Olena Halushka: What will happen to frozen Russian assets and when is there a chance to recover them?

The episode features Olena Halushka, co-founder of the International Center for Ukrainian Victory (ICUV) and board member of the Anti-Corruption Action Center.

What are these funds, and how has the perspective on asset confiscation transformed over the two years of full-scale war?

Among the assets frozen in the West are assets of oligarchs, representatives of the Russian government, and members of their families, as well as assets owned by Russian state-owned enterprises or ministries. However, when it comes to confiscation, it pertains to assets of the Russian Central Bank. This amounts to approximately 300 billion dollars, which were frozen in the first days after the start of the full-scale invasion in G7 countries.

It was an unprecedented step back then, but our partners didn’t hesitate to take this action. They made the decision swiftly, and rightly so, because this decision effectively cut off a large portion of Russian resources that otherwise Russians would have directed toward their economy and war machine. However, our partners have yet to take further steps. Advocacy on this issue began in the first weeks after the start of the full-scale invasion, but until December 2023, asset confiscation was effectively a taboo subject.  

The G7 position until October 2023 was as follows: these assets will be frozen until the end of the war, and after the war ends, we’ll make a decision on what to do with them next. In October, this position changed to a much stronger one: the assets will be frozen not just until the end of the war but until Russia pays reparations.

As regards Ukraine, there is a decision from the UN General Assembly dating back to November 2022 demanding not only that Russia stop the war and withdraw its troops from Ukrainian territory but also that it pay reparations, meaning compensation for the damage. There is an understanding that these resources will not return to Russia until it pays reparations.  

Freezing assets at the onset of the invasion was a justified and proportional measure. However, today, considering the assessment of damages inflicted on Ukraine amounting to at least $486 billion, this step doesn’t appear proportionate. Therefore, we are working to persuade our partners to provide these funds to Ukraine immediately. These funds should help win the war and save Ukrainian lives today without waiting for a negotiating process and the likelihood of Russia simply refusing to pay reparations.

Where are the frozen assets located?

None of our partners have fully disclosed this information. The $300 billion estimate comes from our analysis of public sources. Mostly, these are securities or cash held in bank or financial institution accounts. The majority of these assets (approximately €190 billion) were frozen in Belgium within the Euroclear system. The rest of the assets are in other G7 countries, such as Japan and France, with smaller amounts in Germany and the United Kingdom and around $8 billion in the United States. Unfortunately, our partners have not published information about the nature of these assets.

Currently, interest is accruing on these assets. Where do these interest payments go? In February 2024, the European Commission decided that the interest income would be accumulated in a separate account. By the end of June, the EC is expected to decide on directing these funds to Ukraine. However, this only pertains to interest accrued from 2024 onwards. Interest was also accruing for the years 2022-2023. Only the private institution Euroclear earned over €5 billion during these two years, and these funds remain with it. At the prompting of Belgium, the European Commission decided they would stay in Belgium. Euroclear allocated them to a reserve fund for risk realization. It’s unclear what risks necessitate such a large sum of €5 billion. It’s evident that a significant portion of these funds should already be directed to Ukraine.

Two tracks of work on asset confiscation and the primary reservations

The first track is within the European Union regarding the income generated from frozen assets. The second track is at the G7 level, where the discussion revolves around completely confiscating all frozen assets. The United States, Canada, and the United Kingdom support this idea. European Union countries like France, Germany, and Italy are skeptical about it. Japan is currently leaning more towards a skeptical position.

What are their main reservations? The first is a legal issue: these funds are purportedly protected by sovereign immunity and cannot be confiscated. 

However, international legal experts who have deeply researched this issue explain that confiscation would be lawful if conducted as a collective countermeasure. A countermeasure is an action countries take against an aggressor who violates international law to compel them to cease these violations. A countermeasure must necessarily have a reciprocal effect. That is, if the aggressor stops violating the law, then the countermeasure must be reversed. Therefore, the question arises: if assets are confiscated now, how will they be returned? (i.e., what will be the reverse action). But we remind everyone that Russia’s international obligations are not only to cease aggression but also to pay reparations. Accordingly, when Russia stops aggression and is ready to pay us reparations, the amount of reparations will be reduced by the amount of confiscated funds. Thus, we will obtain the reverse action of this countermeasure.

The second major block is the economic, i.e., financial one. Skeptics here are worried that if they go ahead with confiscation, it might shake trust in the euro and the dollar as reserve currencies, leading these countries to begin withdrawing their reserves and transferring them to other currencies. Colleagues from the Center for Economic Strategy have prepared analyses, which we actively use in our advocacy, explaining why this will not happen with the help of data. If confiscation is carried out by all G7 and EU countries, there simply won’t be anywhere for the assets to flee. This is because the Chinese yuan cannot become the primary reserve currency due to a number of objective factors.

Our position is not to consider the issue of confiscation in isolation from a narrow legal, economic, or financial perspective. It is necessary to view this in the context of responding to violations of all norms of international law, the destruction of Ukrainians, future losses, damages, and the threat of further escalation of the war in other countries. Asset confiscation is largely a political decision, so it is important to press politicians of G7 countries and convey why it is essential to do it now. It is important to jointly develop decisions that will be a proportional response to Russia’s crimes.