May 21, 2024

Make Russia Pay

EU Commissioner for Justice Didier Reynders delivers a speech during a press conference on new EU rules on freezing and confiscating assets of oligarchs violating restrictive measures and of criminals at the EU headquarters in Brussels, on 25 May 2022.
EU Commissioner for Justice Didier Reynders delivers a speech during a press conference on new EU rules on freezing and confiscating assets of oligarchs violating restrictive measures and of criminals at the EU headquarters in Brussels, on 25 May 2022.

In April 2024, President Joe Biden of the United States signed a long-awaited aid package for Ukraine. The law also includes mechanisms enabling the confiscation of Russian sovereign assets as a countermeasure to its war of aggression. This action reflects a shift in the US government’s policy that occurred in late 2023 and was partly driven by the difficulties of the bill’s passing through Congress, as well as the search for alternative sources of support.

Although the US holds a relatively small amount of Russian sovereign assets, ranging from $5 to 8 billion per various estimates, the significance lies in its broader implications — it enables Washington to lead partners by example.

All Countries Agree

Presently, the main platform for the debate on confiscation is G7, which has frozen $300 billion of the assets of the Russian Central Bank. All countries agree that the Russian assets should be working for Ukraine yet differ on the ambition and extent. While the US, Canada, and the UK lean towards robust full confiscation, France, Germany, and Italy support a much more modest approach that implies using the windfall profits. The Belgian voice is no less important in the debate, since its Euroclear depository holds most of those assets. Different alternative options — such as collateralising the assets or the profits — are on the table too, with the mid-June Summit of G7 as the intended deadline for reaching an agreement.

It is important that the months-long confiscation discussions — which have finally made it from the sluggish bureaucracy into a heated political debate — culminate with the decision to utilise those assets for Ukraine’s benefit and that the sense of urgency is preserved even after the US aid has started flowing in again.

We, the International Centre for Ukrainian Victory, are convinced that the right way forward for G7 is the full confiscation of all $300 billion. Many opponents often argue that a confiscation could disrupt the rules-based world order. They, therefore, emphasise that our shared goal should be to make Russia respect international law instead of promoting its further disruption. However, numerous reputable lawyers have explained that confiscation would be a legitimate and proportionate countermeasure aimed at compelling Russia to halt its illegal war and compensate for damages, which have already amounted to $486 billion (and counting). This approach is now enshrined in US legislation.

Russia Won’t Stop

In the meantime, Russia’s actions over the past decade have demonstrated a blatant disregard for international law and have only been intensifying due to impunity. Beginning with the violation of the Budapest Memorandum, under which Ukraine gave up its nuclear arsenal, and after eight years since the initial invasion in 2014, Russia escalated it to the full-fledged genocide of Ukrainians in 2022. It has been intentionally targeting civilians and civilian infrastructure, kidnapping children, weaponising rape and food, torturing prisoners of war, as well as occupying the Zaporizhzhia nuclear power plant and endangering other critical energy infrastructure. The list of Russia’s war crimes goes on and on.

What opponents of confiscation often avoid commenting on is that failure to provide Ukraine with sufficient resources for self-defence in a timely manner during this protracted war risks letting Ukraine lose. Such a scenario would represent a real disruption to the world order of magnitude incomparable to the confiscation of frozen assets. It would have immediate implications for Europe — including tens of millions of new refugees fleeing from the atrocities of occupation — and culminate in a triumphant Russia attacking a NATO country.

The major opposition in Europe towards the confiscation stems largely from the finance and banking sectors. Christine Lagarde, President of the European Central Bank, has recently pointed out a “significant asymmetry” in the assets held in the US in dollars (5-8 billion) compared to those in Europe in euros (approximately 200 billion). She underscored the weaker position of the euro in international finance, implying that the US would face fewer repercussions from such a move. Moreover, reports suggest that countries like China, Saudi Arabia, and the UAE are engaging in lobbying efforts against confiscation on behalf of Russia within the EU.

The Only Way Forward

The financial argument against confiscation may not hold water either. If all G7 members — which collectively account for more than 90 percent of all world reserves — were to jointly confiscate Russian assets, there would be no alternative for other states to divert their reserves. Only 2.1 percent of world reserves are kept in the Chinese Yuan, and this is unlikely to change significantly due to objective factors like the lack of yuan convertibility. If all G7 countries were to confiscate Russian assets, would Saudi Arabia rush to transfer their money to China or Russia? Of course not. Moreover, other countries should not worry about the untouchability of their assets if they do not plan wars of aggression.

Russia has vigorously attempted to undermine any progress regarding the confiscation of its assets, often resorting to blackmail as a familiar tactic. One avenue of such pressure is its threats to begin confiscating western assets located in the country. However, the truth is that the Kremlin has already systematically violated numerous internationally recognised standards and practices, including fair treatment of investors, protection from expropriation, and freedom of capital transfer. Since April 2023, the Kremlin has de facto nationalised several western companies, thus placing any remaining foreign businesses in Russia at permanent risk of coercion regardless of western treatment of its assets.

Achieving consensus among G7 nations would be ideal for proceeding to mitigate any potential risks. However, Belgium’s stance on confiscation carries significant weight due to its Euroclear depository. In 2022-23, Euroclear generated a net profit of €3.85 billion after taxation on Russian assets. Upon the EU’s decision, Euroclear maintains it as reserves for future risks instead of transferring this money to Ukraine. This is a substantial sum, nearly equivalent to the cost of a yearly IMF programme for Ukraine or two Patriot systems with 500 missiles. These funds — which would not have been generated had it not been for the Russian full-scale war — could be used to aid Ukrainians in Kharkiv, Kherson, or Dnipro immediately, without waiting for the legal basis for full confiscation to be agreed upon and implemented.

To break the vicious circle of impunity, Russia must be held accountable for all its heinous violations of international law, including through the confiscation of Russian sovereign assets. It is high time western partners moved away from supporting Ukraine for “as long as it takes” and shifted to a “whatever it takes for victory” paradigm. Not only does it constitute a fair approach that involves mobilising all available resources for Ukraine but also paves the way to restoring sustainable peace in Europe.

This article was written for the Lennart Meri Conference special issue of ICDS Diplomaatia magazine. Views expressed in ICDS publications are those of the author(s).

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