Seizing Russian assets

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Nearly two years since Russia’s invasion of Ukraine, the war has reached a critical phase. The failure of the U.S. and Europe to approve additional aid has left Ukraine perilously low on weaponry, ammunition and manpower. With Russian President Vladimir Putin showing no signs of relenting, Western governments are now openly considering another option: seizing frozen Russian state assets and giving the proceeds to Ukraine.

The idea of making Russia pay for its aggression with its own assets has undeniable moral and practical appeal. At a time of tightening budgets, it’s an easier message to deliver to Western taxpayers than new funding packages. Proponents rightly want to help Ukraine, punish Putin and bring an end to the war. Yet confiscating sovereign assets now could end up making Ukraine’s predicament even worse.

Some $300 billion in Russian central bank reserves have been immobilized by Western governments. Joe Biden’s administration has introduced a bill that would authorize the president to confiscate Russian state assets held in the U.S. It has asked other members of the Group of 7, which meets in February, to consider how frozen reserves in other countries can be legally repurposed to help Ukraine.

In truth, there’s little to prevent the U.S. from authorizing such a transfer — it did so as recently as 2022, with frozen assets belonging to Afghanistan following the Taliban takeover. It seized Iraqi state assets in 2003. A consensus among G-7 countries, which collectively account for 44% of the world’s gross domestic product, would increase the legitimacy of any move against Russian state assets.

Yet the circumstances and scale would make confiscation in Russia’s case unique. For all its savagery in Ukraine, Russia is a recognized state with a long-standing government. Any confiscation will face court challenges by Russia in multiple countries; Ukraine would be unlikely to have access to the money for years, even decades, if those processes are respected. At best, the confiscated funds might eventually help finance Ukraine’s postwar reconstruction; at worst, skeptics in the U.S. and Europe will use the distant prospect of unlocking Russian assets as an excuse not to send fresh military aid to Ukraine, handing victory to Putin.

For now, there are better options for handling Russian assets. Most of the funds frozen by the U.S. and Europe are being held at the Brussels-based clearinghouse Euroclear. Rather than attempt to claim possession of those assets, the European Union should adopt a windfall tax on the income made by depositories on Russia’s frozen assets. Belgium already transfers to Ukraine the additional corporate tax revenue it collects from those immobilized assets; repurposing the Euroclear profits would amount to several billion more euros a year.

Needless to say, that’s not nearly enough for Ukraine to fund its government and war. Leveraging the underlying assets for investment and borrowing offers the prospect of greater returns, but the legal process for doing so isn’t straightforward. In the meantime, more than $110 billion in aid — monumental for Ukraine but a pittance compared to Western defense budgets — is being held up by a faction of hard-line Republicans in Congress and, in Europe, by Hungary’s pro-Russian leader, Viktor Orban.