and to protect human rights. Second, we seek a healthy economic relationship with China that provides a level playing field for American workers and firms. Finally, we also seek to cooperate where we can on key bilateral and global priorities.

During her engagements in China, Secretary Yellen will advocate for American workers and businesses to ensure they are treated fairly, including by pressing Chinese counterparts on unfair trade practices and underscoring the global economic consequences of Chinese industrial overcapacity. Secretary Yellen will also work to expand bilateral cooperation on countering illicit finance, which can drive important progress on shared efforts against criminal activity such as drug trafficking and fraud. In China, the Secretary will also engage her counterparts on critical work that benefits both the United States and China, as well as the world, including work to bolster financial stability, address climate change, and resolve debt distress among developing nations.    

Trip Details

On Wednesday, April 3, Secretary Yellen will depart Washington, DC for Guangzhou, the People’s Republic of China. On Thursday, April 4, she will arrive in Guangzhou.

On Friday, April 5, in the morning, Secretary Yellen will hold a roundtable discussion with economic experts to discuss challenges and opportunities in the PRC’s economy. Secretary Yellen will then meet with Guangdong Governor Wang Weizhong. In the afternoon, Secretary Yellen will participate in an event with leading representatives of the American business community in China, hosted by AmCham China, and deliver remarks on the bilateral economic relationship. In the late afternoon, Secretary Yellen will begin extended bilateral meetings with Vice Premier He Lifeng.

On Saturday, April 6, Secretary Yellen will continue and then conclude a series of bilateral meetings with Vice Premier He. In the afternoon, Secretary Yellen will depart Guangzhou for Beijing.

On Sunday, April 7, Secretary Yellen will participate in a bilateral meeting with Premier Li Qiang. Later, Secretary Yellen will meet with Beijing Mayor Yin Yong. In the afternoon, Secretary Yellen will meet with students and professors at Peking University. In the evening, the Secretary will participate in a bilateral meeting with Finance Minister Lan Fo’an. While in Beijing, Secretary Yellen will also meet with leading Chinese economists.

On Monday, April 8, Secretary Yellen will meet with former Vice Premier Liu He of the People’s Republic of China. Later, she will hold a bilateral meeting with People’s Bank of China Governor Pan Gongsheng.

In the afternoon, Secretary Yellen will hold a press conference, during which she will deliver remarks discussing her trip to China. This press conference will be livestreamed here.

On Tuesday, April 9, Secretary Yellen will depart Beijing for Washington, DC. In the evening, she will arrive in Washington, DC.

More details will follow. 

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Program provides up to 20-percentage point credit boost for projects in low-income communities

WASHINGTON — Today, the U.S. Department of the Treasury and Internal Revenue Service (IRS) issued procedural guidance for the 2024 program year of the Low-Income Communities Bonus Credit Program under Section 48(e) of the Internal Revenue Code. Treasury also announced the program would open for applications during the second quarter of 2024. 

This groundbreaking program created by President Biden’s Inflation Reduction Act provides a 10 or 20-percentage point boost to the Investment Tax Credit for qualified small solar or wind facilities in low-income communities, on Indian land, as part of affordable housing developments, and benefitting low-income households. The program aims to increase investment in clean energy facilities in low-income communities; encourage new market participants in the clean energy economy; and provide benefits to individuals and communities that have been historically marginalized from economic opportunities and overburdened by environmental impacts.

In the first year of the program the administration received more than 46,000 applications within the first 30 days from communities across the country, signaling robust demand. Today’s announcement will unlock 1.8 gigawatts of additional capacity to help spur further investment. This will advance President Biden’s Investing in America Agenda by lowering energy costs and providing breathing room for hard-working families, investing in good-paying clean energy jobs in low-income communities, and supporting small business growth.

“The first year of implementation saw sky-high demand for solar and wind power investments in underserved communities, and we expect that momentum to continue this year,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “These investments are creating jobs and lowering energy costs in communities that have long been held back by lack of investment, as well as providing new opportunities for small businesses in these communities to benefit from the growth of the clean energy economy.” 

As provided in previous guidance, the Low-Income Communities Bonus Credit Program annually allocates 1.8 gigawatts of capacity available through a competitive application across four categories of qualified solar or wind facilities with maximum output of less than five megawatts.

