It\u2019s been nearly two years since the United States and its allies froze hundreds of billions of dollars in Russian foreign holdings in retaliation for Moscow\u2019s invasion of Ukraine. That roughly USD 300 billion in Russian Central Bank money has been sitting untapped as the war grinds on, while officials from multiple countries have debated the legality of sending the money to Ukraine.<\/p>\n
The idea of using Russia\u2019s frozen assets is gaining new traction lately as continued allied funding for Ukraine becomes more uncertain and the US Congress is in a stalemate over providing more support. But there are tradeoffs since the weaponisation of global finance could harm the US dollar\u2019s standing as the world\u2019s dominant currency.<\/p>\n
At this week\u2019s World Economic Forum meetings in Davos, Switzerland, Ukrainian President Volodymyr Zelenskyy called for a \u201cstrong\u201d decision this year for the frozen assets in Western banks to \u201cbe directed towards defense against the Russian war and for reconstruction\u201d of Ukraine.<\/p>\n
\u201cPutin loves money above all,\u201d he said. \u201cThe more billions he and his oligarchs, friends and accomplices lose, the more likely he will regret starting this war.\u201d Biden administration officials who previously dismissed the idea as legally cumbersome are showing growing openness to the idea.<\/p>\n
Penny Pritzker, the US special representative for Ukraine\u2019s economic recovery, said at the Davos forum that the US and Group of Seven allies are still looking for an adequate legal framework to pursue the plan. \u201cGet all the lawyers and all the various governments and all the parties really to come together to sort that through,\u201d she said.<\/p>\n
\u201cIt\u2019s hard, it\u2019s complicated, it\u2019s difficult, and we need to work.\u201d Administration officials caution that even if a legal way can be found to transfer the frozen dollars to Ukraine, the war-torn nation has immediate needs for funds that must be met by other means since US assistance to Ukraine\u2019s military has ground to a halt.<\/p>\n
Bipartisan legislation circulating in Washington called the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act would use assets confiscated from the Russian Central Bank and other sovereign assets for Ukraine.<\/p>\n
A senior official who spoke on condition of anonymity to relay internal discussions said the administration was generally supportive of legislation to give the US more flexibility in making sure Russia pays for the damage it has caused and is in \u201cactive conversations\u201d with allies on how best to do that.<\/p>\n
But even if legislation were enacted, Nicholas Mulder, a sanctions expert at Cornell University, cautioned that seizing frozen assets could have the unintended effect of undermining efforts to ensure longer-term funding for Ukraine. \u201cRight now it is being advanced by Washington as a substitute rather than a complement to long-term Western support for Ukraine,\u201d he said.<\/p>\n
\u201cIf the assets are transferred, these funds too will run out sooner or later. But by that time Western leaders will have ceased to make any political case for supporting Ukraine, and getting support back up will be much harder.\u201d The US announced at the start of Russia\u2019s invasion that America and its allies had blocked access to more than USD 600 billion that Russia held outside its borders \u2013 including roughly USD 300 billion in funds belonging to Russia\u2019s Central Bank.<\/p>\n
Since then, the US and its allies have continued to impose rounds of targeted sanctions against companies and the wealthy elite with ties to Russian President Vladimir Putin. The World Bank\u2019s latest damage assessment of Ukraine, released in March 2023, estimates that costs for reconstruction and recovery of the nation stand at USD 411 billion over the next 10 years, which includes needs for public and private funds.<\/p>\n
Since the war began in February 2022, the United States has given Ukraine roughly USD 111 billion in weapons, equipment, humanitarian assistance and other aid. Other countries also have provided Ukraine with substantial support \u2013 the UK announced a USD 3 billion assistance package on Friday.<\/p>\n
At the White House, Office of Management and Budget Director Shalanda Young this month told a group of reporters that while the possibility of seizing Russian assets is being studied, it would not have an immediate impact on Ukraine\u2019s financial needs. \u201cThat does not absolve the need to provide funding now,\u201d Young said. \u201cThat is a future benefit to Kyiv I think we should look at and take seriously.\u201d<\/p>\n
Sergey Aleksashenko, a former Russian Central Banker who is now a member of the Russian Antiwar Committee with other dissidents, said that while he strongly believes Russia should be forced to compensate Ukraine, \u201cI do not believe that there is any way to confiscate assets of the Russian Central Bank without a court deciding on the matter.\u201d \u201cBecause if there is no legal basis to confiscate Russian assets, and if it is done by the decision of the administration, that means that there is no rule of law in the US and there is no protection of private property.\u201d<\/p>\n
He said an administrative decision to confiscate Russia\u2019s assets could prompt nations like China \u2013 the biggest holder of US Treasuries \u2013 to determine that it is not safe to keep its reserves in US dollars. There are some efforts under way to seize Russian funds and those of sanctioned oligarchs under limited circumstances. Last May, the Justice Department announced that it had transferred USD 5.4 million seized from Russian tycoon Konstantin Malofeyev to a State Department fund for rebuilding Ukraine.<\/p>\n
And in December, Germany\u2019s federal prosecutor filed a motion for asset forfeiture concerning more than 720 million euros (USD 789 million) deposited by a Russian financial institution in a Frankfurt bank account because of a suspected attempt to violate embargo regulations. Belgium, which is holding the rotating presidency of the European Union bloc for the next six months, is now leading the talks on whether to seize Russia\u2019s assets. Belgium is also the country where most frozen Russian assets under sanctions are being held.<\/p>\n
The country is collecting taxes on the assets. Belgian Prime Minister Alexander De Croo said in October that 1.7 billion euros (USD 1.8 billion) in tax collections was already available and that the money would be used to buy military equipment, humanitarian aid and help with the rebuilding of the war-torn country. But EU countries are worried that going further by confiscating the assets could pave the way for serious legal problems and could also destabilise the financial system. De Croo said this week he is hearing \u201ca lot of prudence\u201d when the issue of seizing assets is raised.<\/p>\n
\u201cIt\u2019s crucial that we stay within a legal framework,\u201d he said. Maria Snegovaya, a senior fellow at the Center for Strategic and International Studies, cautioned that if Ukraine\u2019s immediate needs aren\u2019t met, \u201cno amount of seized Russian assets is unfortunately going to compensate for what may happen.\u201d \u201cAnd by then it is going to be very overwhelming.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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