Skip to main content

Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best experience possible, please make sure any ad blockers are switched off, or add to your trusted sites, and refresh the page.

If you have any questions or need help you can email us.

Time to make Russia pay

The G7 and EU must make up their minds about what to do with €300 billion of Russia’s frozen assets

Image: The New European/Getty

Governments meeting at the G7 in Italy from June 13-15 will have a €300 billion question to answer – what should they do about the frozen Russian assets that are currently held in the west?

The haul is the equivalent of £257 billion, and there are a range of options: western government could leave it all alone and wait to see how the war turns out; they could take the interest on those assets, but leave the capital untouched; or they could simply hand the whole lot over to Ukraine.

EU efforts to find a midway route will be up for consideration. One proposal is that 90% of the interest accruing from the Russian foreign exchange – €17bn  (£14.6bn) over the next five years – would be channelled through the European Peace Facility to buy arms for Ukraine. The rest would be used for recovery and reconstruction.

The plan does not go nearly far enough for Bill Browder, the financier-turned-campaigner who is a fierce critic of the Kremlin and who now advises Ukraine. Browder is also the originator of the Magnitsky law, named after his friend and colleague, Sergei Magnitsky, a tax specialist who uncovered corruption by Russian government officials and later died in custody. 

“This is the European Union negotiating with themselves,” said Browder. “It is a half measure and typical of the timid approach we have come to expect from the EU. If they are concerned that it would be unlawful to take the whole amount, international lawyers strongly disagree. They say that it is perfectly legal to seize it.”

Browder expects Ukraine’s financial plight to become so acute that the West will eventually be forced to hand over the full €300 billion. “Ukraine needs more than a few billions to fight off the Russians,” he said.

Those pushing hardest for seizure of the entire €300bn include David Cameron, the British foreign secretary and also the US administration. Cameron said in April, “We should be finding ways of using those assets to help Ukraine in its defence.” It was “important we try and get agreement.”

The US has even passed a law, The Rebuilding Prosperity and Opportunity for Ukrainians Act, which legalises the seizure of Russian assets. Both the US and UK are heading into election season – any way of lightening the taxpayer burden of Ukraine’s war effort has obvious political appeal.

A new administration in No.10 would not change Britain’s support for Ukraine. But political change in the US could have a profound effect on the war. According to Browder, urgent action must be taken while the Biden administration remains in power as an insurance policy against the election of Donald Trump. 

“It is perfectly possible Trump will put the kibosh on any attempt to unfreeze their assets and give them to Ukraine,” said Browder. “It is necessary to seize the assets as soon as possible”. Browder is currently advising Kyiv on how this can be done.

However, some EU countries, including Italy, France and Germany, are more cautious. The concern is that the seizing of assets may be interpreted as contravening Russia’s right, under international law, to sovereignty. 

Germany has particular concerns about how a change in the law could affect reparation claims stemming from the second world war. Another worry is that seizing Russian assets could normalise the practice, and encourage other governments to do likewise, on much more contentious grounds.

Another consideration is that these assets may prove useful to negotiators at the end of the conflict if they remain in their frozen state. This way, they could form part of a peace settlement.

A policy of sanctioning Russian interests was intended to hurt the state and send out a clear message of disapproval. This hit to Russia’s foreign exchange reserves was expected to limit its capacity to issue bonds and therefore choke off its ability to finance the war.

Back in 2022, when the assets were frozen, the Western alliance regarded it as a brilliant coup and a novel way to hurt Russia. Volodomyr Zelensky, the Ukrainian president, said, “The more billions [Putin] and his oligarchs, friends, and accomplices lose, the more likely he will regret starting this war.”

But some financiers are worried about the consequences of taking such a large sum out of the system and handing it over to Ukraine. Christine Lagarde, president of the European Central Bank, has said that “moving from freezing the assets, to confiscating them, to disposing of them is something that needs to be looked at very carefully.” 

Lagarde’s concern is that seizure could “break the international order that you want to protect; that you would want Russia and all countries around the world to respect”. 

“Christine Lagarde is worried about breaking the international order, but the international order is already broken,” said Harold Hongju Koh, a law professor at Yale, who used to work for the US State Department and now advises the government of Ukraine. “The scale of the violation by Putin is huge and this demands a strong response,” 

“This is a failure of political will,” he said. “The EU appears to be paralysed by group think. They should at least start turning the screws on Putin and see if it is effective.”

In Koh’s view, the claim that the seizure of assets could violate international law was only a smokescreen for delay and inaction. A group of international lawyers, including the British lawyer Philippe Sands, have published an open letter to the G7 in support of this view. 

The letter states that Ukraine was entitled by law to adopt appropriate countermeasures given the scale of the Russian violation and that this trumps Russia’s right to the protection of its sovereignty. The funds would be used to rebuild the country and repair the damage caused by the Russian invaders.

The letter states: “We have concluded that it would be lawful, under international law, for states which have frozen Russian state assets to take additional countermeasures against Russia, given its ongoing breach of the most fundamental rules of international law, in the form of transfers of Russian state assets as compensation for the damage that has resulted directly from Russia’s unlawful conduct.”

The west should override legal niceties, said Koh. “We need to cut the Gordian knot. Lawyers always advise caution. Let’s call Russia’s bluff. I would love it if they took us to court.”

If the law prevents seizure, then it needs changing, said Browder, who argues that the law protecting Russia’s assets should be changed. 

“The biggest thing is moving from freezing to seizures. At the moment there are a lot of assets that are frozen, and the obvious thing to do with those assets is to use them for the defence and reconstruction of Ukraine.

“It is absurd for [Putin] to be destroying his neighbouring country unprovoked, which is a breach of international law, and then somehow to claim he is protected by international law. There is a movement underway to change the definition of sovereign immunity, so it only applies when you are not guilty of an act of aggression against your neighbour,” said Browder.

In February, Ursula von der Leyen, president of the European Commission, said, “It is time to start discussing the use of exceptional profits from frozen Russian assets to purchase military equipment for Ukraine jointly.” She said this could amount to €5 billion per year.

The first step has been taken by Belgium which is taxing this accumulated interest at Euroclear, the body that holds much of Russia’s overseas reserves. The $2 billion it has collected will gradually be transferred to Ukraine. Even this route alarms some banks, who say it relies on untested law.

Russia is furious at the EU’s plan to hand its money to Ukraine. It has described the G7’s plan as “banditry” and threatened decades of legal action against all those involved and retaliation if its assets or income are expropriated.

“The Europeans are well aware of the damage such decisions can cause to their economy and to their image, their reputation as a reliable, so to speak, guarantor of the inviolability of property,” said Dmitry Peskov, Putin’s press chief in March.

“The protection of private property is a sacred cow that has been feeding them for many centuries,” one unnamed Russian official told Reuters on condition of anonymity.

Of the many legal and economic threats Western institutions and government encounter in handling the €300 billion of Russian foreign exchange, this one should pose politicians the least concern.

Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best experience possible, please make sure any ad blockers are switched off, or add to your trusted sites, and refresh the page.

If you have any questions or need help you can email us.