In the procedural guidance released today, for the 2024 program year the IRS will initially allocate up to: 

• 600 megawatts to facilities located in low-income communities; 
• 200 megawatts to facilities located on Indian lands; 
• 200 megawatts to facilities that are part of federally-subsidized residential buildings; 
• 800 megawatts to facilities where at least 50 percent of the financial benefits of the electricity produced go to households with incomes below 200 percent of the poverty line or below 80 percent of area median gross income.

For the 2024 program year, at least 50% of the capacity of each category will be reserved for projects meeting certain ownership and/or geographic selection criteria as outlined in Treasury and IRS guidance.

The IRS Final Regulations, Frequently Asked Questions, Applicant User Guide and other resources can be found on the DOE program landing page.

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As Prepared for Delivery

Thank you, Matt, for the introduction. I’m glad to be in Georgia today to visit Suniva. 

I’d like to begin with the company’s story. Suniva opened its doors seventeen years ago, as one of the very first solar cell manufacturers in North America. Over the next decade, it drew on American tech and talent to grow and gain a toehold in a highly competitive market. But a flood of solar imports at artificially low prices due to heavy foreign government subsidies made it too hard to compete, and Suniva filed for bankruptcy in 2017. It wasn’t alone. Before this Administration, solar companies across the United States were struggling. Between 2016 and 2020, nearly 20 percent of solar manufacturing jobs were lost. 

Now, though there remain significant challenges, Inflation Reduction Act tax credits are helping change the game. Suniva plans to restart manufacturing this spring, having secured over $100 million in financing. And just today, Suniva announced that it has concluded a three-year sourcing contract that will lead to the first crystalline solar modules with U.S.-made solar cells.

What’s happening here is just one example of what I want to focus on today: how President Biden’s economic agenda, including the Inflation Reduction Act, is lowering energy costs for American consumers and powering growth in strategic industries, bolstering our country’s economic security and creating economic opportunity as we accelerate toward our climate goals. I’ll also highlight the obstacles that we’ll have to navigate.

I. President Biden’s Economic Agenda

Let me step back. Since the start of this Administration, President Biden and I have focused on creating opportunity for the middle class in America. We believe that our country’s growth isn’t meaningful if it doesn’t improve the lives of middle-class Americans, including those without college degrees and in places that historically haven’t attracted the investment they deserve. And we believe middle-class Americans will continue to lead our country’s economic future. As President Biden said in the State of the Union, when the middle class does well, “we all do well.” 

We started with the American Rescue Plan, which helped drive a recovery that was both historically fast and fair. Today, GDP growth is strong, inflation has come down significantly, and the labor market is remarkably healthy. Of course, the President and I recognize that the costs of key household expenses like energy and health care are still too high, so we remain committed to taking additional action to bring them down. This is our top economic priority. 

We’re also focused on driving growth and opportunity for the medium- and long-term. Our strategy is to expand the economy’s capacity to produce and create good jobs, including through strengthening high-growth industries. This strategy has shaped a trifecta of historic legislation: the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. It’s the IRA—and its impact on economic security and opportunity—that I’ll turn to now.

II. The Inflation Reduction Act and Household Energy Costs

Energy costs pose challenges for American families. In the aftermath of Russia’s invasion of Ukraine, global oil prices skyrocketed, putting significant strain on pocketbooks. The Administration released 180 million barrels from the Strategic Petroleum Reserve and implemented a price cap on Russian oil. Record domestic oil and natural gas production also helped address our immediate needs. We navigated the short-term crisis, but it was a powerful reminder that relying on oil and gas can be expensive and unpredictable. The burden from unexpected costs can be even greater for lower-income and middle-class families, for whom energy accounts for a larger share of their monthly budgets. 

Now, our Administration’s tax credits are helping address these costs for the long-term. The law we passed makes it cheaper for families to install solar on their rooftops. It saves them money on the front end and then on household energy payments for years to come. You can use credits when putting batteries in your garage to store the energy the panels produce. You can use them when installing a heat pump, or energy-efficient windows, doors, insulation, and other improvements. And there are credits for home energy audits too—to help you determine where you’ll see the highest rate of return on those kinds of investments. Clean energy and energy-efficiency investments don’t just cut energy costs; they reduce month-to-month fluctuations in price, bringing energy security to American households.

