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Can Russia be made to pay for Ukraine?

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When US Treasury secretary Janet Yellen meets her counterparts in Brussels on Tuesday, one big topic for discussion will be how to fund a country battered by war. While the immediate concern is covering Ukraine’s short-term financing needs, officials are also increasingly worried about a reconstruction bill that is heading above half a trillion euros.

Some are now tempted to use the roughly $300bn of Russian foreign exchange reserves frozen when the EU, the US and their allies imposed sanctions on the country’s central bank. Josep Borrell, the EU’s top diplomat, this month called for the assets of the Russian state to be directly targeted, saying such a move would be “full of logic” given the enormous cost.

But confiscating foreign governments’ assets would be fraught with risk and legally questionable, according to some scholars. As the US Treasury secretary put it last month, using Moscow’s reserves to fund rebuilding is not something to consider “lightly”.

Why would such a move be seen as incendiary?

Governments around the world hold the bulk of their wealth in dollars and euros. Beijing, for instance, is one of the biggest holders of US Treasuries in the world.

The decision to freeze Russia’s assets has already raised concern in states with tense relations with the US and Europe. An outright seizure of Moscow’s wealth would be viewed as crossing a political Rubicon. “It would essentially be an action that does away with the international political economy system we have set up over [recent] decades,” said Simon Hinrichsen, a visiting fellow at the London School of Economics.

In a blog post published by the Bruegel think-tank on Monday, Nicolas Véron and Joshua Kirschenbaum argued that while the idea of seizing the assets was “seductive”, it was also “unnecessary and unwise”.

“Credibly standing for a rules-based order is worth more than the billions that would be gained from appropriating Russia’s money,” they said. “Countries place their reserves in other countries trusting they will not be expropriated in situations short of being at war with each other.”

The possibility of leaving the reserves frozen and later returning them to Moscow was also “a powerful bargaining chip” for Kyiv, the two authors said.

What is the US’s stance?

Yellen has said making Russia pay for rebuilding is something that the authorities “ought to be pursuing”, though the Treasury secretary has cautioned that doing so would require changes in US law and require the support of US allies.

In the new $40bn aid package for Ukraine that is making its way through Congress, the Biden administration has proposed measures that would make it easier and faster for the government to seize assets linked to Russian “kleptocrats”.

The Biden administration has form in seizing governments’ assets: earlier this year the president ordered some of the Afghan central bank’s wealth that was parked in accounts in the US to be used for humanitarian assistance. Still, doing the same in the case of Russia would involve surmounting significant legal obstacles.

What do lawyers think?

International law recognises that the assets of convicted war criminals can be seized in reparations to their victims. In 2017 Hissène Habré, the former president of Chad, was ordered by a special war crimes tribunal to pay more than $145mn to victims of abuses under his rule. However, Habré died last year without his victims seeing compensation.

There was more success in the case of Iraq, where the country’s government has paid $52bn to victims of Saddam Hussein’s invasion of Kuwait. The last payment, funded by oil sales and backed by the UN, was made earlier this year.

With Ukraine, the scale of the asset freezes already targeting Russia is a clear advantage. But the assets remain the property of Moscow under US law. Lee Buchheit, a veteran lawyer of international finance, said the US president was likely to need an act of Congress to change that. “The issue is whether they can take the next step and actually confiscate [the assets],” said Buchheit. “It is highly likely to happen, because the political pressure on western leaders is building to take this step.”

However Véron and Kirschenbaum argue that, even if Congress passes new legislation, it could be found to be unconstitutional in future court cases. “Such an aggressive expansion of executive powers might even cause the US judiciary to revisit the deference it has historically granted the government when exercising blocking or other sanctions authorities,” they said.

What other ways are there to make Russia pay?

Confiscating assets of wealthy individuals is one route.

The Biden plan has bipartisan support, with both Republican Lindsey Graham and Democrat Richard Blumenthal championing it in the Senate.

The EU has set up a so-called freeze-and-seize task force which is examining whether to take a similar approach to the US — as are officials in the European Commission’s justice directorate. One stumbling block is that asset confiscation is subject to strict legal limits in member states, and in many (although not all) cases it can only happen following a criminal conviction of the owner of the relevant property.

To overcome this, the commission is working on measures to clarify that evasion of sanctions — for example, by moving assets to another jurisdiction — is itself a criminal offence, facilitating the confiscation of the assets by the authorities.

But, compared with the vast wealth of the Russian central bank, the assets of the oligarchs are relatively small and would leave the allies with a massive gap to plug in the reconstruction bill.

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