by Anna-Mariia Mandzii
Key Takeaways
- Significant Frozen Assets: Approximately $300 billion in Russian funds have been frozen globally, with the majority located in Europe. The largest portion, around $191 billion, is held in Belgium. In contrast, the United States has frozen about $4-5 billion, a much smaller fraction of the total.
- Evolving Legal Framework: New U.S. legislation, including the International Emergency Economic Powers Act (IEEPA) and the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act, provides the legal authority for the U.S. President to confiscate and transfer Russian assets. These laws are designed to ensure that the asset transfer aligns with both national and international legal standards.
- Legal and Moral Justification: Experts argue that confiscating and transferring Russian assets is justified under international law, especially through the principle of countermeasures. This principle allows states to take actions that would otherwise violate international norms to respond to serious breaches of international law, such as Russia’s invasion of Ukraine.
- Global Coordination: Effective transfer of these assets requires coordinated efforts among G-7 countries and other European states. Joint action is essential to mitigate any negative consequences and to ensure a unified response to Russia’s aggression.
The issue of transferring frozen Russian assets to Ukraine has recently become one of the most discussed topics, especially in the context of the delay in financial and military support in the U.S. Congress. The majority of states within the Euro-Atlantic region, including the United States, have frozen a portion of Russian funds, mainly in the form of financial investments located on their territories. There are various ways of confiscating Russian assets. However, the United States and its allies are trying to create a mechanism that would not contradict national legislation and international law and would not lead to negative consequences for these states.
How many financial assets have been frozen?
The total amount of the frozen assets is approximately $300 billion, which constitutes about half of the reserves of the Central Bank of Russia. To be more precise, according to Reuters, the Bank’s holdings include approximately 207 billion in euros, 67 billion in U.S. dollars, 37 billion in British pounds, 36 billion in Japanese yen, 19 billion in Canadian dollars, 6 billion in Australian dollars, 1.8 billion in Singapore dollars, 1 billion in Swiss francs, and so forth. A significant portion of these assets comprises bank deposits and foreign securities investments.
Most of the seized assets are located within Europe, totaling approximately $210 billion, with the largest sum of $191 billion frozen in Belgium at Euroclear, the central securities depository based in Brussels. In contrast, according to different reports, the United States has frozen only $4-5 billion, representing just a tiny fraction of the total amount that could potentially be transferred to Ukraine.
According to the World Bank calculations, by March 2023, Ukraine will need $411 billion for post-war reconstruction. This figure has presumably risen even more over the past year. The main aim of transferring Russian assets to Ukraine is to utilize these funds for the country’s reconstruction. They should become part of the future reparations that Russia will have to pay.
Legal framework
The primary challenge of confiscating Russian financial assets and subsequently transferring them to Ukraine lies in the legal aspect of the issue. At the outset of Russia’s full-scale invasion, U.S. Treasury Secretary Janet Yellen stated that U.S. law prohibits the confiscation of foreign monetary assets. However, this stance began to shift in the summer of 2023, as bipartisan support for aiding Ukraine started to diminish in the United States. Furthermore, in February 2024, she made a statement completely opposite to what was said two years ago.
“It is necessary and urgent for our coalition to find a way to unlock the value of these immobilized assets to support Ukraine’s continued resistance and long-term reconstruction,” Yellen said in remarks in Sao Paulo, Brazil, where Group of 20 finance ministers and central bank governors met. “I believe there is a strong international law, the economic, and moral case for moving forward. This would be a decisive response to Russia’s unprecedented threat to global stability,” she said.
Under existing legislative acts, such as the International Emergency Economic Powers Act (IEEPA) and the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act, the United States possesses the authority to confiscate Russian assets. These laws aim to legitimize the actions of the executive branch, particularly the President of the United States, in confiscating sovereign assets of the Russian Federation and redirecting them to a special non-profit entity known as the “Ukraine Support Fund.” The resources of the Fund will be managed by the U.S. Secretary of State, who, after consulting with USAID (United States Agency for International Development), will be able to transfer them directly to Ukraine or to an international compensation mechanism that is planned to be created in the future. The transfer of funds must be reported to the foreign affairs and finance committees of both houses of the U.S. Congress, and the Secretary of State must submit a report to the U.S. Congress every 90 days on the execution of duties.
In September 2023, the Renew Democracy Initiative, an American non-profit organization dedicated to advancing and defending liberal democracy in the United States and abroad, released a report titled “The Legal, Practical, and Moral Case for Transferring Russian Sovereign Assets to Ukraine.” The report was authored by leading American legal experts, including Laurence H. Tribe, Raymond P. Tolentino, Kate M. Harris, Jackson Erpenbach, and Jeremy Lewin. Its main objective is to argue that the United States and its allies should confiscate Russian assets and transfer them to Ukraine. The authors contend that U.S. domestic law grants the President full authority to seize and transfer funds to Ukraine within the framework of a special mechanism provided by legislation. Furthermore, their analysis demonstrates that international law poses no obstacles to such actions by the United States or other nations.