And as the physical and economic costs of climate change continue to mount each day, at home in the U.S. and around the world, reaching a clean-energy future only becomes more and more urgent. As families install rooftop solar or use other credits to purchase electric vehicles, we also move our country, household by household, toward this future. And because it’s now cheaper to produce clean energy, production will increase and costs will drop over time, shrinking utility bills even more for American consumers. 

Our Administration’s work to lower costs doesn’t end with energy. We’re pursuing wide-ranging efforts to give families more breathing room. The President’s Budget proposes cutting taxes for middle- and low-income Americans. And we’re especially focused on health care costs. The IRA extended the American Rescue Plan’s low premiums, capped the cost of insulin at $35 for Medicare beneficiaries, and allows Medicare to negotiate prices for key prescription drugs. The President plans to do even more—for example, calling on Congress to cap out-of-pocket costs for prescription drugs for Americans with private insurance. 

III. The Inflation Reduction Act and Private Sector Investments 

Alongside tax credits for households, the Inflation Reduction Act provides tax credits for producing and investing in clean energy. These credits change the economics of clean energy investment across the United States—making it more profitable and more predictable to build factories here at home. Thanks to the IRA, investing in clean energy is a good value proposition—today, and for the future. 

As we see with Suniva, the private sector is responding. Companies have announced over $675 billion in clean energy and manufacturing investments since the start of this Administration. And companies aren’t just investing; they’re innovating to stay ahead in this highly competitive global market. 

Investments are already noticeably impacting energy production. In 2023, more than half of new generation capacity added to the U.S. grid came from solar. This is the first time in 80 years that renewable energy comprised the majority of new capacity. It means greater energy security and economic security. And it’s a huge step forward on the path to achieving our climate goals.

As companies invest across the United States, they’re also fostering economic opportunity. The IRA provides additional tax credits to incentivize companies to pay prevailing wages, use registered apprentices, and locate projects in low-income communities or energy communities—places that have traditionally relied on industries like coal. Other parts of the Biden Administration’s economic agenda, such as investments in workforce development enabled by the American Rescue Plan, are helping build pathways to these good opportunities. Last month, Treasury Deputy Secretary Wally Adeyemo and Senator Ossoff were in Cobb County, Georgia to see a new ARP-funded workforce development center. These programs train workers for the jobs of the future like those created by the CHIPS and Science Act and the IRA.

As a result, the growth we’re seeing in clean-energy technologies is happening across the country in places that haven’t previously had much opportunity. Treasury analysis has shown that the vast majority of announced clean-energy investments since the IRA was passed have been in counties where college graduation rates and median incomes are below the national averages. And greater amounts are being announced in energy communities, where opportunity has dwindled in recent decades.

I’ve traveled to see these investments firsthand. This fall, I was in North Carolina, where Livent has expanded its U.S. lithium hydroxide manufacturing capacity by 50 percent, citing the IRA as a key driver of its investments. Earlier this month, I traveled to Kentucky to see an Advanced Nano Products facility that will be producing parts for EV batteries. This is part of the EV battery belt emerging across the Midwest and South, thanks to IRA incentives and state and local leadership. These investments mean new well-paying jobs, including as many as 5,000 at what will be one of the largest EV battery manufacturing facilities in the world in Glendale, Kentucky. 

IV. Challenges 

I’m optimistic about the progress we’ve made in spurring growth. But the Biden Administration also recognizes that these investments are new. It will take effort, ingenuity, and time for them to reach their full potential. We’re also keeping our eye on pressures abroad that pose risks not only to America but also to the global economy. President Biden is committed to doing what we can to protect our industries from unfair competition.

In particular, I am concerned about global spillovers from the excess capacity that we are seeing in China. In the past, in industries like steel and aluminum, Chinese government support led to substantial overinvestment and excess capacity that Chinese firms looked to export abroad at depressed prices. This maintained production and employment in China but forced industry in the rest of the world to contract. Now, we see excess capacity building in “new” industries like solar, EVs, and lithium-ion batteries.

