President Joe Biden’s administration is backing legislation that would let it seize some of $300 billion in frozen Russian assets to help pay for the reconstruction of Ukraine, a shift as the White House seeks to rally support in Congress further to fund the war against Vladimir Putin’s forces.
G7 finance ministers and their deputies discussed the topic this month, according to people briefed on the calls, which touched on how to develop such a policy and assess the risks involved. The US, backed by the UK, Japan and Canada, has proposed moving forward with the preparatory work so the options would be ready for a potential meeting of G7 leaders around February 24, Vladimir Putin’s 2022 offensive on Kyiv.
On Wednesday, western officials said in Davos they were open to confiscating $300 billion of Russian assets to help Ukraine but cautioned that the devil was in the legal details and that, even if it could be done, it would be no panacea for Kyiv.
After President Vladimir Putin sent troops into Ukraine in 2022, the United States and its allies prohibited transactions with Russia’s central bank and finance ministry, blocking around $300 billion of sovereign Russian assets in the West.
G7 countries are discussing possibly confiscating the frozen Russian assets, though some G7 members have concerns about the precedent, mechanism and potential impact of taking such a step against central bank assets.
“The first thing you know is a ton of lawyers need to get involved. No decisions been made,” Penny Pritzker, U.S. special representative for Ukraine’s economic recovery, told a panel on Monday.
“If a decision gets made it’s going to end up being collective. It’s a misperception to think this is going to be a panacea effect. There’s real effort going on but we are far from a conclusion.”
Russia, which was not represented at Davos, has warned that confiscation of those assets would go against the principles of free markets and the Kremlin has warned it would seize U.S., European and other assets in response to such a move.
U.S. Treasury Secretary Janet Yellen has long expressed concerns about a lack of legal authority for the U.S. to confiscate frozen Russian assets housed at the Federal Reserve Bank of New York, but has recently embraced a request by G7 leaders to explore seizure options based on international law.
She said last week that no decisions had been made on the G7 efforts, but there were still concerns about the impact on storing reserves in dollars or euros, adding: “It would be a question of understanding and seeing if mitigation could be put in place and seeing if the G7 could agree on international law rationale.”
Another concern held by some senior Western officials is that confiscating Russian assets invested in government bonds denominated in euros, U.S. dollars and British pounds could undermine the willingness of central banks to store reserves with each other.
The lion’s share of the assets – essentially securities in which the Russian Central Bank had invested – are frozen in Euroclear, a depository based in Brussels.
Belgian Prime Minister Alexander De Croo told Reuters that he did not oppose the confiscation of the frozen assets, but there needed to be a clear mechanism.
“We don’t say no to asset confiscation. But we need to work on a mechanism. For example, they can be used as collateral for raising funds for Ukraine,” De Croo said.
“We are open to further discussion and are willing to participate in a solution of finding a legal basis for those transfers to Ukraine, without destabilising the global financial system,” he said.
Some securities mature and hence are being converted into cash – a transaction that is taxed at 25%, he said.
“If there is any taxable revenue, we will isolate it so it can go to Ukraine,” De Croo told Reuters in Davos. He said tax on the frozen assets totalled about 1.3 billion euros in 2023 and in 2024 would total about 1.7 billion euros.
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