Wed. May 22nd, 2024

Despite legal reservations and potential drawbacks, policymakers are considering the possible consequences of tapping $300 billion of Russian assets to assist Kyiv’s war effort.

Ukraine forces received artillery shells near Kupiansk last month; current funding being nearly exhausted, American officials are scrambling for ways to provide aid for Ukraine.

According to senior American and European officials, the Biden administration has signaled its support for seizing $300 billion worth of Russian central bank assets stashed away in Western nations as it opens urgent talks with allies on using those funds to support Ukraine’s war effort at a time when financial assistance may dwindle further.

Until recently, Treasury Secretary Janet L. Yellen maintained that seizing funds without legislative action is “not legally permissible in the United States.” Additionally, many senior American officials expressed fear that other nations might hesitate to keep funds with the New York Federal Reserve or in dollars should America establish a precedent of seizing such money.

But in coordination with the Group of 7 industrial nations, the Biden administration has started taking another look at whether its existing authority can suffice or whether congressional action would be required for the use of funds. With increasing support in Congress for legislation giving these authorities, Biden administration officials remain hopeful.

Officials reported that discussions among finance ministers, central bankers, diplomats, and lawyers have intensified in recent weeks, with Britain, France, Germany, Italy, Canada, and Japan being pressured by President Biden to come up with an action plan before February 24 – marking two years after their invasion.

Russian assets valued at more than $300 billion currently under discussion have already been removed from Moscow for more than one year, thanks to sanctions put into effect following Russia’s invasion of Ukraine by Europe, Japan, and the U.S. After their military invasion took place, these international reserves became inaccessible. These sanctions prevented access to them by Moscow.

Seizing assets would represent a further step, which requires legal review.

President Biden has not endorsed this plan, and many details remain controversial. Policymakers will need to decide if their funds should go directly into Ukraine or be used for its benefit in other ways.

Discussion is also underway as to the parameters associated with these funds, specifically whether they can only be spent for reconstruction and budgetary needs to support Ukraine’s economy or whether — like what Congress is debating — they could also go directly toward military efforts.

Since Congress disagreed on military aid before the year’s end, discussions about border migration have become even more urgent. On Tuesday, lawmakers abandoned another last-ditch attempt after becoming mired in Republican demands that any aid tied directly with curbing migration across U.S.-Mexican borders.

Earlier, The Financial Times reported that President Biden and his administration have come around to believing that seizing Russia’s assets under international law was acceptable.

An official from the administration announced this week that even if Congress reached an agreement to pay for more weapons for Ukraine and government aid, Republican disenchantment with the war effort, combined with Ukraine’s increasingly tenuous military position, made clear an alternative funding source must come soonest.

American officials have recently stated that funding for Ukraine has nearly run dry and are scrambling to find ways to provide artillery rounds and air defense systems for them. With Europe needing to deliver fresh funds on time, various new ideas are being floated about how best to utilize Russian assets: either directly, as guarantees for loans, or through interest income earnings which would come back into support Ukraine.

Philip Zelikow, former State Department official under both Bush administrations and current senior fellow at Stanford’s Hoover Institution, stated, “The amount of money being discussed here is truly game-changing.” Furthermore, Zelikow observed that the battle over such funds “plays an essential part in this war’s campaign.”

Seizing such an amount from another sovereign nation would be unprecedented and almost certainly bring on lawsuits and retaliatory measures from Russia.

Volodymyr Zelensky addressed these discussions during his video address to Ukraine last week in his video address to his nation, noting, “One of the critical decisions addressed during recent talks in Washington was freezing assets of terrorist states and their affiliates to purchase arms for Ukraine, thus protecting lives from Russian terror. He implies that their funds should go toward this end by suggesting this fund could go directly towards weapons purchases rather than supporting infrastructure upgrades – suggesting they be directed into buying arms now instead.

As evidence that European nations are willing to move ahead with confiscating Russian assets, German prosecutors seized about $790 million from a Frankfurt bank account belonging to a Russian financial firm subject to EU sanctions this week.

Biden administration representatives have yet to release many details publicly regarding negotiations. On Tuesday at the State Department, Matthew Miller stated, “It’s something we have looked at, and operational questions as well as legal ones remain,” without providing additional insight or details. He further indicated they needed to possess more information.