China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world. Challenges for individual firms can lead to concentrated supply chains, negatively impacting global economic resilience.  These are concerns that I increasingly hear from government counterparts in industrialized countries and emerging markets, as well as from the business community globally. 

It is important to the President and me that American firms and workers can compete on a level playing field. We have raised overcapacity in previous discussions with China and I plan to make it a key issue in discussions during my next trip there. I will convey my belief that excess capacity poses risks not only to American workers and firms and to the global economy, but also to productivity and growth in the Chinese economy, as China itself acknowledged in its National People’s Congress this month. And I will press my Chinese counterparts to take necessary steps to address this issue. 

V. Conclusion 

As we look ahead, American companies will be able to continue to take advantage of President Biden’s economic agenda to invest and help build our new economic future. Success is not preordained. American companies will have to put in hard work and innovate, and we’ll have to navigate challenges to come. We’ll need to work to ensure there’s a level playing field on which companies around the world can compete.  

But it was an American inventor who created the first solar cell in the 1880s. In the 1950s, Bell Laboratories created the silicon solar cell, changing the game again. With the IRA, we’re building on this history and ushering in a new stage of American innovation and manufacturing to increase economic security, broaden economic opportunity, and achieve our climate goals. 

Thank you for having me here today.

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The Republic of Korea and the United States Issue Joint Sanctions Against DPRK Financial Facilitators 

WASHINGTON — Today, in coordination with the Republic of Korea (ROK), the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned six individuals and two entities based in Russia, China, and the United Arab Emirates, that generate revenue and facilitate financial transactions for the Democratic People’s Republic of Korea (DPRK). Funds generated through these actors are ultimately funneled to support the DPRK’s weapons of mass destruction (WMD) programs.  The ROK is jointly designating six of the same individuals and entities for their involvement in illicit financing and revenue generation through overseas DPRK information technology (IT) workers. This action also accompanies the 6th U.S.-ROK Working Group on DPRK Cyber Threats.

Today’s action targets agents of designated DPRK banks along with companies that employ DPRK IT workers abroad. DPRK banking representatives, IT workers, and the companies that employ them generate revenue and gain access to foreign currencies vital to the Kim regime. These actors, operating primarily through networks located in Russia and China, orchestrate schemes, set up front or shell companies, and manage surreptitious bank accounts to move and disguise illicit funds, evade sanctions, and finance the DPRK’s unlawful WMD and ballistic missile programs.  

“Today’s joint action reflects our commitment to disrupt the DPRK’s efforts to generate revenue for its illicit and destabilizing activities,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “The United States, along with our South Korean partners, will continue to take action to safeguard the international financial system and prevent the DPRK from funding its illegal weapons programs.”

DPRK BANK REPRESENTATIVES 

The DPRK regime continues to use overseas representatives of state-owned entities and banks to access the international financial system. These individuals have overseas posts in China and Russia, where they coordinate payments and generate revenue for the DPRK.  

Yu Pu Ung is a linchpin in the DPRK’s illicit financial activities and is skilled at employing various schemes to avoid detection. Yu Pu Ung and Ri Tong Hyok are both China-based representatives of Tanchon Bank. Tanchon Bank is the financial arm of the DPRK’s U.S.- and UN-designated Korea Mining Development Corporation (KOMID) and plays a role in financing KOMID’s sales of ballistic missiles. KOMID is the DPRK’s premiere arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons. Yu Pu Ung uses funds from DPRK IT groups to supply WMD-related materials to DPRK munitions organizations. Additionally, Yu Pu Ung has provided funds to a China-based representative of the UN- and U.S.-designated Second Academy of Natural Sciences (SANS). Yu Pu Ung and Ri Tong Hyok are being designated pursuant to E.O. 13382 for acting or purporting to act for or on behalf of, directly or indirectly, Tanchon Bank.

Han Chol Man is a Shenyang, China-based representative of U.S- and UN-designated Kumgang Bank. From 2019 to 2023, Han Chol Man coordinated or facilitated over $1 million in payments between China and DPRK for several DPRK banks. During 2023, Han Chol Man coordinated over $600,000 in payment orders with a bank that is subordinate to the U.S. and UN-designated Munitions Industry Department (MID). Han Chol Man is being designated pursuant to E.O. 13722 for acting or purporting to act for or on behalf of, directly or indirectly, of Kumgang Bank.

