Weighing the arguments “for” and “against” the confiscation of Russian assets in favor of Ukraine

Statements by officials and information leaked to the press give reason to believe that the Western states, which froze Moscow’s assets in response to Russia’s war against Ukraine, have not yet decided on the possibility of confiscating Russian funds and redirecting them to help Ukrainians.

We are talking about Russian funds frozen in Western countries for approximately $300 billion at that time, the amount of needs to overcome the consequences of the Russian war in Ukraine, according to the World Bank’s calculations, reached at least $411 billion as early as March 2023.

The Financial Times magazine reports that the United States, Great Britain, Canada and Japan have agreed to create groups of experts to study the legal mechanisms for using frozen Russian assets to help Ukraine.

Citing unnamed sources, the magazine said it was discussed at a meeting of Group of 7 (G7) finance ministers in December, and that the issue is likely to be brought up at a meeting of G7 leaders in February 2024, the anniversary of the start of Russia’s war against Ukraine.

The proposals have been hotly contested over concerns that arbitrary confiscation of any funds would run counter to the rule of law and could even undermine the stability of financial markets.

There are also remarks that the needs of immediate and direct assistance to Ukraine should not be relegated to the background by talks about the possible redirection of Russian funds.

It is suggested that national parliaments or government bodies in a number of countries should introduce changes in legislation to protect such decisions from appeals in the courts.

Moscow has called the freeze and the intended asset seizure theft, and the Russian government has announced that it will retaliate by confiscating Western assets in Russia.

The Reuters agency notes that the amount of Western assets blocked in Russia is unknown, but reports the Russian Finance Minister Anton Siluanov’s statement that the funds are commensurate with Russian assets in the West.

Where is the Russian money?

The largest part of the Russian assets frozen in the West are the funds of the Central Bank of Russia – this is about half of the total Russian gold and foreign exchange reserves, which at the beginning of 2022 reached $612 billion.

Reuters, referring to Russian financial documents, writes that at the time the Russian central bank held approximately $207 billion in euros, $67 billion in US dollars, $37 billion in British pounds, $36 billion in Japanese yen, $19 billion in Canadian dollars, $6 billion in Australian dollars. dollars, $1.8 billion in Singapore dollars and approximately $1 billion in Swiss francs.

The assets of the Russian bank were mainly in the form of securities of other countries, as well as in deposits and correspondent bank accounts.

Most of Russian state money was invested in government bonds of China, Germany, France, Great Britain, Austria and Canada.

Russia keeps its gold reserves on its own territory.

In addition to Russian state assets, Western countries also froze the fortunes of Russian businessmen and officials close to the authorities in Moscow, who were on sanctions lists after the start of Russia’s war against Ukraine.

The volume of those frozen private Russian funds may exceed $30 billion.

The price of “dirty” capital

The calls to confiscate Russian assets have recently been joined by Nobel Prize-winning American economist Joseph Stiglitz, along with Ukrainian-born economics professor Andrew Kosenko.

Stiglitz and Kosenko, in a publication in Project Syndicate, acknowledge the problematic nature of such actions and point out that some Western investors would suffer losses.

But those two economists insist on the moral justification of transferring Russian assets to help Ukraine and deny that the Western financial system would suffer irreparable damage.

“The G7 leaders must send a clear signal that no country can abuse… By discouraging other abusers from violating international laws, such confiscations would be steps to build peace,” experts argue.

They note that so far the freezing of Russian assets within the limits of the announced sanctions has not been a blow to the Western financial system, and therefore the consequences of the confiscation of funds, in their opinion, also do not pose a threat, in particular, to the reliability of the American dollar.

“Furthermore, European and Japanese institutions would probably benefit if potential rogue states decided not to keep their investments in the US, and the financial consequences would be negligible. Many economists prove that those inflows of capital actually brought more losses than benefits,” Stiglitz and Kosenko state.