On the second anniversary of Russia’s full-scale invasion of Ukraine, the West may make progress in transferring the frozen assets of the Russian central bank to Ukraine.
Before the war, the Russian central bank kept almost 300 billion dollars in the West. After the war, Ukraine’s allies froze these funds and are now considering transferring them to Ukraine. The leaders of the Group of Seven (G7) countries in December expressed a common position that Russian assets under their countries’ jurisdictions would remain immobilized until Russia compensates Ukraine for the damage caused. In the meantime, they will study legal ways to help Ukraine receive compensation from Russia.
The USA emphasizes that the transfer of Russian assets to Ukraine is a complex legal process and the international community must find an optimal mechanism for this.
Oksana Bedratenko, a journalist of the Ukrainian Service of the Voice of America, spoke with one of the most famous experts in the USA in this field, former US Deputy Secretary of State and ex-president of the World Bank, Bob Zoellyk.
Zoellyk actively promotes the idea of using Russian assets for the benefit of Ukraine and is convinced that the transfer of Russian funds to Ukraine will only contribute to the fact that the United States and Europe will allocate additional aid packages. And the bill of the American Congress, which opens the way for the transfer of such assets, will encourage President Joe Biden to act more actively and put pressure on the Europeans, he believes.
The interview has been edited for clarity and flow.
Oksana Bedratenko, VOA: The Senate Foreign Relations Committee has approved a bill that would allow President Biden to seize these assets. How important is this step?
Bob Zoellick: Let’s take a step back and look at this bill in context. You and your audience in Ukraine know that there is a terrible and brutal war going on. This is a war of attrition, and in wars of attrition, the economy is as important as military support, because the people of Ukraine must survive. Ukraine actually needs three to four billion dollars a month, and that’s in addition to military supplies, to keep payments going and keep the lights on, so to speak.
The idea of this draft law is that Russia has about 300 billion dollars left scattered on international accounts around the world, and most of these funds are frozen.
The vote shows the breadth of support in the US Senate for such a move
Therefore, Larry Summers from Harvard, myself and Phil Zelikov from the Hoover Institution have been trying for more than a year to convince that the United States and Europe and other countries of the “Group of Seven” should find a way to transfer these funds to an escrow account for Ukraine.
You used the word “confiscate”, but I emphasize conveyance, which is a different legal concept than confiscation. The US will not take the funds for itself. This will be a transfer of funds that can be carried out in cooperation with the World Bank and others.
You asked about the Senate move. He encourages. Frankly, President Biden already has, I believe, the authority under domestic law, the so-called IEPA Act, to make this transfer. But this vote shows the breadth of support in the US Senate for such a move. A similar bill passed a House committee last year by a vote of 40 to 2. This shows support in Congress for such a transfer idea.
Europe is moving slowly on Russian assets, seeking first to approve a new aid package
Canada is supportive, Britain is very supportive. David Cameron, the new foreign minister of Great Britain, also spoke about it. I think Japan supports. Calls mainly come from Europe. A significant part of these reserves is in Belgium on the account of Euroclear.
As you may know, the Europeans are now focusing on overcoming Orbán’s opposition of Hungary to the new funding package. That’s their priority and that’s good. They are trying to push it forward and are also working on sanctions. They are slowly approaching the issue of reserves of the Russian central bank. Their approach is to use Belgian law to collect taxes on these assets.
This is a complex legal issue, and I hope that the steps of the US and the G7 will push Europe to transfer these funds, because it is not just about money. It is necessary to show Putin and the Ukrainian people that Russia will not last longer than Ukraine. 300 billion dollars will provide aid to Ukraine for a long time and it will show that Putin and Moscow will not last longer than Ukraine and the West.
OB: In your opinion, is it difficult to reach a consensus in the “Group of Seven” on the issue of Russian assets? Can we expect progress on the second anniversary of Russia’s full-scale war in February?
B.Z.: I hope that there will be statements. As I said, I think Europe will find a way to access the money through the tax system.
