What's Wrong with West's Ideas about Frozen Russian Assets

Tuesday, 17 October 2023

International headlines have been discussing the confiscation of Russian assets abroad and their transfer to Ukraine.

These news stories bring hope, but the process of confiscating Russian assets will remain very challenging, as explained in an article by Ivan Horodysky, a Ph.D. in legal science and director of the Dnistrianskyi Center – Two Approaches to Compensating Ukraine: What Lies Ahead for Frozen Russian Assets.

"My own view is you broke it, you bought it. And so the Russians having broken it, they ought to pay for it. And one way to do that would be through the use of these assets. So we’re looking at what legal authorities we may have, the Europeans may have, to actually use those assets for Ukraine," said US Secretary of State Antony Blinken during his speech at Texas Tech University on 4 October, and this statement went almost unnoticed in Ukraine.

In a political sense, this statement is hard to overestimate because, up to this point, discussions about practical steps regarding the fate of Russian assets at such a high level have been avoided in the US.

This statement essentially sent a signal to all our allies that the issue is on the agenda, and work should be done to resolve it.

Just a week later, on 12 October, this intention was supported by US Treasury Secretary Janet Yellen at the meeting of finance ministers and central bank governeurs of the G7 in Marrakech.

The governments of Belgium and Estonia made significant statements in this context at the same time.

On 11 October, during President Zelenskyy's visit to Brussels, the Prime Minister of Belgium, Alexander De Croo, announced the intention to support Ukraine precisely through Russian assets. His government plans to use the profit from around $200 billion of reserves of the Russian Central Bank and other assets related to Russia, held in the Euroclear securities depository in Belgium for the benefit of Ukraine, which amounts to roughly 1.7 billion euros.

This is not the first such step from the Belgian government. In May, they announced a 92 million euro aid package for Ukraine, funded from tax revenues from Russian assets.

On 13 October, the Estonian government drafted and sent to the parliament a law that, if approved, would open options for using frozen Russian assets for compensating Ukraine.

These statements and actions appear to be a kind of honeymoon for Ukraine regarding the confiscation of Russian assets. However, considering the challenges that lie ahead and the political context, it becomes clear that the task has not become easier.

First and foremost, it should be emphasised that the question of full confiscation and transfer of $300 billion in frozen Russian assets to Ukraine is not yet on the table. When speaking in Austin, Blinken used the word 'use' rather than 'seize' or 'confiscate,' and the same possibility was discussed in Marrakech and is described in the Estonian government's draft law.

It means that the strategic position of our allies on this matter remains unchanged – Russian assets will be frozen, and Russia will not pay full compensation to Ukraine.

However, even alternative scenarios for the use of these assets can be a quantum leap in terms of compensation for Ukraine. There are two possible scenarios.

A day before Antony Blinken's statement in Texas, the US Congress had voted for the resignation of Speaker Kevin McCarthy. Reduction or suspension of funding for Ukraine became a central public message from the Trumpist faction of the Republican Party, which opposed McCarthy.

Additionally, the outbreak of war in Israel, historically supported by the US in such situations, further complicates the situation with US support for Ukraine, especially ahead of the most dramatic presidential elections in the US in almost a century.

For Ukraine, the statements by Blinken and Yellen, two prominent representatives of the Biden administration, are not just a positive but also a troubling signal. In the medium-term perspective, Ukraine should look for alternative sources of financial support. Frozen reserves of the Russian Central Bank have begun to be considered as a source due to these alarming signals.

Given these troubling signals, Ukrainian diplomacy needs to strengthen its efforts to guarantee financial support for Ukraine and insist that only the confiscation of Russian assets is the only acceptable option for Ukraine.

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