Centre for Economic Strategy: Confiscation of Russian Sovereign Assets: Mission Possible and Overdue

2023-11-01 | Expert publications, Asset confiscation

Legal and Economic arguments to confiscate Russian State Assets and #MakeRussiaPay (prepared with the International Center for Ukrainian Victory)

The legal arguments were prepared by Andrii Mikheiev, international lawyer, and Olena Halushka, co-founder at the International Center for Ukrainian Victory

Economic block was prepared by Maksym Kuzhdin, research intern, and Roman Sulzhyk, Supervisory Board Member at the Center for Economic Strategy

There is a consensus that Russia should pay for damages and losses it has caused to Ukraine during its unprovoked war of aggression. The documented damages as of March 2023 reached $411 billion. Since then, Russian destruction of the Kakhovka Dam alone has caused almost $14 billion in additional damages to Ukraine. Moreover, the longer this war continues, the greater the losses will be in the light of Russian “scorched earth tactics” of fighting and deliberate destruction of Ukraine’s economy.

Given the primary goal of ensuring Ukraine’s victory, all economic measures must be deployed against Russia now to compel it to cease its aggression and withdraw from Ukraine, as well as to limit its ability to wage war indefinitely. Nevertheless, the Russian Central Bank’s assets (RCB assets) amounting to approximately $300 billion are still kept untouched, with the largest burden of funding Ukraine’s self-defense and recovery efforts currently falling on the shoulders of Ukrainians and Western partners.

Insufficient political will has been shown to make confiscation of Russian state assets happen, despite the fact that major international and foreign partners of Ukraine have extensively debated this concept. On November 14, 2022, the UN General Assembly adopted Resolution ES-11/5 in which it was recognized that the Russian Federation must be held accountable for all violations of international law against Ukraine and bear the legal consequences of its internationally wrongful acts.

Such responsibility must include making reparations for all the damages, injuries, and losses caused. In June 2022, Canada adopted amendments to the Special Economic Measures Act allowing for the seizure and transfer of Russian state and private assets, yet the law has not been applied against Russia’s state assets.

On February 16, 2023, the European Parliament called on the European Commission and the Council of the EU to create a legal basis for the confiscation of Russian assets, and on October 17, 2023, the Parliament adopted its position on the draft regulation establishing the Ukraine Facility, which provides clear grounds for confiscation: collective countermeasures and collective self-defense.

Opponents of confiscation raise various legal, economic, and political counterarguments. This note prepared as a part of the #MakeRussiaPay public campaign held by the civil society organizations International Center for Ukrainian Victory, Anti-corruption Action Center, and National Interests Advocacy Network ANTS, is focused on answering the question of why confiscation of Russian RCB assets is legitimate under international law and compelled by political necessity, based on collective findings of prominent legal experts displayed in their studies and reports. In addition, from the international finance perspective, there is no real alternative to Western reserve currencies.

Therefore, the fears that confiscation may trigger the outflow of other countries’ reserves are largely overinflated. Nonetheless, in order to minimize any potential financial risks, G7 and the EU should jointly confiscate RCB assets acting as a coalition.

All intermediary scenarios proposed by Ukraine’s partners, such as the transfer of proceeds from blocked assets (amounting to several billion dollars or euros annually), taxes from such proceeds (e.g. the case of Belgium), imposition of a specific tax on companies benefiting from Russian assets etc., are welcome first steps, but cannot be the end goal. Given the scale of damage, they should be considered only as supplementing and not substituting full confiscation.

Otherwise, G7 and EU partners will need to collect funds for Ukraine amounting to tens of billions of dollars or euros annually for many years to come, which is hardly a realistic nor an attractive long-term posture for the West to adopt toward Russia.

Read the full publication here.