WASHINGTON — The devastation in Ukraine wrought by Russia’s war is prompting world leaders to call for the seizure of more than $300 billion in Russian central bank assets and the return of funds to Ukraine to help rebuild the country.
But the movement, which has gained momentum in parts of Europe, has been met with resistance in the United States. Senior Biden administration officials have warned that diverting these funds could be illegal and discourage other countries from relying on the United States as an investment haven.
The cost of rebuilding Ukraine is expected to be significant. Its chairman, Volodymyr Zelensky, estimated this month that it could rise to $600 billion after months of artillery, missile and tank attacks, meaning that even if all of the Russian central bank abroad were seized, they would only cover half of the costs.
In a joint statement last week, the finance ministers of Estonia, Latvia, Lithuania and Slovakia urged the European Union to create a way to finance the reconstruction of towns and villages in Ukraine with frozen assets from the Russian central bank, so that Russia can be “held accountable”. for his actions and pay for the damage caused.
The confiscation of Russian assets was also a central topic at a gathering of senior economic officials from the Group of 7 nations at a meeting this month, with the idea garnering public support from Germany and Canada.
The United States, which has led a global effort to isolate Russia with harsh sanctions, has been much more cautious in this case. Internally, the Biden administration has debated whether to join an effort to seize the assets, which include dollars and euros that Moscow deposited before its invasion of Ukraine. Only a fraction of the funds are kept in the United States; much of it was filed in Europe, including at the Bank for International Settlements in Switzerland.
Russia had hoped that maintaining more than $600 billion in central bank reserves would help bolster its economy against sanctions. But he made the mistake of sending half of those funds out of the country. By all accounts, Russian officials were stunned by the speed at which they were frozen – a very different reaction to the one they faced after the annexation of Crimea in 2014, when it took a year for weak penalties to be imposed.
Those funds have been frozen for the past three months, preventing President Vladimir V. Putin’s government from repatriating the money or spending it on war. But seizing it or appropriating it is another matter.
At a press conference in Germany this month, Treasury Secretary Janet L. Yellen appeared to close the door on the ability of the United States to participate in any effort to seize and redistribute these assets. Ms Yellen, a former central banker who initially had reservations about the asset tie-up, said that while the concept was under consideration, she believed seizing the funds would violate US law.
“I think it’s very natural that given the huge destruction in Ukraine and the huge reconstruction costs they will face, we would look to Russia to help pay at least some of the price that will be involved” , she said. “It’s not something that’s legally allowed in the United States.”
But within the Biden administration, one official said, there was a reluctance “to have daylight between us and the Europeans on sanctions.” The United States is therefore seeking to find some kind of middle ground while analyzing whether a seizure of central bank funds could, for example, encourage other countries to place their central bank reserves in other currencies and to keep them out of American hands.
In addition to legal hurdles, Yellen and others argued that this could make nations reluctant to keep their dollar reserves for fear that in future conflicts the United States and its allies could confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer meaningful sanctions relief to Moscow once the reserves will have been exhausted from its overseas accounts.
Treasury officials hinted ahead of Ms Yellen’s comments that the United States had not taken a firm position on the fate of the assets. Several senior officials, speaking on condition of anonymity to discuss internal debates in the Biden administration, hinted that no final decision had been made. An official said that while seizing funds to pay for reconstruction would be satisfactory and justified, the precedent it would set — and its potential effect on the United States’ status as the safest place in the world to leave assets behind — was a deep concern.
In explaining Ms Yellen’s comments, a Treasury spokeswoman pointed to the International Emergency Economic Powers Act of 1977, which says the US can confiscate foreign property if the president determines the country is under attack. or “engaged in armed hostilities”.
Legal scholars have expressed differing views on this reading of the law.
Laurence H. Tribe, professor of law emeritus at Harvard University, pointed out that an amendment to the International Emergency Economic Powers Act passed after the September 11, 2001, terrorist attacks gives the president broader discretion to determine whether a foreign threat warrants confiscation of assets. President Biden could cite Russian cyberattacks on the United States as justification for liquidating central bank reserves, Tribe said, adding that the Treasury Department was misinterpreting the law.
“If Secretary Yellen thinks it’s illegal, I think she’s dead wrong,” he said. “They may be mixing legal issues with their political concerns.”
Mr. Tribe pointed to recent cases of US confiscation and redistribution of assets from Afghanistan, Iran and Venezuela as precedents that showed Russia’s assets did not deserve special safeguards.
But according to Paul B. Stephan, professor of law at the University of Virginia, the examples of Afghanistan and Venezuela are not comparable because the United States has not recognized these governments as legitimate. He also argued that Mr. Biden would escalate the conflict with Russia if he confused cyberattacks with an act of war to justify seizing Russian assets.
“I would find that alarming,” Mr Stephan said. “We tried to be stable, rather than destabilizing, in this area.”
He added that Congress could change the law to clearly grant the United States the power to confiscate Russia’s assets, but that could lead to complex legal battles between the two countries.
Congress could move in that direction. Last month, the House passed the bipartisan Ukraine Reconstruction Asset Seizure Act that would allow for the liquidation of the properties of sanctioned Russian oligarchs and businesses, with the proceeds going to Ukraine. But officials say it is one thing to seize the physical assets of the oligarchs and quite another to seize the reserves of countries’ central banks.
The White House released a set of proposals last month seeking new powers to seize the assets of sanctioned Russian oligarchs. The process by which the federal government appropriates assets such as yachts and planes is cumbersome and time-consuming.
Canada also introduced legislation in April that would give its government new powers to seize and sell the assets of sanctioned Russian oligarchs and return the proceeds to Ukraine.
Chrystia Freeland, Canada’s Deputy Prime Minister and Finance Minister, told Group of 7 meetings that other countries were considering similar legal frameworks.
“Canada recognizes – and it was a view shared by our G7 partners that Ukraine’s financial needs are enormous – the reconstruction needs are enormous, and it is entirely appropriate for the aggressor to help pay for this reconstruction,” Ms Freeland said.
As nations debate how to manage Russian assets, Ukraine this month passed a law allowing it to confiscate Russian assets in the country and use the funds to replenish the national budget. In an address to the World Economic Forum, Zelensky urged others to follow suit by tracking down, freezing and seizing Russian assets.
“They should be allocated to a special fund,” he said, “which would be used to help all those affected by war.”