O In Chun is a Russia-based representative of U.S- and UN-designated Korea Daesong Bank, which is operated by the U.S.-designated Office 39. The DPRK government uses Office 39 to engage in illicit economic activities, manage slush funds, and generate revenue for DPRK leadership. Furthermore, O In Chun worked to unfreeze funds on behalf of a bank that is subordinate to the U.S.-and UN-designated MID. O In Chun is being designated pursuant to E.O. 13551 for acting or purporting to act for or on behalf of, directly or indirectly, Korea Daesong Bank. 

Jong Song Ho is a Russia-based representative of U.S-designated Jinmyong Joint Bank. Jong Song Ho has previously engaged in the exportation of DPRK coal. As of 2019, Jong Song Ho was involved in developing coal briquette factories in the DPRK, which facilitates the DPRK leadership’s scheme of exporting coal to earn foreign currency. Jong Song Ho is being designated pursuant to E.O. 13810 for acting or purporting to act for or on behalf of, directly or indirectly, Jinmyong Joint Bank.

Today the ROK is also designating Yu Pu Ung, Jong Song Ho, Han Chol Man, and O In Chun for evading sanctions and funding the DPRK’s nuclear and missile programs through illegal financing and money laundering activities.

DPRK IT WORKER DELEGATIONS

The DPRK has dispatched thousands of highly skilled IT workers around the world, earning revenue for the DPRK that contributes to its weapons programs in violation of U.S. and UN sanctions. On May 23, 2023, OFAC designated the Chinyong Information Technology Cooperation Company (Chinyong), an entity associated with the DPRK Ministry of Peoples’ Armed Forces. Chinyong uses a network of companies and representatives under its control to manage delegations of DPRK IT workers operating in Russia and Laos. Today’s designations expand on this action by sanctioning two companies subordinate to Chinyong and one individual that leads an IT delegation.

Limited Liability Company Alis (Alis LLC) is a Vladivostok, Russia-based company subordinate to U.S-designated Chinyong, which has made payments to its parent company. Between 2021 and 2022, Alis LLC made payments to its parent company that totaled more than $2.5 million. Pioneer Bencont Star Real Estate is a UAE-based company subordinate to Chinyong. The team-lead for this company, Jon Yon Gun, was involved in coordinating payments from Pioneer Bencont Star Real Estate to Chinyong.

Pioneer Bencont Star Real Estate and Alis LLC are being designated pursuant to E.O. 13687.  for being owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, Chinyong.

Jon Yon Gun is being designated pursuant to E.O. 13687 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Pioneer Bencont Star Real Estate. 

Today, the ROK is also designating Alis LLC and Pioneer Bencont Star Real Estate, for engaging in the dispatch and operations of the overseas DPRK IT workers. The ROK designated Jon Yon Gun on May 5, 2023, for his involvement in DPRK IT worker related activities.

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 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 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 individuals and entities designated today.

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WASHINGTON – Today, the U.S. Department of the Treasury released a report on Managing Artificial Intelligence-Specific Cybersecurity Risks in the Financial Services Sector. The report was written at the direction of Presidential Executive Order 14110 on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence. Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) led the development of the report. OCCIP executes the Treasury Department’s Sector Risk Management Agency responsibilities for the financial services sector.

“Artificial intelligence is redefining cybersecurity and fraud in the financial services sector, and the Biden Administration is committed to working with financial institutions to utilize emerging technologies while safeguarding against threats to operational resiliency and financial stability,” said Under Secretary for Domestic Finance Nellie Liang. “Treasury’s AI report builds on our successful public-private partnership for secure cloud adoption and lays out a clear vision for how financial institutions can safely map out their business lines and disrupt rapidly evolving AI-driven fraud.”

