Challenges of confiscation: what will help Ukraine achieve transfer of Russian assets

In recent weeks, representatives of the Ukrainian authorities, including the President, regularly talk about the prospects of confiscating Russian assets and urge allies to make such decisions. "The elites and leadership of Russia do not care about human lives, but above all they do care about money. Loss of assets will be the most painful loss for them.

They will feel the true power of the international community and see that the world is stronger than terror," Zelenskyy said in one of his recent posts on the X. The latest reports from the US also show that there is a consensus between the White House and the Capitol on the need to decide on the confiscation of Russian assets in the interests of Ukraine, and the politicians consider this decision to be one of the constituent elements of Ukraine's victory strategy. Apparently, the confiscation of Russian assets (it mainly refers to £300 billion in reserves of the Central Bank of the Russian Federation) is becoming the main political goal/hope/plan for 2024 in the confrontation with Russia.

Emotionally, in this sense, we are returning to May-June 2022, when confiscation seemed to be a matter of weeks or months and both members of the Cabinet of Ministers and parliamentarians were talking about such a quick prospect.

Now this prospect has become more realistic, but not easier. The applicable legal mechanisms, namely countermeasures in conformity with international law, are more or less obvious: the idea of their application became the basis for the REPO (Rebuilding Economic Prosperity and Opportunity for Ukrainians Act) American draft law on the confiscation of assets of the Russian Federation, and they are proposed to be applied by a group of prominent international lawyers headed by Dapo Akande and Philippe Sands, in a currently non-public memorandum. However, it is wrong to consider that politically and bureaucratically the situation is unambiguously clear and predictable.

The first problem is leadership in the confiscation process. While in Brussels they expect this from the USA, the US representatives point to the EU as the largest managers of frozen Russian assets. The reason for this is common - everyone is afraid of aftershocks for their currencies and economies as a result of this decision.

The discussion of these consequences led to an interesting absentee discussion between two Nobel Prize laureates in economics. While laureate of 2003 Joseph Stiglitz publicly supported the confiscation of Russian assets, laureate of 2013 Robert Shiller warns against such a step namely because of possible global economic consequences. However, these discussions are not only theoretical.

The European Central Bank in the EU is the main institutional opponent of both the confiscation of Russian assets and softer scenarios of dealing with them - transferring revenues from them to Ukraine or taxing them. The reasons are not only legal, as mentioned by US Treasury Secretary Janet Yellen, but also economic: fears of capital outflows and the undermining of the status of the euro and the dollar as reserve currencies. Therefore, the search for a multilateral solution within the framework of the "Big Seven" is currently underway, and the USA particularly emphasizes the importance of joint coordination of steps with G7 partners.

Secondly, it is worth keeping in mind the political context of the 2024 election year. In the US Congress, they are afraid to pass the REPO bill, which may potentially give additional powers to Trump. The European Union also faces difficult elections to the European Parliament, the presidency of Hungary in the EU and, potentially, Orban's presidency in the European Council. 

Political uncertainty leads to apprehension about decision-making and may result in its delay.

And the third problem is that the basic scenario for compensation to Ukraine is not confiscation, but voluntary payment of reparations by the Russian Federation. "We reaffirm that, consistent with our respective legal systems, Russia's sovereign assets in our jurisdictions will remain immobilized until Russia pays for the damage it has caused to Ukraine," says the G7 Vilnius Declaration, and the same thesis is constantly repeated in statements and declarations regarding the fate of Russian assets. Although we all understand that such a prospect is unrealistic, it means that the decision on confiscation will most likely be made by our allies only after the Russian Federation finally refuses voluntary compensation.

And this refusal must be recorded in the course of the political settlement, whenever and in what format it begins. However, even the political decision itself - no matter when and how it is made - may not be enough. In addition to the political decision on confiscation of assets, the next stage is also critical: enforcement of the decision on confiscation.

