Centre for Defence Strategies

Russia must pay for its aggression through seized assets

With the support from

Mariia Kovach-Butsko is a nonresident fellow at the Center for Defense Strategies

Discussions about confiscating frozen Russian assets and using them to rebuild Ukraine have been ongoing since the beginning of the full-scale invasion.

The argument is heard from both Ukraine and its Western partners: Russia must pay for the damage it has caused.

As of November 2022, the EU and its G7 partners have frozen over 300 billion euros ($325 billion) of Russia’s Central Bank reserves and 19 billion euros ($20.6 billion) in assets of sanctioned Russian oligarchs.

However, the freezing of assets does not necessarily mean their confiscation.

In accordance with international law, Russia’s gold and foreign exchange reserves are protected by sovereign immunity, and the involvement of oligarchs in the Kremlin’s criminal regime still needs to be proven in court.

The way out is to change national legislation in countries where Russian oligarchs keep their money in order to develop a legal mechanism to transfer seized assets to Ukraine. Despite existing legal challenges, there has recently been some progress in this regard.

The West should accelerate the process so as not to lose the opportunity to rebuild Ukraine without spending its taxpayers’ money.

Canada, U.S. take the lead

Canada and the U.S. have demonstrated a leading role in the confiscation and transferring of Russian assets to help rebuild Ukraine.

Canada was the first Western country to implement a mechanism to redistribute sanctioned property – in a record two months.

In December, Ottawa announced that it would start the process of seizing around $26 million from Granite Capital Holdings Ltd., a company owned by Russian oligarch Roman Abramovich.

Canada’s experience proves that legal tools exist and can be applied quickly, which should serve as a clear example for other states. Canada’s model for seizing Russian oligarchs’ assets is already being carefully studied by the U.K. government.

Washington has achieved even greater results.

In February, Manhattan federal court ruled to confiscate $5.4 million worth of assets from Russian oligarch Konstantin Malofeyev due to the evasion of sanctions imposed on him for financing Russian proxies in occupied Crimea in 2014. The Malofeyev case was the first in which the assets of one of Putin’s cronies would potentially go toward Ukraine.

The move was based on a Senate-approved amendment to the budget for 2023, which legitimizes a mechanism for confiscating and seizing private Russian assets. The amendment also gives the U.S. Attorney General the ability to transfer these funds to the U.S. State Department, which could then potentially transfer them to Ukraine.

While the amount confiscated is vastly disproportionate to Ukraine’s losses, the Malofeyev case demonstrates the potential for civil forfeiture to be a promising legal instrument.

The challenges ahead

Despite prior success, it is difficult to use the legal mechanism applied to the Malofeyev case as a broad tool for all Russian assets frozen by the West.

Each case related to the confiscation of private property requires detailed investigations into the evasion of sanctions, which can take months. Confiscating assets from Russia’s Central Bank, which is protected by sovereign immunity, is even more complicated.

The international community must change the system of protection for foreign states’ sovereign funds that are kept abroad.

A possible option is to conclude a comprehensive international treaty, which would have  supranational enforceability and provide a legal justification for confiscating assets. The European Commission, for example, is currently considering an EU-wide agreement on regulating the seizure of Russian assets.

There are also mechanisms that do not rely on supranational treaties.

In 2022, the U.S. confiscated assets from Afghanistan’s Central Bank after the Taliban seized power. Nearly $7 billion was transferred to support the people of Afghanistan and compensate the victims of the attacks on September 11, 2001. A decree by U.S. President Joe Biden was enough to suffice at the time.

The EU must demonstrate leadership

EU member states have the largest share of frozen Russian assets, but there is still no specific legal mechanism for their confiscation.

Among Ukraine’s key allies in fighting against Russia’s aggression, the EU is trying to improve legislation to criminalize the evasion of sanctions but its efforts remain insufficient.

One of the main reasons is the lack of consensus among member states. Ukraine’s traditional friends – Poland, Estonia, Lithuania, Latvia, and the Czech Republic – are opposed by Hungary, which has slowed down decision-making. There is also Germany, who prefers to stay “neutral.”

Despite existing internal differences, the situation in the EU may soon be changed due to the more decisive actions of Canada and the U.S. Allied countries usually follow Washington’s example.

The world must step up its confiscation efforts

Western states should intensify their efforts to confiscate Russian assets for several reasons.

First, the war will end sooner or later – the more weapons and support that Ukraine’s partners provide, the faster it will happen.

The question of reconstruction will immediately arise, requiring multibillion-dollar investments. Since the start of the war, Ukraine’s allies have allocated billions in support to Ukraine. The EU has committed 18 billion euros ($19.5 billion) for 2023 alone.

Such large-scale expenditures are a significant burden on the budgets of EU and G7 countries. Therefore, the fairest and most convenient option would be for the Kremlin and its oligarchs to pay for the mass destruction incurred in Ukraine.  To do this, the necessary legal grounds must be ready in time for Ukraine’s victory.

Second, making Russia pay is in line with achieving justice. Such measures would serve as safeguards against future wars and a warning to all aggressors that they would face similar consequences.

Third, the loss of Russian oligarchs’ billion-dollar fortunes could provoke a crisis among the Russian elite, which could lead to a change in leadership in Moscow.

Fourth, the West should demonstrate leadership and act from a position of strength toward the aggressor without looking back at the Kremlin’s reaction.

Democracies have looked back at Russia for too long, fearing potential consequences. However, this past year’s events have shown the absurdity of such an approach and revealed a long-known truth: fear, indecisiveness, and appeasement of the aggressor only encourages further criminal acts. That Russia understands only the language of power is a lesson that is long overdue.

Finally, these strategic issues demand a united Euro-Atlantic front. It is essential for the EU not to delay and show solidarity with its Atlantic partners.

While the Kremlin has counted on a lack of consensus among Western partners, the West has demonstrated unprecedented unity and solidarity with Ukraine, particularly in the military sphere. Now, we must prove our common decisive position on issues regarding the future reconstruction of Ukraine.

Despite the complexity of such legal processes, the confiscation of Russian assets is only a matter of time. The ice has broken overseas and, sooner or later, Russia will pay for its aggression against millions of Ukrainians.

Alongside a special tribunal targeted at Russia’s leadership, large-scale asset seizures will strengthen the belief that every criminal act that occurs within the international arena has its consequences.

Source: The Kyiv Independent