As the U.S. Congress debates a potential aid package that could provide Ukraine with an extra $60 billion in emergency support, certain legislators in the United States and other major democratic allies are focused on a larger potential source of funding: the frozen Russian central bank assets held in Western financial institutions.

Over the past few weeks, there has been an increasing push to permanently confiscate the frozen funds, which are believed to be around $300 billion, and allocate them towards assisting Ukraine in recovering from the extensive expenses of rebuilding towns and infrastructure destroyed during Russia’s invasion.

The Biden administration in Washington has shown its backing for a law that would make it easier to seize the $50 billion-$60 billion in Russian money held by American banks.

In Europe, where the majority of Russian funds are currently held, there is a cautious approach being taken. This could result in the interest earned from frozen Russian funds being directed towards Ukraine’s needs, while the original funds remain untouched.

The G7, a group of major economies, has approved a proposal to use frozen Russian assets as collateral for interest-free loans to support reconstruction efforts in Ukraine.

Sending a message

Proponents of seizing Russian funds argue that it is crucial in emphasizing the international community’s disapproval of Russia’s actions.

Simon Johnson, an economist at Massachusetts Institute of Technology, expressed that this action conveys a message that extreme aggression of this kind will not be accepted.

Johnson stated that it is unheard of for a nation engaging in an aggressive war, such as Russia’s actions in Ukraine, to possess such substantial foreign reserves.

Johnson stated that the reserves were created with the intention of providing a safety net for reckless behavior. However, he believes that this mindset needs to change in order for countries to successfully engage with the global economy and the U.S. It is not sustainable to rely on current account surpluses to fund military actions.

Russian retaliation

Russian authorities have issued a warning of potential retaliation if their assets are seized, vowing to take similar action against Western assets under Russian control. However, it is uncertain if there is an equivalent amount of foreign assets held in Russian banks.

“Of course, the Russian Federation will challenge such decisions. We will protect our interests and our assets illegally seized,” Kremlin spokesperson Dmitry Peskov told Reuters earlier this month. “Encroachment on someone else’s property undermines all the foundations of the economic system, including the economic system of those who will implement these decisions.”

He stated, “We firmly believe that those in charge also recognize the unavoidable nature of these outcomes. We are closely monitoring the situation.”

International law

However, proponents of the action claim that the potential approaches for confiscating Russian assets are all in accordance with current international laws.

According to Mark Kennedy, director of the Wilson Center’s Wahba Institute for Strategic Competition, lawyers from various countries generally believe that if international bodies make this decision, it can be considered an “authorized taking,” whether it involves the seizing of assets or the use of loans as collateral.

“I believe it will occur in some manner, though it remains to be seen whether it will happen soon or not,” he stated. “There is a sense that this is fitting retribution towards Russia.”

‘REPO’ Act

There is currently a debate in the United States regarding the government’s ability to do more than just freeze Russian funds, but also transfer ownership of them to a third party.

Last year, Laurence H. Tribe, a law professor at Harvard University, and a group of colleagues released a comprehensive report stating that the existing laws in the United States provide enough power for the government to transfer Russian assets held in the country to Ukraine.

Despite this, there are some who do not share the same viewpoint.

According to Paul B. Stephan, a law professor at the University of Virginia, the executive branch and Treasury have the authority to freeze and transfer assets in order to protect them from being taken back by their owners. However, it is important to note that the term “transfer” in this statute specifically refers to possession, not ownership.

The House and Senate in Washington are currently reviewing a proposed law called the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act. This law would give the president explicit permission to seize Russian assets held in financial institutions within the United States.

The money will be placed into a newly established account, known as the Ukraine Support Fund, as outlined in the legislation.

Stephan expressed his personal support for the utilization of Russian assets to assist Ukraine. He stated that the implementation of the REPO Act would eliminate any legal obstacles in confiscating ownership of Russian funds. However, he mentioned that certain elements of the act, such as the clause preventing U.S. courts from considering claims against asset seizures, are concerning.

EU and G7

This week, the European Union in Europe approved a new law mandating that financial institutions with over $1.2 million in Russian central bank assets must deposit the profits from those assets into separate accounts.

The concept is to potentially enact new laws that would establish a system for the European Commission to transfer the profits to the EU budget, and ultimately give control of them to Ukraine.

The G7 nations have been examining an alternative proposal. As it is widely acknowledged that Russia will owe reparations to Ukraine after the conflict, the leading global economies are exploring options to use frozen Russian assets as security for loans to support Ukraine’s reconstruction efforts.

The proposed strategy would entail establishing a specific entity to release bonds known as “zero-coupon” bonds. These bonds do not require any interest payments and are secured by the frozen funds.

Source: voanews.com