2023-07-20 09:57:08
Bloomberg Opinion
by the editors
With the costs of Vladimir Putin’s invasion of Ukraine already exceeding $500 billion, some Western governments are pushing to use frozen Russian assets to pay for eventual reconstruction. The moral case for holding Putin accountable is clear. Unilateral diversion of Russian assets to Ukraine at this stage, however, would create more problems than it solves.
Some $300 billion in Russian central bank assets have been frozen by Western governments since the start of the war, along with tens of billions in yachts, mansions and other property belonging to oligarchs and Kremlin-linked officials. Proponents say the repurposing of these assets is justified by the “aggressor pays” principle – which aims to punish states that attempt to forcibly redraw borders – and that the funds should be directed to Ukraine immediately, even with the war raging. Rebuilding the country’s bombed-out infrastructure would help stabilize Ukraine’s economy, encourage the return of refugees and boost public morale.
However, a full seizure of Russia’s assets would be politically difficult. It would be opposed by countries including Brazil, China and India, none of which backed a United Nations resolution last November calling on Russia to pay reparations. It would also set a worrying legal precedent. There are few established rules for the confiscation of frozen state assets, for good reason: respect for state and private property is essential to modern economies and a functioning global trading system. By seizing Russian assets, the US and Europe would risk undermining this hard-won norm, while giving other governments an incentive to take punitive action against Western interests.
In the past, the US has moved to seize some state assets belonging to Afghanistan, Iran and Iraq. But Russia’s frozen reserves are much larger and more dispersed. Confiscating them would require a degree of international consensus and coordination that does not yet exist. The idea is supported by EU members such as Poland and the Baltic states, but few governments have implemented laws that allow for meaningful confiscations.
The West has other options in the meantime. Clearinghouses reinvest the proceeds from frozen assets, generating interest worth several billion euros a year. The EU is right to investigate ways to deny Russia access to these gains and apply them to Ukraine’s reconstruction. Likewise, companies with Russian holdings could be required to transfer the profits made from the investment for compensation purposes.
Western countries must also make explicit (as the UK is trying to do) that Russian assets will remain frozen until Moscow agrees to pay reparations. This link reinforces the principle of state responsibility and keeps the assets as a bargaining chip in any future negotiations to end the war.
Meanwhile, the West should work with Ukraine to establish an international claims commission, similar to those used in hundreds of previous conflicts. This should include a process for adjudicating claims for compensation, including private claims. Western governments must conduct transparent accounting of all currently suspended Russian assets. Ukraine needs to do its part by moving forward with judicial reforms, which are crucial to curbing corruption and boosting confidence that reconstruction funds will be spent properly.
The desire to make Russia pay for its aggression is understandable, but Western leaders must be mindful of political realities and the rule of law. The best way to hold Putin accountable is to adhere to the principles of due process and respect for property that Russia has tried to destroy.
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