Why the U.S. Won’t Seize Russian Assets To Help Ukraine
A growing chorus of officials wants to seize more than $300 billion in Russian assets to rebuild Ukraine. So far, Washington isn't on board.
Fifteen months of war have imposed enormous costs on Ukraine, not only in lives lost but in dollars as well. The buildings and infrastructure destroyed, businesses shuttered, workers lost to emigration or the battlefield: it all adds up. In late March, the World Bank estimated the cost of Ukraine’s post-war reconstruction and recovery at $411 billion, more than twice the country’s pre-war GDP.
Where is all that money going to come from?
At least some of the bill will likely be paid by the United States, which has already provided more than $71 billion in military and economic aid to Ukraine since the war began. But Ukraine and many of its international supporters believe Russia should pay for what it has destroyed.
There are more than $300 billion in Russian assets stashed in Western banks, and a growing number of governments and activists say the U.S. and other countries should seize that money and send it to Ukraine. Ukrainian officials have made that case - as have American lawmakers, who argue that otherwise U.S. taxpayers will be among those footing the bill for rebuilding Ukraine.
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In a statement at the G7 summit in Hiroshima, Japan last weekend, world leaders said the G7 would work to “fully map holdings of Russia’s sovereign assets immobilized in our jurisdictions” and take steps to ensure that those assets “remain immobilized until Russia pays for the damage it has caused to Ukraine.”
A spokesperson for the White House National Security Council echoed the point, telling the Messenger that ”Russia must be held accountable for the damage that it has caused in Ukraine and sovereign assets will remain immobilized until it agrees to do so.”
But there’s a growing chorus of activists and officials calling for the U.S. and other governments to go further - to seize rather than freeze the Russian government funds.
So far, the Biden administration is not on board.
Follow the money
Immediately after the invasion, the U.S., U.K and the European Union froze the assets of the Russian Central Bank held in their countries. Russia’s finance minister said his country lost access to more than $300 billion as a result - around half its total reserves. Another $30 billion in assets held by Russian oligarchs and high-ranking officials were also frozen.
While the Russians don’t have access to all that money, no one else does either. That reality has led to bizarre situations: In a hot-mic incident last year, National Security Adviser Jake Sullivan was overheard saying the U.S. was responsible for the upkeep of Russian oligarchs’ yachts it had seized. As Sullivan put it, that meant “some people are basically being paid to maintain Russian superyachts on behalf of the United States government."
In theory, the Russians will regain access to the money if and when sanctions are lifted, but that doesn’t seem likely anytime soon. So for now, the $300 billion is just sitting, untouchable, in foreign banks.
“We have the means to make Russia pay”
Bill Browder, the British-American financier-turned-activist, best known for lobbying for the 2016 Magnitsky Act that imposed human rights sanctions on Russian officials, has been a leading voice for seizing Russian funds to pay for Ukraine’s defense and reconstruction.
It’s both “morally logical” and “makes financial sense,” Browder has written.
Members of Congress from both parties have called on the Biden administration to take this step. And Ursula von der Leyen, president of the European Commission, has also endorsed the idea. “We have the means to make Russia pay,” she said in November. “In the short term, we could create, with our partners, a structure to manage these funds and invest them. We would then use the proceeds for Ukraine.”
To date, the U.S. has balked at the idea. The only exception: in February, the U.S. took control of $5.4 million in frozen assets belonging to Kremlin-linked oligarch Konstantin Malofeev, who had been found guilty of sanctions violations. The NSC spokesperson said that going forward, “the U.S. and other nations intend to forfeit oligarch assets where legally available.”
But Russian state assets are a different story - and they involve far more money. During a surprise visit to Kyiv in February, Treasury Secretary Janet Yellen said, "We have on this small scale seized assets, but there are certainly legal challenges in doing more than that."
Yellen and others argue that while U.S. law gives the government the right to freeze foreign assets, it cannot seize them, meaning actually taking ownership or transferring the funds to another owner. The government can seize assets used in criminal activities - that’s the reason for seizing Malofeev’s money - but it’s harder to make the case that the Russian government has violated U.S. law.
The other reason for the U.S. reluctance is financial: a concern that seizing Russia’s assets could deter future foreign investors from putting their money in American banks, and thus lead to market instability.
There is reportedly internal debate on this issue within the Biden administration; Yellen’s views aren’t universally held. But for now, they are the official U.S. policy.
Scott Anderson, a former State Department legal advisor now at the Brookings Institution, told the Messenger that “the Biden administration seems relatively content, at least for the moment” with the amount of funding it is already providing to Ukraine and doesn’t feel the need to seize Russian assets to provide more. Smaller scale forfeitures, like the measures taken against Malofeev, can help “scratch the itch” of public demands for Russia to pay.
But at some point, that might not be enough.
“The money will either come from Western taxpayers or from Russian expropriated assets,” financial crime analyst John Cusack told The Messenger. Michael McFaul, former U.S. ambassador to Russia, has written that it would be “political suicide for President Biden to agree to give Russia these billions back while asking Americans for billions more to help Ukraine’s case."
A new precedent
The closest precedent for seizing Russia’s foreign assets may be the George W. Bush administration’s seizure of $1.7 billion in Iraqi assets in 2003—money that was eventually used to pay for Iraq’s reconstruction. But in that case, the U.S. was in a state of active armed hostilities with Iraq. Today the Biden administration maintains that the U.S. is not at war with Russia.
Advocates of seizing Russia’s funds, including former State Department counselor Philip Zelikow, say Russia’s violations of international law provide a pretext.
“The crucial prerequisite is a third-party finding that Russia is in breach of peremptory norms of international law,” Zelikow wrote in an email to The Messenger. “The international outlaw can’t stand on the law to claim immunity for its bank account.”
All this is new territory in both domestic and international law. Despite von der Leyen’s comments, the EU hasn’t actually taken legal steps to seize Russian funds held in European banks, though the government of Estonia has said it’s developing a legal framework to do so. The only G7 country that has actually passed legislation to make such seizures possible is Canada, but there’s relatively little Russian money held in that country.
Legalities aside, the political case for transferring Russian money to Ukraine is certain to gain momentum, particularly as Republicans continue to raise questions about aid to Ukraine in Congress and on the campaign trail.
It’s just one of many tough political decisions likely to come if and when the war—and the destruction that comes with it—finally ends. One way or another, someone will have to pay.
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