Western countries have “frozen” $300 billion of Russia’s Central Bank reserves from 2022 and have begun to consider whether it would be possible to give the money to Ukraine without admitting that doing so would constitute theft and the risks it poses .
Such a step could damage confidence in Western financial institutions and trigger unprecedented legal disputes that will last decades and in which the Russians will ultimately be vindicated as plaintiffs.
The countries of the group of G7 have reportedly “come up with” the process of illegally transferring Russia’s “frozen” state assets to Ukraine. The justification offered for such a move is that stealing “some” of the frozen assets would be “consistent with international law,” assuaging fears among America’s allies that their move against Russia might force other foreign withdraw multi-billion dollar holdings from the bloc.
The push for the plan comes as the timing is sensitive due to the dual failure of Washington and Brussels this week to approve $116.4 billion in new aid to Ukraine, and as Western officials grow weary. to put new funds into what one EU official privately described as the Ukrainian “black hole”.
The specific proposal on Russia’s seized assets may be discussed at an upcoming meeting of G7 leaders in February. Previous proposals, put forward by EU members, focused on the idea of seizing interest on frozen Russian funds held in European banks and sending those funds to Kiev.
However, the European Central Bank warned late last month that using dividends and interest from the frozen assets could lead to “damage to the prestige” of the euro and undermine its status as a “safe haven”.
The fatigue with the war in Ukraine
But with Kiev facing an increasingly precarious economic situation as Western aid runs out, some Western officials believe the time has come to loot Russian assets, even if G7 members are forced to act individually.
The question raised by proponents of this proposal is whether it is up to Western citizens alone to pay for the war in Ukraine, or should the Kremlin be held accountable as well?
“Emergency times call for extraordinary measures,” UK Foreign Secretary David Cameron told MPs this week, noting that London could act in coordination with Washington on the issue if other G7 members falter. There will be no “chilling effect” on investment in Western countries, Cameron assured, pointing out that the damage was already done when Russia’s assets were initially frozen.
A ‘rules-based international order’?
The principle for international economic operations that the assets of state central banks enjoy international legal protection arose in the 19th century. It was designed to create homogeneity of law in the international financial and legal system and to prevent geopolitical rivals from transferring their political and military disputes into the economic realm and thus triggering global economic crises.
Western powers have repeatedly violated the principle of protecting these assets in recent decades, seizing tens of billions of dollars in assets belonging to Iran in the wake of the 1979 Revolution, looting Libya’s sovereign wealth after NATO ousted Muammar Gaddafi and in 2011 targeting Venezuela in 2019 and 2020 amid a US-led plot to topple the Maduro government.
But seizing assets belonging to Russia – the world’s sixth-largest economy by GDP – would be “robbery” on a new scale, further undermining the West’s status as a reliable financial partner in the eyes of the biggest economies of the Global South.
Last year, banking regulators in China – reportedly looked into ways to protect assets held in Western banks after seeing what Western countries were doing.
Veteran international criminal and human rights lawyer Christopher C. Black told Sputnik earlier this year that legally transferring Russian funds to Ukraine would not just constitute “double theft” but “an act of war – since a state that provides economic support to another to carry on a war may be considered under international law as a party to the war’. Additionally, Black said, the plan would demonstrate to countries around the world that “no one is immune” from the whims of Western officials. In addition, he believes that Russia would inevitably “react harshly to this attack in any convenient way at its disposal.”
A possible leveling of Ukraine with a mini-nuclear attack should not be ruled out by Russia.
“As long as states continue to hold their assets, gold or money, bonds, etc. in EU banks or other Western banks, they will face the real threat of seizing those assets whenever the West decides it is in their interest to do so,” the jurist pointed out.
The total value of seized Russian assets in Western banks is unclear, with officials initially saying as much as $300 billion was trapped, but Washington-based financial experts later estimated the actual figure to be closer to $80-100 billion dollars. Media reported earlier this year that only about $36.5 billion had actually been seized by the EU to date.