In their analysis, the authors specifically delve into the International Emergency Economic Powers Act (IEEPA), which grants the President the prerogative to oversee the sovereign funds of another nation—in this case, Russia—should a state of emergency be declared due to threats to U.S. national security, foreign policy, or economy. Notably, as far back as 2014, President Obama invoked a state of emergency in response to Russia’s annexation of Crimea. In February 2022, President Biden further broadened its application following Russia’s full-scale invasion of Ukraine. Consequently, the initial condition outlined in this act has already been satisfied, meaning that the executive branch (the President of the United States) now possesses the authority to allocate frozen Russian assets toward supporting Ukraine.
The primary argument advanced by opponents of such actions is that the assets of another state’s Central Bank are safeguarded by international law. Consequently, their confiscation would constitute a breach of that state’s sovereignty. However, experts assert that a breach of the universal provisions of the UN Charter by one state grants all other states the right to resort to the principle of countermeasures. Essentially, this allows them to undertake specific actions that would ordinarily contravene international norms but are directed at punishing the violator in this instance.
Therefore, the principle of countermeasures could be justifiably applied in Russia’s case. Russia has violated numerous principles of international law, fails to fulfill its international obligations under various treaties, and cannot invoke the international principle of state sovereignty when it has disregarded the sovereignty of a neighboring state by itself. Consequently, this legitimizes the application of countermeasures against Russia.
However, it’s important to consider that such a position could potentially provoke Russia into retaliating with similar actions, such as confiscating Western assets invested within Russia. In April 2023, Putin signed a decree to expropriate the assets of Finnish and German companies in response to Western sanctions, and he threatened to continue this process. Nevertheless, in this context, the political dimension seems to outweigh the economic concerns, as many American and European companies, reluctant to engage with a politically isolated state, are voluntarily withdrawing from the Russian market.
Additional arguments against transferring these financial assets to Ukraine include concerns about the diminishing attractiveness of investing in Western economies. There’s also apprehension regarding the potential for de-dollarization, which entails a shift away from the usage of Western currencies, particularly the U.S. dollar, in financial transactions. There are concerns that these factors could influence the inclination of nations in the so-called Global South towards the American dollar and the West as a whole. However, the Russian invasion of Ukraine in 2022 and the subsequent freezing of Russian assets did not demonstrate a significant acceleration of the de-dollarization process, which, incidentally, had commenced long before these events. While some argue that confiscation would signal to countries like China or Saudi Arabia that the dollar or euro is unreliable for preserving financial assets in these currencies, the majority of experts refute this claim.
The authors of the Renew Democracy Initiative article emphasize that most claims regarding the negative consequences of confiscating Russian assets, such as de-dollarization, are exaggerated. They argue that this example will not persuade other countries to abandon the dollar as a currency for storing their reserves, especially given that there is currently no better alternative available.
The moral aspect of the issue was also addressed in this report. The authors underscore the crucial need to demonstrate that a genocidal war, instigated without provocation, will not escape the attention of the international community, and the aggressor will face consequences. Furthermore, the confiscation of Russian assets and their transfer to Ukraine would reaffirm the principle that any breach of international law and universal principles will be met with accountability, and aggressor nations cannot shield themselves behind sovereignty once they violate that of others. In terms of the global context, the authors highlight the significance of inter-state cooperation, as it would bolster the international legitimacy of such actions.
Precedents in history
It’s worth noting that precedents already exist in history. After Iraq invaded Kuwait in 1990, the United States confiscated billions of dollars in Iraqi assets, which were directed toward reparations for Kuwait. The only difference is that these actions were sanctioned by the United Nations Compensation Commission. In the case of Russia’s war against Ukraine, such a scenario is impossible due to Russia’s status in the U.N. Security Council and its veto power. However, the actions of the United States and its allies would be legal even without special U.N. sanctions.
The REPO (Rebuilding Economic Prosperity and Opportunity) for Ukrainians Act
As previously noted, alongside the existing International Emergency Economic Powers Act (IEEPA) in American legislation, which already empowers the President of the United States to confiscate and transfer Russian assets to Ukraine, on June 15, 2023, the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act was also introduced. This act was specifically tailored for scenarios involving Russia and aimed to expedite the confiscation process.
According to the information provided by the Hudson Institute, the bipartisan and bicameral Rebuilding Economic Prosperity and Opportunity for Ukrainians (REPO) Act includes four key steps that are aimed at providing the president with clear legal authority to confiscate frozen Russian assets and transfer them for the reconstruction of Ukraine. Additionally, it denies Russia’s ability to endlessly challenge the seizures in U.S. courts and prohibits the release of frozen sovereign assets until Russia withdraws its forces from Ukraine and commits to providing compensation. Some experts argue the confiscation of assets could lead to protracted legal battles, but whether Russia will pursue it and what the outcome might be remains uncertain. The Act also directs the president to engage with like-minded partners to establish an international compensation mechanism.
