New concept on using Russia’s frozen assets to aid Ukraine

“Instead of just keeping this money (Russian state assets – Ed.) frozen, let’s spend this money on rebuilding Ukraine. And this will be, if you will, a down payment on the reparations that Russia will one day have to pay for its illegal invasion,” said British Foreign Secretary David Cameron.

Cameron’s idea to forcibly lend frozen Russian assets

In recent months, various politicians and experts have put forward different ideas on how to make the confiscation of frozen Russian assets possible in Ukraine’s interests. However, the diversity of these ideas shows that there is no final plan for dealing with Russian assets.

Currently, most Western countries are afraid of the precedent of confiscating frozen Russian assets and are ready to hand over only the profits from them to Kyiv.

However, David Cameron suggests an extraordinary, but more acceptable, solution to this dilemma for Western countries. In fact, it is proposed to “forcibly lend” the frozen state assets of Russia to Ukraine; these funds will be available to the Russian authorities (probably post-Putin) after all reparations to Ukraine are paid. What does this plan change, and how high are the chances of its implementation?

Confiscation as a form of sanctions

Ten leading international lawyers have written an open letter to the G7 states stating that states freezing Russian state assets could legitimately transfer them as compensation for damage caused by Russia’s unlawful war.

The letter expresses support for the confiscation of the Russian Central Bank’s assets using countermeasures under international law. The same authors prepared a special memorandum justifying the legitimacy of confiscating Russian assets via countermeasures.

Various expert groups have previously and continue to express the idea of countermeasures as a mechanism for asset confiscation by the Russian Federation’s Central Bank. However, such an authoritative group of lawyers has never before supported this idea.

Russia’s war is a violation of erga omnes

According to these experts, including representatives of the UK, Belgium, the Netherlands, Germany, and Japan, the aggression against Ukraine was a violation of erga omnes—obligations to the international community as a whole.

This means that all states are victims and can take countermeasures to force Russia to comply with international law.

And since the first such action, sanctions, proved to be ineffective, it makes sense to take further countermeasures, this time in the form of asset confiscation, in relation to Russia’s public, but not private, assets controlled by other states.

Experts are now discussing this concept more actively. For example, one of its authors, Belgian lawyer Pierre Klein, presented the concept’s main provisions at a hearing of the Belgian House of Representatives’ International Relations Committee on the confiscation of Russian assets controlled by that state.

However, no matter how legally justified such a decision is, its adoption depends on the joint political will of the states that control Russian assets. And such a will, especially on the part of the EU member states, is not yet present.

However, over the decades of globalization, the principle of sovereign immunity has acquired a broader meaning than the exclusion of the property of some states from the judicial jurisdiction of other states and has become a guarantee of the stability and predictability of the international economy.

And the destruction of these guarantee systems could have far-reaching consequences, which is what economists and central banks fear. They want to avoid a radical scenario and are putting forward other ideas.

“Reparations bonds”

At the start of the year, Reuters experts proposed a new approach to using frozen Russian assets: the issuance of so-called reparation bonds. Future reparations payments from Russia could secure these bonds, offering an alternative to directly confiscating the Russian Central Bank’s reserves.

This proposal could have remained at the level of expert discussion, but it found an unexpected supporter: British Foreign Secretary David Cameron stated in a speech to the House of Lords last week:

“There is an opportunity to use something like a syndicated loan or a bond that actually uses frozen Russian assets as a guarantee to provide this money to the Ukrainians, knowing that we will reimburse them when Russia pays reparations.”

Cameron noted that he wants to “maximize the unity of the G7 and the EU on this issue,” but if that fails, the UK will be ready to move forward with this idea with those allies who support this approach.

Russian assets will only be confiscated if Russia refuses to pay reparations to Ukraine

This means that such a plan, along with the use of proceeds from Russian assets and direct confiscation, could be one of the main ways to secure reparations for Ukraine.

Under this plan, sovereign Russian assets will only be confiscated if Russia refuses to pay reparations to Ukraine. Once paid, the reparations will cover the funds raised under these bonds.

This plan is not flawless: despite the potential to raise up to $300 billion for Ukraine, it is important to strike a balance between financial needs and avoiding an excessive burden on the economy.

The variety of different plans for dealing with Russian assets (e.g., issuing “reparations bonds”) is evidence of the lack of a common vision in Europe. This means that the process of confiscation and utilization of Russian assets will be lengthy.

This year, it is most likely that the Russian Central Bank will decide to use its assets to benefit Ukraine. The Ukrainian government also recognizes this as the most realistic scenario.

Ukraine expects income from frozen Russian assets in 2024

“The minimum plan is to start using the income from the frozen assets,” Ukrainian Prime Minister Denys Shmyhal said during a press conference on March 1.

These revenues, estimated at $3–5 billion a year, will support Ukraine but not compensate for the damage caused by Russia’s military aggression. As a result, both compensation to victims of aggression and confiscation of assets remain a much longer-term goal.

Under these circumstances, stakeholders will continue to discuss “reparations bonds,” “loans,” and other similar ideas. Furthermore, proposals for countermeasures used to confiscate Russian assets may contribute to their implementation. If Russia refuses to discuss reparations, this could ease investor fears and make Cameron’s proposal more appealing to investors.

Given the political and economic uncertainty, there is a high likelihood that these combined options will hold the aggressor financially responsible for the war’s damage.

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