Confiscation and transfer of Russian money to Ukraine: when the US will "catch up" with the EU and other countries

The House of Representatives passed the 21st Century Peace through Strength draft law, which includes sanctions against Iran and China and, most importantly for Ukraine, the seizure of frozen Russian assets and their transfer to the needs of our country. In total, the value of Russian assets abroad is estimated at $300 billion. Most of the Central Bank's funds are in France, Germany, and Belgium.

Since the first day of the full-scale war, Ukraine has been demanding the confiscation of this money, but Western countries have repeatedly said that there are no legal mechanisms for such a decision. At the end of last year, the West claimed that a roadmap for this process would be ready by the second anniversary of the Russian invasion, but nothing happened. They say that if the funds are simply taken away, it may happen that global businesses that keep money in the US, EU, or Britain will think about what will happen if they can take away funds even from Russia "without any legal grounds." After all, the Western banking system actually lives on stability, predictability, and clear rules.

Read more about how the United States began the process of confiscating Russian money for the needs of Ukraine in the OBOZ.UA article.

The political decision has been made

Representatives of the West are still trying to adhere to certain rules and have stated that the current legislation does not allow the confiscation of sovereign assets of a country. That is, until recently, they have been playing a kind of intelligent game with the bandits when everything should be done exclusively in accordance with international law. Despite the fact that the bandits, represented by the Russian Federation, have trampled all legal norms.

Nevertheless, the idea of using Russian money to finance Ukraine's needs was supported in the United States. It will be easier to take Russian money than to explain to their voters why their billions are being spent on the war in Ukraine.

The EU is still being cautious on this issue and is watching how the US will do. But if the US brings this issue to its logical conclusion, other countries will have nowhere to go. Now it is important that the various legal aspects are resolved as soon as possible. After all, precious time is being lost for Ukraine.

What does the US decision mean?

The main frozen amount is about 200 billion of the Central Bank of the Russian Federation and another 100 billion of Russian oligarchs. It will be easier to deal with the oligarchic money. There are already successful examples of transferring such funds to Ukraine. So far, these are small amounts, about $7 million, but the main thing is that a precedent has been set.

The most difficult situation with funds that are considered untouchable in the world is public finances, i.e., the funds of the Central Bank of the Russian Federation. Suggestions on what to do with them ranged from radical (confiscate and transfer to Ukraine) to creative (force them to reinvest in Ukrainian military bonds). Until recently, none of them found a wide response from Western governments. After all, in order to be able to confiscate them and transfer them to Ukraine, legislative changes are needed. This is exactly what the United States is actively doing.

The bill on freezing Russian assets passed by the House of Representatives will provide a legal basis for the transfer of Russian state funds to Ukraine. This money will be used to rebuild the economy and compensate for war damage. The bill states that the "change of designation" of Russian sovereign assets is fully consistent with U.S. and international law.

Thus, only 4 to 5 billion dollars are under US jurisdiction. This is the amount of money that is planned to be confiscated. The law will not be automatic. It will give the executive branch the right to make all final decisions. If the letter of the law is strictly followed, the confiscated assets will be transferred to the Compensation Fund and the Ukraine Support Fund, which will be administered by the State Department. In case Trump comes to power, the law contains a caveat: the assets cannot be unfrozen until Russia withdraws its troops, including from Crimea.

The draft law does not specify when Ukraine will receive the funds. This step only authorizes the US president to take certain actions. One way or another, this is a very good start, especially when the EU still insists on proposing to use the interest on the assets frozen on its territory only, without touching the main amount of Russian assets.

Changing the EU's wariness

European officials have refused to confiscate Russian assets, fearing that this could lead to a violation of international law, loss of investor confidence in the euro, and retaliation from Moscow.

Many in Europe are still suspicious of America's ambitions. Officials there are unhappy that the United States insists on what they see as risky actions (in particular, the complete confiscation of frozen Russian assets and their transfer to Ukraine) since the vast majority of Russia's blocked assets are located in Europe. In this regard, possible Russian retaliatory measures will be primarily aimed at the EU. That is, Europeans are still somewhat concerned about the possibility of lawsuits from Russia. On April 17, European Central Bank President Christine Lagarde suggested that such proposals face "very serious legal obstacles."

Another concern is that the confiscation of Russian assets will force other "non-Western" countries to withdraw their own reserves from the West if they are one day subject to the same sanctions, which will, of course, negatively affect the investment climate and the EU economy.

That is why the EU is acting rather cautiously when it declares its support for Ukraine in using Russia's frozen billions. However, given the resolute attitudes of the United States and Britain, it is becoming increasingly difficult for the EU to stand aside. The US decision could trigger similar steps in other countries.

The United States has already tried to push Europe to use some of Russia's frozen assets at the annual spring meetings of the International Monetary Fund and the World Bank but to no avail. A final decision is expected at the G7 leaders' meeting in Italy in June.

By the way, there is a precedent. After Iraq invaded Kuwait in 1990, $50 billion of Iraqi funds were confiscated and transferred through the UN to compensate the victims.

The US decision will affect other countries

"The Americans are more active in confiscating Russian assets because they have the smallest amount of frozen funds of the Central Bank of the Russian Federation. There are many problems in this area in Europe, where the main sums of the aggressor's money are stored. The oligarchs' money is a separate story, and it is the easiest to confiscate. The Americans have already implemented the first such cases. Through the U.S. Attorney General's Office, $7 million was confiscated and transferred to Ukraine. Although the amount is small, a precedent has been set. Until recently, the United States has been avoiding the issue of confiscation of Russian sovereign assets, but finally the turn has come to them," Oleh Hetman, economist, coordinator of expert groups of the Economic Expert Platform, said in an exclusive commentary for OBOZ.UA.

"In Europe, much more money is frozen, about 200 billion of the Central Bank of the Russian Federation, and almost 100 billion of Russian oligarchs. That is why the EU is being more cautious about this. It is because Russia will certainly respond. Sadly, many European companies have remained in Russia at their own peril. Therefore, their assets may be confiscated in response to the confiscation of Russian billions.

That is why Europe is more actively preparing a mechanism whereby interest from these frozen funds will be transferred to Ukraine in one way or another, which, in the opinion of European officials, is a more balanced and safe position. So, I think Europe will go this way. As for the main amount, I am not sure that this will happen in the short term. As I said, it is because of the EU's economic interests.

Of course, the American precedent will stir the European bureaucracy, and they will at least start to consider this more substantively. But even more, the adoption of the law in the United States will speed up decisions regarding individual countries, such as Britain, Canada, Australia, and Japan. It will be easier for them to implement these steps to confiscate and transfer Russian assets. And Europe, as a complex bureaucratic machine with the largest amount of money, will be the last to do so, Oleh Hetman said.