Very little of Russia’s assets – perhaps $5 billion by some estimates – is held by U.S. institutions; however, significant portions of their foreign reserves are held in U.S. dollars both here in America and Europe; therefore the US can police transactions involving its currency while using sanctions to immobilize dollar-denominated assets.

Russia is suspected of holding large deposits across Europe, notably Switzerland and Belgium, which do not belong to the Group of 7. Attempts are underway at diplomatic negotiations to access these accounts, which hold euros among other currencies.

American officials were taken aback that President Vladimir V. Putin did not return the funds home before the Ukraine invasion. However, in interviews over the last year, experts speculated he may not believe they would be sequestered due to Crimean independence from Russia in 2014. Additionally, taking home such significant funds may have signaled imminent military action despite Mr Putin denying all American and British charges that his military plans may be close.

One Group of 7 official shared with Bloomberg that their coalition had been considering various options to utilize Russia’s assets to come up with a proposal on or around the war’s second anniversary when many top officials will meet in Germany for the Munich Security Conference. The first discussions included what is permissible according to international and domestic laws while considering what may constitute legal responses and countermeasures from Moscow.

American officials had initially suggested using Russia’s frozen assets as leverage against Moscow to force negotiations towards a cease-fire and gain access to some assets. However, Moscow has shown no willingness to enter negotiations for peace; now, officials believe using those frozen funds may encourage it to attend talks.

Western countries have considered various solutions, including seizing assets directly and giving them to Ukraine, using any profits earned on assets held at European financial institutions for Ukraine’s benefit, or offering these assets as collateral against loans given out.

Daleep Singh, an ex-official in Biden’s administration, suggested in an interview earlier this year that any immobilized reserves be placed into an escrow account accessible by Ukraine’s Ministry of Finance for use as collateral against new bonds issued by Kyiv.

If Ukraine can repay its debt over 10-30 years, Russia might regain access to some or all of its frozen assets.

“My guess is that Russia may have something to do with their inability to repay,” stated Manjit Singh, currently chief global economist of PGIM Fixed Income. In that way, Russia is interested in Ukraine emerging as an independent economy and nation-state.

An adequate legal rationale has proven to be one of the most significant obstacles to policymakers deciding how best to proceed.

Proponents of seizing Russia’s assets, like Mr. Zelikow and former Treasury Secretary Lawrence Summers, argue that nations holding Russian assets have the legal authority to cancel any obligations to Moscow and apply those assets toward compensation due to Russia’s violations of international law based on state countermeasures (for instance when Iraq invaded Kuwait in 1990 – $50 billion of funds were sequestered and transferred through UN agencies to compensate victims in Iraq as well as other nations).

Robert B. Zoellick, the former World Bank president, has made it his goal to convince Group of 7 finance ministers that seizing Russian assets will have minimal repercussions for their currencies and dollar status; other nations would likely take no steps toward placing money into other currencies, like China’s renminbi or another currency like that of Venezuela or Colombia.

“Reserve currencies can only exist as viable alternatives,” stated Zoellick, who also held positions within Treasury and State.

One of the primary obstacles in seizing Russian assets in the US has been Biden administration officials’ perception that doing so requires congressional approval; Ms Yellen raised this point at a news conference held last year in Germany.

“Now, as we explore this matter further, it would not be legal in the United States for government authorities to seize those statutes,” Ms. Yellen noted. “That action would violate legality.”

Since that time, however, Ms. Yellen has become more open to seizing Russia’s assets to aid Ukraine.

Factions of Congress have attempted to add provisions to the annual defense bill that allow the Justice Department to seize Russian assets belonging to officials subject to sanctions, sell those assets, and then donate the proceeds back into Ukraine as weapons purchases. However, these efforts failed due to concerns that these proposals needed to be carefully researched beforehand.

With Ukraine facing severe shortages of funds and ammunition, discussions about providing additional aid could veer from legal to moral questions.

“One can understand those who believe assets shouldn’t be seized making this argument,” noted Mark Sobel, former longtime Treasury Department official who currently chairs the Official Monetary and Financial Institutions Forum U.S. Committee. Given skirmishes and wars happening around the globe, one might readily argue such precedent could become out-of-hand.”

Sobel countered that Russia’s actions justified using their assets to compensate Ukraine.

Leave a Reply

Your email address will not be published. Required fields are marked *