In the report, Treasury identifies significant opportunities and challenges that AI presents to the security and resiliency of the financial services sector. The report outlines a series of next steps to address immediate AI-related operational risk, cybersecurity, and fraud challenges: 

1. Addressing the growing capability gap. There is a widening gap between large and small financial institutions when it comes to in-house AI systems. Large institutions are developing their own AI systems, while smaller institutions may be unable to do so because they lack the internal data resources required to train large models. Additionally, financial institutions that have already migrated to the cloud may have an advantage when it comes to leveraging AI systems in a safe and secure manner.
2. Narrowing the fraud data divide. As more firms deploy AI, a gap exists in the data available to financial institutions for training models. This gap is significant in the area of fraud prevention, where there is insufficient data sharing among firms. As financial institutions work with their internal data to develop these models, large institutions hold a significant advantage because they have far more historical data. Smaller institutions generally lack sufficient internal data and expertise to build their own anti-fraud AI models.
3. Regulatory coordination. Financial institutions and regulators are collaborating on how best to resolve oversight concerns together in a rapidly changing AI environment. However, there are concerns about regulatory fragmentation, as different financial-sector regulators at the state and federal levels, and internationally, consider regulations for AI.
4. Expanding the NIST AI Risk Management Framework. The National Institute of Standards and Technology (NIST) AI Risk Management Framework could be expanded and tailored to include more applicable content on AI governance and risk management related to the financial services sector.
5. Best practices for data supply chain mapping and “nutrition labels.” Rapid advancements in generative AI have exposed the importance of carefully monitoring data supply chains to ensure that models are using accurate and reliable data, and that privacy and safety are considered. In addition, financial institutions should know where their data is and how it is being used. The financial sector would benefit from the development of best practices for data supply chain mapping. Additionally, the sector would benefit from a standardized description, similar to the food “nutrition label,” for vendor-provided AI systems and data providers. These “nutrition labels” would clearly identify what data was used to train the model, where the data originated, and how any data submitted to the model is being used.
6. Explainability for black box AI solutions. Explainability of advanced machine learning models, particularly generative AI, continues to be a challenge for many financial institutions. The sector would benefit from additional research and development on explainability solutions for black-box systems like generative AI, considering the data used to train the models and the outputs and robust testing and auditing of these models. In the absence of these solutions, the financial sector should adopt best practices for using generative AI systems that lack explainability.
7. Gaps in human capital. The rapid pace of AI development has exposed a substantial AI workforce talent gap for those skilled in both creating and maintaining AI models and AI users. A set of best practices for less-skilled practitioners on how to use AI systems safely would help manage this talent gap. In addition, a technical competency gap exists in teams managing AI risks, such as in legal and compliance fields. Role-specific AI training for employees outside of information technology can help educate these critical teams.
8. A need for a common AI lexicon. There is a lack of consistency across the sector in defining what “artificial intelligence” is. Financial institutions, regulators, and consumers would all benefit greatly from a common AI-specific lexicon.
9. Untangling digital identity solutions. Robust digital identity solutions can help financial institutions combat fraud and strengthen cybersecurity. However, these solutions differ in their technology, governance, and security, and offer varying levels of assurance. An emerging set of international, industry, and national digital identity technical standards is underway.
10. International coordination. The path forward for regulation of AI in financial services remains an open question internationally. Treasury will continue to engage with foreign counterparts on the risks and benefits of AI in financial services.

As part of Treasury’s research for this report, Treasury conducted in-depth interviews with 42 financial services sector and technology related companies. Financial firms of all sizes, from global systemically important financial institutions to local banks and credit unions, provided input on how AI is used within their organizations. Additional stakeholders included major technology companies and data providers, financial sector trade associations, cybersecurity and anti-fraud service providers, and regulatory agencies. Treasury’s report provides an extensive overview of current AI use cases for cybersecurity and fraud prevention, as well as best practices and recommendations for AI use and adoption. The report does not impose any requirements and does not endorse or discourage the use of AI within the financial sector. 

In the coming months, Treasury will work with the private sector, other federal agencies, federal and state financial sector regulators, and international partners on key initiatives to address the challenges surrounding AI in the financial sector. While this report focuses on operational risk, cybersecurity, and fraud issues, Treasury will continue to examine a range of AI-related matters, including the impact of AI on consumers and marginalized communities.

Read Treasury’s AI Report here.

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