Making Russia Pay

Almost every night, Russia launches dozens of cruise missiles of various types at Ukraine. Explosions are heard in Kyiv, Lutsk, Lviv, Dnipro cities, Khmelnytskyi and Ivano-Frankivsk regions. Infrastructure, residential buildings, schools, hospitals and a kindergarten were destroyed and people were killed.

Every day since February 24, 2022, Russia has been destroying Ukrainian private, state and municipal property, causing hundreds of millions of dollars in material damage.

According to one of the World Bank's preliminary estimates, the amount of damage caused to Ukraine by Russia reached $411 billion. According to the Ukrainian government, this figure could double. The European Commission has already estimated the damage at more than $650 billion.

Russia's guilt is obvious, as should be obvious the inevitability of punishment. The Russian state and its citizens must compensate for the damage caused.

Frozen assets 

Since Russia's full-scale invasion of Ukraine, the governments of the EU and G7 countries have imposed unprecedented sanctions on Russia. Foreign assets of the Central Bank of Russia were frozen. This involved almost half of Russia's foreign exchange reserves, about 300 billion euros ($327 billion), which, after the war, should be transferred by the allies to Ukraine as reparations for reconstruction.

Ukraine's allies have also frozen the private assets of sanctioned Russian oligarchs to the amount of $58 billion. The reasoning for such restrictions is to reduce Russia's ability to circumvent sanctions and finance the war through affiliated oligarchs; to encourage influential Russian business elites to put pressure on the Kremlin to change its aggressive policies; and to enable the use of assets belonging to war sponsors to compensate for the damage.

It is noteworthy that the amount of $58 billion is not final. According to Iryna Mudra, Deputy Minister of Justice of Ukraine, the assets of Russian oligarchs and businesses that support and finance the Kremlin regime are much bigger.

"It is known from open information and available sources that the funds of Russian oligarchs and businesses that can be frozen around the world amount to nearly $1 trillion," Mudra said, adding that, in her opinion, the Ukraine Recovery Fund should be covered by these funds. The same figure is confirmed by the the Atlantic Council analysts in their report.

What have they found? 

Italy has frozen the assets of Russian oligarchs worth about 2 billion euros.

As part of the EU sanctions against the Kremlin and its allies and sponsors of the war in Ukraine, bank accounts, luxury villas, yachts and cars were seized.

Within the framework of economic sanctions against Russia for violating Ukraine's sovereignty, Canada blocked Russian assets worth more than CAD 413 million (about 320 million US dollars). In particular, it included the seizure of property worth CAD 122.3 million and the freezing of transactions worth CAD 290.7 million.

The UK also froze the shares, funds and financial assets of Russians totaling more than £20 billion ($25 billion). The Office of Financial Sanctions Implementation (OFSI) stated that more Russian assets have been frozen than those of all other sanctioned regimes.

And these are only a few examples. Governments around the world say they are regularly working to identify and freeze the assets of the sponsors of the war in Ukraine, which could potentially be compensated and transferred for its reconstruction.

Excess profits

While an international coalition of partners is funding Ukraine's needs to help it withstand daily shelling, frozen Russian funds and property that could be used for these needs remain blocked in countries around the world. Moreover, they even continue to work and generate income.

For example, almost two-thirds of the frozen funds of the Central Bank of Russia are held in the EU on accounts with Euroclear, a Belgian financial giant.

Euroclear reinvests the funds frozen in the accounts. In April, the group announced that the amount of frozen Russian assets on its balance sheet had more than doubled during the year following Russia's invasion of Ukraine. In the first quarter alone, Euroclear recorded 734 million euros ($802 million) in interest earned on cash balances from sanctioned Russian assets.

Normally, these payments would have gone to accounts in Russian banks, but now that they are blocked due to sanctions, the funds are generating huge amounts of interest.

Most European leaders agree that the money that would be generated by reinvestment would be better spent on post-war reconstruction in Ukraine. Last month, the FT reported that officials from various EU member states are already exploring options for transferring the money to Ukraine. The Belgian Prime Minister even said that the amount of revenues could be about 3.27 billion euros a year.

However, the EU later reported that the presentation of the European Commission's proposal on the use of frozen Russian state assets in the EU for the benefit of Ukraine has been suspended and will not be published until September.

According to a document obtained by Bloomberg, the European Union has not found a legal mechanism to confiscate frozen Russian assets and has decided to focus on their temporary use to generate revenue that is expected to be transferred to Ukraine in a more straightforward manner.

The members of the working group see "...no credible legal path that would allow for the confiscation of frozen or immobilized assets solely on the basis that they are subject to EU restrictive measures," the conclusion says.

Austrian Foreign Minister Alexander Schallenberg urged caution in an interview with Bloomberg. "I fully understand the emotionality of the debate and that we say we have to get our hands on these assets," he said.

"But we are rule-of-law states. We are defending a rules-based international order," Schallenberg added. "So, a decision that could be challenged or overturned in European or American courts would be a diplomatic and economic disaster."

***

Russian oligarchs, the vast majority of whom have gained enormous financial assets by closely cooperating with the Kremlin and unconditionally supporting its policies, actions and decisions, are now trying to prove their right to protect private property in the courts of democratic countries. A system of law based on respect for democratic values should be able to cope with the most highly paid lawyers of the "Might makes right".

Western countries have dared to freeze the yachts, villas and bank accounts of Kremlin supporters, but now they seem to be at a loss as to what to do about it.

Meanwhile, the Estonian government has approved the principles of using Russia's frozen assets to support Ukraine. And the Senate of Canada has approved a bill that provides for the possibility of confiscating and selling the assets of those responsible for Russia's full-scale invasion of Ukraine. These two countries were the first to legalize such a mechanism.