It will not be automatic and quick, even if a decision is made. And this can be traced on the example of already announced assets that were to be transferred to Ukraine. For example, last year, Canadian Prime Minister Justin Trudeau promised to hand over to Ukraine the An-124 aircraft of the Russian Volga-Dnepr Airlines from the Toronto Pearson airport.

However, the plane has not yet been confiscated, and the formal reason for this is that Canada's Minister of Foreign Affairs, Melanie Joly, has not applied to the Supreme Court of the Province of Ontario to transfer ownership of the plane to the government. Instead, Volga-Dnepr Airlines has recently challenged the Canadian government's sanctions in the Federal Court of Canada. And one of the reasons is the government's lack of response to the airline's statement on the lifting of sanctions.

Another, more successful, example is the transfer to Ukraine of £5.4 million confiscated by the USA from the Russian oligarch Konstantin Malofeev. Currently, this is the only precedent, and the various stages of the transfer of these millions are periodically reported by the Ukrainian media as different decisions of the US government, although in fact these are the decisions within one long-lasting procedure. And it is very optimistic to believe that the formal procedures for the confiscation and transfer of assets of the Central Bank of the Russian Federation to Ukraine will be easier.

Brussels and Washington bureaucracies have enough experience in complicating the implementation of already made decisions. At the same time, the chances that the Russian assets will be confiscated are indeed very high - however, it's important to understand that this is a medium-term prospect at best, and the transfer to Ukraine or use in our interests may take even more time. And we definitely need to approach the moment when the decision is "on the table" with an action plan for the next steps.

As many times showcased during this war, high expectations regarding the speed of the process and low expectations regarding its complexity and the required steps can become a problem for Ukrainian society. In a recent interview, Ukrainian public historian Yaroslav Hrytsak said that instead of a "Sustainable Peace Manifesto", it is worth preparing a "Sustainable War Manifesto". In the case of the confiscation of Russian assets and their subsequent use for compensation to Ukraine, it is also worth considering a plan that would give a real understanding of what should be done and what to expect.

If one tries to elaborate such a manifesto on the topic of confiscation of Russian assets, then, first of all, it should contain a declaration and advocacy of the non-alternative nature of the confiscation of frozen Russian assets and the development of a strategy where the decisions on this matter would be final. It is also necessary to prepare a thorough argumentation in favor of the exclusivity of such a decision in the case of Ukraine. This would later allow to justify the inadmissibility of other similar precedents, which is the biggest fear of our allies.

In this context, it is also important to clearly define the goals of such confiscation: whereas earlier it was only about compensation for damages caused by the aggression of the Russian Federation, now it is also about financing current economic and military needs. This will allow for building consistent public and diplomatic communication and more effective planning of their use in the interests of Ukraine. And it is important to focus not only on the decision to confiscate assets but also on the plan of further actions and steps regarding their use and transfer to Ukraine.

This will significantly save time at the next stages, which will inevitably require time to pass formal procedures and overcome barriers, similar to those currently created by Trumpists in the US Congress or Orban in the EU. In this process, it is important to continue work on the elaboration of an international compensation mechanism, within which compensation for damages from aggression will be carried out and which can become an institutional platform for the use of confiscated assets.

And in order to avoid disappointments and bad surprises, it is important to plan the use of these assets in the medium and long perspective as realistic terms.  This will also allow for avoiding crises in relations with allies due to an insufficiently fast pace of decision-making.

These steps are just general fragments of a very complex and painstaking process. However, it would be a big mistake to assume that it will be easy and quick or that its goals can be achieved by simply repeating the mantra about the need to confiscate Russian assets at all international events. Paraphrasing a famous saying by Churchill about "sweat, blood, and tears", it must be admitted that the process of confiscation of Russian assets will be complex, difficult, and long.

Although inevitably successful. The material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase III: Advocacy of steps to guarantee a sustainable compensation strategy"

By Ivan Horodyskyy, Ph.D.,
Director of The Dnistrianskyi Center for Law and Politics

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