To be honest, their position is a bit strange. As you know, they have frozen assets under international law. They should use the same concept of countermeasures that we advocate to freeze assets. So if they froze the assets, my question is why not hand them over?
There are good responses to critics of asset transfers
I think Europe is troubled by various factors.
Will it hurt the euro, for fear of keeping reserves in euros. I wrote an article in the Financial Times, and I think I made an effective counterargument. I showed that these assets were frozen for two years and it did not hurt the dollar or the euro as reserve currencies.
The question is where to keep the reserves if not in dollars or euros? There will be some flow to gold, but to be honest, the Chinese renminbi is not very popular – it holds maybe a percent or two of all international reserves. Therefore, it is not very likely.
Bankers of central banks and bankers in general, especially European bankers, are somewhat cautious. They are worried about the impact on the euro. I think they hesitate too much
There is a third fear that it could damage the trading system. But China and others earn dollars and euros through trade surpluses and they have to store it somewhere, so they won’t give up dollars and euros because it would hurt the currency they trade in.
There are good answers to all their questions, but frankly speaking, central bankers and bankers in general, especially European ones, are a bit cautious. They are worried about the impact on the euro. I think they hesitate too much.
There is a question of international law and this principle of countermeasures has been supported by world-class lawyers in Britain, Belgium, Japan, the United States and Australia. And we helped arrange for such lawyers to sort of reassure Berlin and Paris and others who are a bit hesitant.
The transfer of Russian assets is not like World War I reparations
As you know, European countries treat Russia differently. Some of them say that it will be like reparations after the First World War. I believe that this analogy does not hold up very well, because Germany surrendered after the war and accepted the peace agreement. It was a fragile democracy. This is not about Putin’s Moscow at all.
Frankly speaking, Kyiv is more suited to the role of a fragile democracy struggling for survival. That is, there is an answer to all this, but it is a prisoner in European politics, which is somewhat slow.
The Biden administration is finally putting pressure on the Europeans
So, to answer your question, what is important is that [питання пролунало] from the Voice of America, – I believe that the US government should exert more pressure.
The Biden administration is finally putting pressure on the Europeans. But I and others identified this issue a year ago and worked with the Senate Foreign Relations Committee, which is why you saw this bill yesterday.
Therefore, I hope that the action of the Senate and the House of Representatives, and later the action of the Congress in general, will push the administration to put pressure on the Europeans on this issue. It is progressing more slowly than we would like, but it is a good step and a good signal for people in Kyiv.
OB: You said that President Biden doesn’t even need additional powers to get Russian assets and transfer them to Ukraine. Do you think Biden will transfer the assets even without congressional action?
B.Z.: It has powers under the IEPA, the 1970s International Emergency Economic Powers Act. However, part of the problem is that US Treasury Secretary Janet Yellen hesitated. Now she has changed her position and accepts it.
Now the Biden administration is trying to hold the coalition together. It helped give Ukraine a lot of support, and that’s good, but I think they’ve always been too late when it comes to artillery or weapons, or now the transfer of Russian reserves.
Back to your question. I’m glad Congress is taking this step because I hope it will be followed by action.
If Russian funds go to Ukraine, it will help the US and Europe, it will help provide other types of support
There is another argument, Oksano, that we sometimes hear from Europe. They are afraid that if we use the Russian reserves, it will somehow hurt the support of other funding, for example, the bill in Europe on military support, or that bill that is stuck in Congress.
I’ve talked to congressmen and, you know, it’s a little bit difficult for them to say: we need to support Ukraine, but ignore $300 billion in Russian assets
I think the opposite. I’ve talked to congressmen, and you know, it’s a little bit difficult for them to say: we need to support Ukraine, but ignore $300 billion in Russian assets.
So why not? Use Russian funds. I call it elegant justice and along with that, since you are using Russian funds to help Ukraine economically, give military support as well.
Also, to the people of Ukraine: your suffering is terrible and, you know, this is a small step that I and others are trying to help. But, I hope, people know that they have not been forgotten. They want to help, and their bravery is something that inspires everyone in the world. That’s why we thank them.