At the last G20 meeting, the issue that captured everyone’s attention was the fate of Russian assets frozen by Western sanctions following Russia’s invasion of Ukraine. The stakes are huge.
A handful of states, led by the US, campaigned for the seizure of the assets, estimated to be worth around $300 billion, while other powerful players opposed it.
This dispute is not new, emerging immediately after the first post-invasion sanctions in 2022. Supporters of confiscation point to Ukraine’s immense need for cash, while detractors of the measure fear the long-term effects of the precedent such a move would set. breaching the “immunity” of a sovereign state’s foreign exchange reserves it might have.
The United States advocates for confiscation and transfer of Russian bank reserves to Ukrainewhile European Union leaders have a more cautious tonearguing for the protection of revenues generated by frozen assets, which could reach between 15 and 20 billion euros by 2027, according to Reuters.
After the unprecedented mobilization of Western states with the aim of hitting the Russian economy, approx 260 billion euros were blocked in western states, almost three-quarters of which are in Belgium, the Financial Times reports. However, since then, Russian assets have lain dormant in Western financial institutions such as Euroclear, a Belgian financial company specializing in the clearing and settlement of securities transactions, awaiting a decision to determine their fate. Meanwhile, according to internal estimates, cthe company has already recorded extraordinary profits of over 5 billion eurosafter taxes, reinvesting the sums that cannot be paid to Russia due to the sanctions imposed, reports the cited source.
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For the Ukrainian government, the argument for asset confiscation seems clear and well-grounded in international law. Kyiv has already seized the equivalent of around 366 million euros in Russian state assets belonging to Sberbank and Russian state development corporation VEB.RF, using legal arguments such as countermeasures and self-defense, local media reported.
Deputy Justice Minister Irina Mudra argues that a seizure of the central bank’s assets would not be a way to punish Russia, but rather force Moscow to honor its war reparations obligations, according to the Financial Times. In mid-March, Mudra and Justice Minister Denis Maliuska went to the United States to persuade congressmen to support a law that would allow the seizure of Russian assets, distinguishing such seizure from war reparations, according to The Associated Press. At the end of April, the law passedas part of the financial aid package for Ukraine, according to the press agency.
The United States, which has around five billion euros in Russian assets on its territory, is supported by Canada and part of the British decision-makers, led by the Foreign Secretary, David Cameron. However, other governments, including those within the G7, are cautious – they don’t want to be accused of violations of international law, as they, in turn, accuse Russia. Even Ukrainian Justice officials acknowledged that the difficult challenge is not convincing Washington to support the confiscation measure, but Brussels.
G7 central bank governors are among those most strongly questioning such a radical measure, aware of the importance of foreign currency reserves to the stability of an economy, the FT article said. Former head of the International Monetary Fund and current president of the European Central Bank, Christine Lagardeemphasized that it is a big leap from seizing assets to using thema move that could represent a violation of international laws, according to the cited source.
However, following proposals that could be adopted at the level of the Union in the near future, a large part of the earnings made by Euroclear from mid-February and from now on would be used to buy weapons destined for Ukraine, according to Financial Times. The plan, which it needs political consensus in the Council of the European Unionwhere relevant ministers from member states meet, could bring around three billion euros per yearwrites the cited source.
Costs and criticisms
Former Russian President Dmitry Medvedev, was responding, on April 27, to the rumors coming from the west. The Russian official said Moscow would respond with the same currency if the U.S. began seizing the assets, but admitted that there aren’t that many American-owned assets in Russia so that the response can be symmetrical, reports Reuters. Governor of the Central Bank of Russia, Elvira Nabiullinahas previously said that Moscow will defend its legitimate interests if its assets are seized, but did not reveal the strategy and tactics, the news agency reports.
Ministers of Finance Mohammed al-Jadaan from Saudi Arabia and Sri Mulyani Indrawati from Indonesia were among those concerned about possible confiscation. Their questions to their Western counterparts touch on the sensitive point of a tense debate over the long-term implications of mobilizing hundreds of billions of euros of frozen Russian central bank assets to help finance Ukraine, the Financial Times reports. The G7 leaders’ summit in Italy, scheduled for June, appears as the defining moment for the advancement of these discussions. “We immobilized the assets together; we would like to mobilize them together as well,” says Daleep Singh, the White House’s deputy national security adviser for international economics, according to the British newspaper.
“The G7 must continue to provide strong economic, political and military support to Ukraine, enabling it to defend itself. This benefits the Ukrainian people and is crucial for the long-term security of the G7 countries. But seizing $300 billion in sanctioned Russian state assets to help pay for that support is a more complex matter. It is not certain that the benefits to the G7 will outweigh the costs it will incur. Funding support for Ukraine through ordinary public spending, at least for now, is probably the better option,” argues Creon Butler, director of the global economy and finance program at the British think tank Chatham House.
The total bilateral support given to Ukraine amounted to approx 278 billion dollars in January 2024, ahead of the latest US aid package, however the total cost of rebuilding post-war Ukraine has been estimated at nearly $500 billionaccording to Butler.
Giancarlo Giorgetti, the finance minister of Italy, which holds the G7 presidency this year, expressed as early as February in Sao Paolo that it would be “difficult and complicated” to find a legal basis for seizing Russian state assets, according to Bloomberg. Its French counterpart, Bruno Le Mairewas even more adamant, arguing that there is simply no legal basis for this.
“Our international legal system does not have a police force … it is fundamentally based on compliance with international law,” said Philippa Webb of King’s College London, author of a study on the legality of Russian asset seizures commissioned by the European Parliament . “The risk is that if we start to ignore these principles, they could be used against us by other states, setting a precedent with unintended consequences in the future,” Webb said, according to the Financial Times.
Some European officials fear that such an action could trigger an avalanche of demands for reparations related to decades-old disputessuch as those against Germany after the two world wars, as well as claims by former colonies for compensation from former imperial powers. China, which has opposed Western plans to impose “unilateral sanctions” on Moscow from the start, is concerned about the credibility of the international financial system if frozen assets are mobilized, says Cui Hongjian, a professor at the Academy of Regional and Global Governance in Beijing Foreign Studies University, quoted by the Financial Times.
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