Grabbing $400b of Russian assets is no panacea, West cautions in Davos
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Ukrainian officials supervise the dismantling of a residential building that was partially destroyed in a Russian missile attack, in Kharkiv, Ukraine.
PHOTO: AFP
DAVOS, Switzerland - Western officials said in Davos on Jan 17 they were open to the idea of confiscating US$300 billion (S$400 billion) of Russian assets to help Ukraine, but cautioned that the devil was in the legal detail and that, even if it could be done, it would be no panacea for Kyiv.
After Russian President Vladimir Putin sent troops into Ukraine in 2022, the United States and its allies prohibited transactions with Russia’s central bank and Finance Ministry, blocking around US$300 billion of sovereign Russian assets in the West.
Group of 7 (G-7) countries are discussing possibly confiscating the frozen Russian assets, though some G-7 members have concerns about the precedent, mechanism and potential impact of taking such a step against central bank assets.
“The first thing you know is a ton of lawyers need to get involved. No decisions been made,” Ms Penny Pritzker, US special representative for Ukraine’s economic recovery, told a panel on Jan 15.
“If a decision gets made, it is going to end up being collective. It’s a misperception to think this is going to be a panacea effect. There is real effort going on, but we are far from a conclusion.”
Russia, which was not represented at Davos, has warned that confiscation of those assets would go against the principles of free markets and the Kremlin has warned it would seize US, European and other assets in response to such a move.
Clear mechanism needed
US Treasury Secretary Janet Yellen has long expressed concerns about a lack of legal authority for the US to confiscate frozen Russian assets housed at the Federal Reserve Bank of New York, but has recently embraced a request by G-7 leaders to explore seizure options based on international law.
She said last week that no decisions had been made on the G-7 efforts, but there were still concerns about the impact on storing reserves in dollars or euros, adding: “It would be a question of understanding and seeing if mitigation could be put in place and seeing if the G-7 could agree on international law rationale.”
Another concern held by some senior Western officials is that confiscating Russian assets invested in government bonds denominated in euros, US dollars and British pounds could undermine the willingness of central banks to store reserves with each other.
The lion’s share of the assets – essentially securities in which the Russian Central Bank had invested – are frozen in Euroclear, a depository based in Brussels.
Belgian Prime Minister Alexander De Croo told Reuters that he did not oppose the confiscation of the frozen assets, but there needed to be a clear mechanism.
“We don’t say no to asset confiscation. But we need to work on a mechanism. For example, they can be used as collateral for raising funds for Ukraine,” Mr De Croo said.
“We are open to further discussion and are willing to participate in a solution of finding a legal basis for those transfers to Ukraine, without destabilising the global financial system,” he said.
Some securities mature and hence are being converted into cash – a transaction that is taxed at 25 per cent, he said.
“If there is any taxable revenue, we will isolate it so it can go to Ukraine,” Mr De Croo told Reuters in Davos.
He said tax on the frozen assets totalled about €1.3 billion (S$1.9 billion) in 2023 and in 2024 would total about €1.7 billion. REUTERS
