The White House has warned that the US will run out of funds for Ukraine by the end of the year if Congress doesn’t approve a new assistance package. In Hungary, the Viktor Orbán government has threatened to take the EU’s Ukraine facility hostage. Meanwhile, Russia hasn’t given up its goal of subjugating or destroying Ukraine. Its economy is gearing up for years of war, and its latest budget for 2024 boosts defence spending by nearly 70%. The aggressor is effectively circumventing sanctions by selling oil above the price cap or importing western chips for its drones and missiles.
Hopefully, the aid packages being debated in the US and Europe will be approved, but there is also a straightforward way to unlock more funding for Ukraine. While we are grateful for every penny of international assistance, it is time to make Russia pay too: by confiscating the $300bn (£238bn) in Russian central bank assets currently frozen by western states. The G7 and EU could work towards this in coalition.
This has been suggested before, but opponents hide behind a variety of legal, economic and political objections. The primary legal obstacle to confiscation often cited is the sovereign immunity of states, or the idea that all states should be immune to proceedings they don’t consent to in other jurisdictions. However, international law lacks clarity on whether this concept applies to confiscation orders issued by other states, rather than courts. Meanwhile, confiscating Russian assets fully aligns with international law as a lawful countermeasure under the 2001 UN articles on the Responsibility of States for Internationally Wrongful Acts. If Russia opts to cease aggression and pay reparations later, the confiscated amounts can be offset as due payments.
Confiscation would also be a lawful act of self-defence. Article 51 of the UN charter recognises the right of individual or collective self-defence if an armed attack occurs against a UN member. Russia’s aggression has an obvious economic impact on Ukraine via attacks on such things as energy, exports, civil infrastructure and economic facilities. In 2022, Ukraine’s GDP decreased by 29.1%. In order to continue defending itself, Ukraine should be able to access frozen Russian assets to correct this imbalance caused by the Russian invasion.
From an economic perspective, opponents of confiscation fear that it would ruin western financial systems, because other countries would remove their currency reserves from western states due to the norms around not seizing assets being broken. This fear is unfounded as there are no real alternative to western reserve currencies. Even authoritarian states, which own almost 40% of the world’s foreign exchange reserves, choose the stable currencies of the free world. In the second quarter of 2023, 89.2% of all reserves were held in dollars, euros, yen and pounds.
The Chinese renminbi is not a feasible alternative due to longstanding devaluation, weaponisation in the trade wars and lack of convertibility. In addition, China has a record of being unsafe for private investments.
The legal mechanism of confiscation should set out clear criteria around Russia’s war of aggression, so that other states do not believe the seizure is arbitrary or could be easily repeated in the case of minor transgressions. For example, in 1994, Ukraine gave up its nuclear arsenal under the security assurances of the US, the UK and Russia, which Russia violated in 2014 by occupying Crimea and parts of Ukraine’s eastern regions. Russia has committed major crimes in Ukraine, including deportation of children, rape and torture, inhuman treatment of prisoners of war and targeted attacks on civilian facilities. The unique case for confiscation is clear. Other states should not feel threatened regarding their reserves in the west if they do not plan to repeat the Russian war playbook. Conversely, such a mechanism could also deter anyone considering similar aggressions in the future.
As for the fear of financial retaliation from Russia, that also seems to be exaggerated, since western states do not hold their reserves in Russian banks. As for foreign companies, after the beginning of the full-scale war, more than half of them have suspended activities in Russia or exited. Those that continue working there should have weighed the risks of possible illegal alienation of their assets, since such measures are usual practices for authoritarian regimes against so-called “hostile” actions of other states. And Russia has already started taking assets of some companies such as Fortum (Finland), Danone (France) and Carlsberg Group (Denmark) into what it calls “temporary management” even before any Russian sovereign assets were confiscated. Those companies held negotiations on their exit, but were eventually deprived of control over their property.
It is fair, morally right and achievable to transfer Russian central bank assets for Ukraine’s self-defence, recovery and compensation for victims. The debates on overcoming legal or economic hurdles will move much faster when there is real political will. It is in the best interests of the G7 and EU to ensure that Ukraine has all the resources in time to win this war and survive as a sovereign state.
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Olena Halushka is co-founder of the International Center for Ukrainian Victory
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Andrii Mikheiev, international lawyer at the International Center for Ukrainian Victory, contributed to this article