The authors of the Renew Democracy Initiative emphasize that while the passage of this act is mainly symbolic, it carries significant importance as it aims to push the hesitant executive branch towards confiscation. However, many experts highlight that it requires further refinement, with certain provisions characterized by ambiguities that need to be addressed.
Examples of confiscation of Russian property in the United States
In December 2022, the Senate unanimously backed a plan to use certain confiscated Russian assets to aid Ukraine in its war with Russia. The essence of the matter is that certain property belonging to Russian oligarchs and companies in the U.S. that have engaged in unlawful actions within the laws of the U.S., violated U.S. sanctions imposed on Russia, were somehow linked to Putin, or supported the invasion of Ukraine will be subject to confiscation and subsequently transferred to Ukraine.
Furthermore, the United States has already confiscated Russian assets in specific cases. For instance, the $300 million yacht belonging to Suleyman Kerimov, a Russian oligarch, was confiscated in May by the Fiji government on behalf of the U.S. government. According to the Washington Post, Kerimov, one of Russia’s wealthiest individuals and a political ally of President Vladimir Putin, has been identified by the U.S. Treasury Department as an official of the government of the Russian Federation and a member of the Russian Federation Council.
Moreover, in February 2023, $5.4 million belonging to Russian oligarch Konstantin Malofeev, who was accused of violating U.S. sanctions against Russia, was confiscated by U.S. prosecutors and was intended to be transferred to Ukraine.
Actions of the United States and its allies
The REPO (Rebuilding Economic Prosperity and Opportunity for Ukrainians Act) entails multilateral cooperation between the President of the United States and allies for the joint confiscation and transfer of funds to Ukraine. Undoubtedly, the establishment of a special international mechanism, which will facilitate the confiscation of funds and determine how they will be used in Ukraine, is a crucial step forward.
Given that the confiscated Russian assets in the U.S. represent a minuscule fraction of the total sum (approximately $5 billion out of $300 billion), the decision holds greater political than financial significance for the U.S. The primary concerns for European states revolve around the substantial amount of frozen funds and the potential establishment of a negative precedent for opponents of the collective Western response.
Additionally, most states’ legislation necessitates new legislative amendments to legalize actions related to the confiscation of foreign assets. Among European allies, there is widespread support for the idea of transferring profits from frozen Russian assets to Ukraine, as recently endorsed by Janet Yellen, U.S. Treasury Secretary. However, this step alone falls short, as Ukraine requires a significantly larger sum for post-war reconstruction than the total amount of frozen assets, not to mention the profits derived from them.
It is worth noting that the United States and the United Kingdom are more proactive in asset confiscation than France or Germany, whose largest companies have investments in Russia that risk being confiscated by the Russian Federation in response to Western actions. Nevertheless, all G-7 countries, as well as other European states that have frozen Russian assets, must make joint decisions and create mechanisms for the confiscation of Russian funds. States are very reluctant to take such actions individually, so only joint efforts would ensure successful confiscation and mitigate the negative consequences that a single state could face.
U.S. Senator Jim Risch (R-Idaho), ranking member of the Senate Foreign Relations Committee, speaking at the Hudson Institute about the bipartisan Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act, stated:
“Meanwhile, public reporting indicates there is more than $300 billion in Russian sovereign assets currently frozen around the world, with most of that held in Europe. While like-minded countries agree that Russia should pay to rebuild Ukraine, no country has yet been willing to take the first step to make that happen. As with all key decision points on assistance to Ukraine thus far, U.S. leadership is essential”.
Conclusions
Based on the provided information, it can be inferred that for the United States, where only a small fraction of frozen assets is situated, the decision to transfer them would primarily serve as a political gesture. This is because the amount in question pales in comparison to what Ukraine requires for its reconstruction efforts, as well as the total sum of Russian assets held in U.S. allied nations. Hence, the key role of the United States in this scenario lies in encouraging European countries, where the bulk of Russian funds are located, to take steps towards initiating the confiscation process.
Collaboration at the G-7 level regarding asset confiscation should facilitate cohesion and the development of a unified legal mechanism that adheres to both international law and the domestic legislation of each participating country. In the case of the United States, its existing national laws already provide the authority for asset confiscation and their utilization at the discretion of the executive branch.
According to experts, confiscation is fully legitimate within the framework of international law, and the potential negative consequences for states are minimal. Therefore, the United States should take on the political leadership in confiscating and transferring Russian assets to Ukraine, thereby showing that any violation of international law by an aggressor state will not escape the attention of the international community.
Furthermore, these funds could serve as part of the reparations that Russia will eventually be obligated to pay (likely against its will), and they could be directed toward the post-war reconstruction of Ukraine, which is estimated to require hundreds of billions of U.S. dollars.
Considering the significant attention surrounding the topic of confiscation and transfer of Russian assets to Ukraine, the initial steps taken by certain states, including the United States, and the delay in providing assistance to Ukraine by the U.S. Congress, this process is likely to continue in the future and will eventually be accomplished. This will allow the U.S. and its allies to demonstrate their commitment to Ukraine in its confrontation with Russia, their unity, and their ability to take joint actions aimed at punishing aggressor states.
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