Russia Will Pay for the War
One of the important outcomes of the war should be compensation for all the damage that the Russian Federation has caused to Ukraine and the Ukrainian people. However, this does not mean that we should wait until the situation on the battlefield is finalized. It is not known how long the war will last - six months, a year, several years... However, the restoration of justice and truth in favor of Ukraine and the Ukrainian people is important now. Therefore, it is necessary to continue the process of collecting evidence and documentation of the damage caused by the Russian Federation.
In addition, we need to study the experience of other countries that have faced similar situations. For example, European countries and Israel received compensation payments from Germany after World War II for the damage caused during the war. However, it is worth noting that it is impossible to make a complete analogy of current events with past periods, especially in monetary matters.
Immediately after the full-scale invasion of the Russian Federation, the EU and G7 countries imposed unprecedented and unique sanctions against Russia, freezing approximately half of Russia's foreign exchange reserves held in correspondent accounts with Western banks. It is difficult to calculate the total amount of funds to which Russians have been restricted, but it is known that the volume of the Central Bank's international reserves in February 2022 amounted to almost $640 billion.
Almost half of them were placed in foreign securities, the rest in cash, deposits, and gold. According to the Central Bank of Russia itself, assets placed in France, Germany, the United States, the United Kingdom, Austria, and Canada accounted for 38.6% of all reserves, and another 10% were in Japan. Accordingly, a little less than half of all funds were frozen, namely, approximately $300 billion.
In early October 2023, the G7 Working Group on Russian Elites, Proxies and Oligarchs (REPO) reported on the first results of the accounting of frozen Russian assets and made a statement that G7 members continue to work to ensure that Russia pays for the long-term reconstruction of Ukraine, including from these funds. "We will also explore all possible ways to assist Ukraine in accordance with our legal systems and international law. We welcome REPO's initial efforts to account for Russia's sovereign assets frozen in the jurisdictions of REPO members, currently estimated at approximately $280 billion, and expect the REPO Working Group to build on these initial efforts in the coming months," reads the joint statement of the G7 finance ministers and central bank governors, as well as representatives of the International Monetary Fund, the World Bank Group, the Organization for Economic Cooperation and Development, and the Financial Stability Board.
It is worth noting that the REPO group was established in March 2022 by the Ministers of Finance, Justice, and Interior, as well as the relevant European Commissioners, to identify, restrict, freeze, seize, and confiscate assets of individuals and legal entities related to the Russian aggression against Ukraine. In other words, the collective West has created a specialized institution to apply the mechanism of using frozen Russian resources. There has never been a similar precedent in the history of the world. This case was the first, and therefore its success will become the basis for the formation of a new mechanism of influence on aggressor countries.
Transfer of Russian Assets to Ukraine: a Win-Win Strategy
Almost from the first day of the freezing of Russian assets, the West began looking for ways to use these funds to support Ukraine. For example, Oleg Ustenko, an advisor to the President of Ukraine, believes that the nearly $300 billion in frozen foreign accounts of the Russian Federation can be used through a special fund. Ustenko also expressed the idea of creating a fund to compensate Ukrainians in a column for Politico, co-authored with former IMF chief economist Simon Johnson.
Recently, following the EU-US summit, the parties confirmed their intention to transfer to Ukraine the profits from Russia's assets that were frozen in accounts in EU and US banks. This format of using Russian money for the benefit of Ukraine was first proposed in May of this year during a meeting of G7 finance ministers in Japan. The transfer of actual Russian funds is not yet in question; the parties continue to discuss ways to create such a mechanism based on international law. The main obstacle to the transfer of Russian sovereign assets to Ukraine is that they are legally owned by the state and, compared to private assets, there is currently no proper mechanism for their confiscation.
At the same time, representatives of governments and experts from civilized countries believe that the Russian Federation should pay for its crimes. There is no disagreement on this issue. For example, U.S. Secretary of State Antony Blinken recently supported the idea of using Russian frozen assets. He noted that the United States and European partners are studying the legal basis for using these assets to rebuild Ukraine. "In my opinion, if you hack something, you have to pay for it. And if the Russians have hacked, they have to pay for it. And one of the ways to do this is through these assets. We have to make sure that there is a legal basis for this," Blinken said.
Bill Kristol, an American political scientist and former head of the Office of the Vice President of the United States, is also confident that the loss of sovereign assets will demonstrate the unacceptability of aggression for other countries in the future. "It will be good for Ukraine, of course. But it will also be good for other countries to see that there is a price to pay for aggression against a neighbor, for all the deaths and destruction. It's also good for the United States to show that we are not just helping the Russians and keeping their money under lock and key. So I think it will happen," emphasizes Bill Kristol.
Today, there are various mechanisms for providing assistance to Ukraine, and there are unprecedented decisions. However, the transfer of frozen assets of Russian state structures and Russian oligarchs to Ukraine is one of those mechanisms that will help Ukraine recover faster and will, for example, remove a certain financial burden from Western countries, as well as remove the possibility of internal political manipulations regarding the financing of certain programs to help Ukraine within individual NATO or European Union members.
Therefore, the use of frozen Russian assets in favor of Ukraine, even during the war, is a win-win story for both Western partners and Ukraine.