It seems odd, considering the scale of destruction caused by Russia’s invasion of Ukraine, that seizing Russian money immobilized in Western clearing houses is as hotly debated as it is.
The costs of Ukrainian reconstruction are difficult to agree. $1 trillion is sometimes stated. A more conservative estimate would be around half that – $500 billion.
But before reconstruction can even begin, Ukraine needs to finance its war effort – costing around $50 billion per year – and maintain its day-to-day economy.
In other words, Russian state assets, if repurposed, could cover the costs of five years of war, or three-fifths of the conservatively estimated reconstruction costs. Either way, these assets would only make a modest-sized dent in the catastrophic overall costs created by Vladimir Putin’s invasion of Ukraine.
Seen in these terms, the EU’s proposal to confiscate and repurpose only the $3-5 billion in interest generated by the $300 billion every year, cannot be considered a meaningful amount. It is also hard to understand the legal sophistry behind claiming the $300 billion is sovereign and ‘untouchable’, but interest accrued can be considered fair game. Russia, surely, holds the deeds to both the capital sum and its interest.
The principle
The most important question is simply: who will pay for the immense destruction caused by Russia’s war? No Russian government will do so willingly, at least in the short to medium term.
Russia has never in its history paid reparations for any of its illegal conquests. Indeed, frozen assets may be the only Russian funds that ever contribute to repairing the terrible damage its war has caused in Ukraine.
There should also be a principle that this money cannot ever be used as a bargaining chip, for instance in exchange for territory that Ukraine already owns according to international law.
Sending the money back to Russia is surely unconscionable: The G7 has publicly stated that the assets will not go back until Russia pays for the damaged its war has caused, and G7 countries would be discredited if they reneged on that promise. Effectively, the assets are already seized in all but name, and the West is just ‘waiting for an agreement’ from Russia that will never come.
To even consider returning any money to Russia, Ukraine would have to be fully reconstructed, territorially whole, and judicially satisfied with reparations paid. Russia would have to be contrite and democratic, with Putin removed.
In other words, a scenario where Russia’s sovereign assets can be returned is as close to a flat-out impossibility as can reasonably be imagined.
Meanwhile, Ukraine is in urgent need, willing to fight but lacking the means to do so. Almost everyone in the Western world says they want Ukraine to prevail. Yet saying it and taking obvious moral actions to support that aim – like confiscating frozen assets – seem to be worlds apart.
Legal issues and precedent
Two common arguments against confiscating Russia’s assets revolve around whether it is legal, and the precedent it supposedly sets.
To start with, history will not judge the West well if it allows Ukraine to fall because it does not wish to contravene international law.
According to some, the recognition of Kosovo in 2008 was legally dubious. But it was the moral thing to do in order to protect Kosovar Albanians from Slobodan Milosevic’s genocidal onslaught. It conceivably did set a precedent. Certainly, the Russians argued as much when they annexed Crimea – without any credible human rights pretext.
Arguably, if confiscating and repurposing Russia’s foreign-held assets sets a precedent, then it is a good one. It is hard to think of a conflict since the Second World War where there has been such moral clarity.
Russia’s breach of international law is already recognized by the ICJ in its binding provisional ruling. In cases where one country attacks another in clear transgression of international law, the invader’s foreign-held assets should surely not be safe and sacrosanct. Perhaps confiscating Russia’s assets for this invasion will have a deterrent effect on others considering similar actions elsewhere.
Many legal experts are arguing that the provision known as ‘ countermeasures’ is applicable. Countermeasures are codified in the UN International Law Commission’s Articles on Responsibility of States. They have frequently been cited by the ICJ in its decisions. The US REPO Act is also an example of countermeasures.
Even if a country’s legal system does not have the legal mechanisms to enact countermeasures, those laws can certainly be legislated and enacted. The more fundamental points are that morality is the basis of law (along with precedent and multiple other factors) and that international law evolves with each new substantial ‘test’ it is subjected to. New thinking is emerging.
‘Global shock’
A further argument often deployed against confiscation is that it will destabilize the global economy and undermine confidence in the Eurozone as an investment destination.
But the notion that seizing the assets will create a ‘global economic shock’ is unproven.
It seems more reasonable to suggest that immobilizing the assets during the first days of the Russian invasion was the more destabilizing move – to say nothing of the unparalleled destabilizing act that was Russia’s attack on Ukraine.
Certainly the dollar has remained strong despite moves towards immobilizing Russian assets. Global economic shocks do happen, and no doubt more will follow. But history shows the world bounces back. Even if using Russia’s own assets proves a shock to the system, it will stabilize. And it’ll be worth it to help Ukraine.
Nor is there any practical risk to the Eurozone. There simply is no viable alternative to the euro, dollar, sterling pound, or yen, which together make up 89.2 per cent of the world’s reserve currencies.
There should again be a principle involved: Europe should not wish to be an attractive investment destination for ultra-nationalist authoritarian regimes. Perhaps if it weren’t, the Western world would shed some of the accusations of hypocrisy that plague its international diplomacy.
What is the alternative?
Opponents of sanctions must always recognize that the alternative – that is to not sanction – means to keep trading with an opponent. This is perverse: to keep sending money to fund the opposing side of the war.
This is no less the case with confiscating Russian sovereign assets. The alternative is to not confiscate them.
But to what purpose? Most politicians fail to realize that inaction is a policy choice in itself – and with policy consequences potentially just as profound.
The West will create a precedent whether it confiscates or does not. Therefore, the question should not be ‘will we set a precedent?’ but ‘what kind of precedent do we want to create?’
As with all wars, when this one comes to an end, multiple factors will have contributed to its outcome. Confiscating Russian state assets held in the West is just one piece of the puzzle. But it is a crucial element in the West’s overall resolve to ‘do the right thing’ and save Ukraine.
James Nixey, Director, Russia and Eurasia Programme.