Ukraine’s President Volodymyr Zelenskyj seized the opportunity at the World Economic Forum in Davos, Switzerland, to encourage his Western partners: It is not the taxpayers who should pay for the reconstruction of the battered Ukraine, but the aggressor Russia itself. “It’s about $300 billion frozen “Russian assets,” he told the British broadcaster BBC, “we should use them directly to rebuild the destruction caused by Russian missiles.” What else is there to think about?
But that’s exactly what the pro-Ukrainian Western alliance is doing. And there are many indications that the tricky question cannot be answered in a few months. Since the beginning of the war of aggression, which violates international law, a significant amount of Russian assets have been frozen thanks to Western sanctions. Considerations about confiscating them in whole or in part – i.e. expropriating the Russian owners – are controversial: preparations are going furthest in the USA, which has taken the lead with Great Britain and Canada.
But which Russian assets are we talking about exactly? The $300 billion mentioned by Zelensky is the sum that is constantly being discussed. It is in foreign accounts of Russia’s central bank and has been frozen.
The lion’s share of around $191 billion in Russian accounts in Europe is in the custody of the Belgian trust office Euroclear, another $20 billion is believed to be in Japan and $5 billion in the USA. The countries do not publish transparent data. Confiscated wealth from Russian oligarchs, such as yachts, has not yet been mentioned in the discussion.
There are only estimates of assets frozen in Germany. Information sovereignty rests with the states. The Federal Public Prosecutor’s Office at the Frankfurt Higher Regional Court only applied at the end of December to confiscate 720 million euros that were supposed to be moved from the major bank JP Morgan to another bank by a subsidiary of the Moscow Stock Exchange.
According to information from the Financial Times, the USA has to have G7 working groups clarify exactly what assets are involved – gold, foreign currencies or securities. The locations of the assets should also be examined again. The next G7 summit will take place at the end of February.
Proponents of comprehensive expropriation cite the moral obligation to hold the Russian aggressor accountable for the damage in what will soon be a two-year war. “It is only fair, morally right and feasible to transfer central bank assets to Ukraine – to strengthen self-defense, reconstruction and compensation for victims,” wrote Kiev activist Olena Halushka, co-founder of the non-governmental organization International Center for Ukrainian Victory in ” Guardian”.
Confiscated funds could also be used by Western states for arms aid. Of course there are legal and economic hurdles, but with real political will these can be overcome.
Last summer, von der Leyen advocated for Europe to benefit from the frozen assets in some way for the benefit of Ukraine. But the EU does not speak with one voice here. Belgium’s Prime Minister Alexander De Croo in particular is urging caution. Belgium currently holds the EU Council Presidency and therefore influences the agenda. Other member states also fear disadvantages.
The lowest common denominator currently seems to be to collect a kind of excess profits tax on the interest profits of the financial institutions that hold Russian billions in custody – and then to confiscate them. This would require setting up separate accounts for all investment and interest gains. According to De Croo, there is also great reluctance against this idea – including in Germany and France.
Access to interest income would have the legal advantage that Russian property itself would remain unaffected. Nevertheless, the European Central Bank (ECB) has apparently warned that even this could have a destabilizing effect on the financial system. International investors could withdraw from Europe if the EU accesses windfall profits from custodians.
Touching the assets yourself would be even riskier. According to the “Handelsblatt”, Euroclear reported special income of 3 billion euros from January to September 2023 and will pay around 800 million in taxes to the Belgian government.
President Zelenskyi was seen in Davos meeting with Wall Street officials from JP Morgan and Blackstone. The head of the British bank Standard Chartered told the BBC that the mood of the financial markets on the idea of skimming off profits from “frozen assets” was rather mixed. Concerns centered on the trend of using central banks and currencies as weapons, so to speak – as was the case with the imposition of sanctions against Russia.
In any case, Western allies take the position that Russia will have to pay for the damage caused by the war – one day. An estimate by the World Bank puts the gigantic sum at least $400 billion so far. In the most recent declaration in December, the G7 nations pledged their support to Ukraine in obtaining Russian reparations, but doing so must respect their own judicial systems and international law.
A confiscation of frozen money from another state would therefore be a novelty that is not covered by international law – and therefore a violation. Therefore, the funds are held by so-called central securities depository – in addition to Euroclear, Clearstream in Luxembourg. Those with concerns want to avoid setting a precedent under international law. The principle of state immunity states that states cannot simply dispose of the assets of other sovereign states.
Russian President Vladimir Putin already accused the West of theft when central bank accounts were frozen in the first wave of sanctions against Moscow. Government officials are now arguing that expropriation would violate the West’s own free market principles – and undermine its credibility on the financial markets.
However, if confiscations were to occur, Russia would immediately challenge them in court – and in return would also confiscate the assets of foreign investors that were already held in so-called C accounts. According to the Russian Finance Minister, these include significant sums.
This article first appeared in the business magazine “Capital”, which, like stern, is part of RTL Deutschland.
