With no end in sight for the war in Ukraine as it nears the eight-month mark, economists say Western allies should already be figuring out how it will help the country financially with reconstruction — and should start with the billions in Russian assets they have already frozen.
A new paper by the International Working Group on Russian Sanctions released this week drives this point home, making the legal and moral argument for Russian central bank assets frozen by the West to be seized and diverted to Ukraine as reparations for their unjustified invasion.
“Typically … we would need to compel the reparation-paying entity to actually pay what they owe,” said Anastassia Fedyk, a member of the group and an assistant professor of finance at the University of California Berkeley.
“But in the case of Russia, the amount of already frozen assets is already quite sizable. And so we don’t necessarily need to compel them to pay anything else, other than to seize the assets that are already frozen.”
Reconstruction efforts have been ongoing since the war began, with many Ukrainian volunteer groups actively cleaning and rebuilding communities.
Volunteers clear rubble on the second floor of Zhanna and Serhiy Dynaeva’s house which was destroyed by Russian bombardment, in the village of Novoselivka, near Chernihiv, Ukraine, on Saturday, Aug. 13, 2022. Residents in many heavily-damaged areas in Ukraine have set up their own initiatives to rebuild homes before the winter as international organizations rush aid to Ukraine to help with the reconstruction effort. (AP Photo/Evgeniy Maloletka).
But the World Bank, along with the Ukrainian government and European Commission, estimated last month that rebuilding Ukraine will require at least $349 billion, a number that is expected to grow as the war continues.
The paper by the working group — comprised of international experts convened by Stanford University to advise the Ukrainian and international governments on applying economic pressure on Russia — argues the central bank assets are the “most appropriate” for the West to target and use for reconstruction.
In June, the U.S. Department of Justice said Western allies had frozen about US$300 billion in overseas assets held by the Central Bank of Russia. That was on top of more than US$30 billion blocked from sanctioned Kremlin officials and Russian oligarchs.
Because those highly liquid bank assets are the “indisputable” property of the Russian Federation, the group argues, they can immediately be used as Russian payments to Ukraine with “minimal administrative and legal work.”
“It is the Russian government that ordered the invasion of Ukraine,” the group writes. “It is the Russian government, therefore, that should pay for Ukrainian reconstruction.”
The group calls for the international community to quickly establish a “compensation mechanism” that can then be used to hold and dispense Russian assets, which would have to be seized by countries that have frozen them.
The group points to Canada for setting the legal precedent for such a move. The federal government’s budget implementation bill passed in June allows the seizure of funds or property held by foreign individuals and states linked to violations of international peace, security and human rights.
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“Canadian legislation could serve as a useful model for other countries currently holding Central Bank of Russia reserves,” the paper says.
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Deputy Prime Minister Chrystia Freeland told reporters in May after talks with G7 allies in Germany that countries had expressed interest in following Canada’s lead with their own legislation.
She said Canada has an opportunity “to lead by example and show what can be done.”
“There was a lot of interest in what Canada is doing,” Freeland said, adding questions were also asked specifically about using seized Russian assets to help pay for Ukraine’s reconstruction.
A spokesperson for Freeland’s office, speaking on background, told Global News the deputy prime minister continues to discuss the issue with her counterparts, but no decisions have been made so far on international cooperation.
Ukrainian officials are also reportedly lobbying Western allies on the issue, calling on the United Nations to adopt a resolution for the compensation mechanism that would include seized Russian assets.
In May, Ukraine also helped establish the International Claims and Reparations Project in conjunction with Columbia Law School, which has made the same argument for Russian assets to be seized.
Both that group and the Stanford working group claim there is historical precedent to draw on, including the confiscation of Iraqi reserves after the invasion of Kuwait and subsequent reparations payments totalling more than $52 million.
But other countries, including the United States, have still been hesitant to go along with the plan for Russia, which Fedyk says is likely due to political fears.
“I think the pushback is not so much that it’s wrong or it can’t be done, but rather the timing and what Russia’s reaction will be,” she said. “Will it be seen as escalation, and how will the Kremlin respond?”
The Russian sanctions group acknowledges that concern and others in their paper, including whether seizing Russian assets will open up Western assets to seizure by the Kremlin or other hostile nations, including China.
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Past efforts to seize foreign assets have also failed to stand up to legal scrutiny. After the U.S. froze Afghan central bank funds following the Taliban’s takeover last year, a federal judge ruled against a bid by families of victims of the Sept. 11, 2001 terror attacks to seize those funds for reparations.
But experts say in the case of Ukraine, the moral case for seizure outweighs those concerns, and requires international coordination — including new legislation — to achieve.
“I would argue this is the best and most immediate way to hold Russia accountable for the damage and destruction they have caused,” said Marcus Kolga, a senior fellow at the Macdonald-Laurier Institute who studies Russia.
“Tens of thousands of civilians are dead. Up to 300,000 Ukrainian children have been literally kidnapped from Ukraine and taken to Russia. How are we going to deal with that?”
Yet he pointed to the recent wave of victories by Ukrainian forces on the battlefield, which have forced Russia to retreat from occupied territory, as proof that the reconstruction conversation is looming closer than ever.
“This is something that needs to be worked on now, because at the rate this is going, we’re going to have to decide very quickly how we’re going to help,” he said.
— with files from the Associated Press and the Canadian Press
