We have been critics of freezing Russian reserves right from the beginning of the war. As buyers of Russian oil or gas, sanctions on purchases would have been our preferred option. Instead Europe and the US decided to freeze money that belongs rightfully to Russia. Now, there is no turning back. Instead the EU is going down the path of further asset seizures to finance Ukraine’s reconstruction.
There is some momentum building up after Ukraine called on the EU to confiscate assets from the Russian state and oligarchs to finance the reconstruction of Ukraine. The unspoken presumption here is that Ukraine wins the war, the Russians are out, and that the EU should be the one channelling money from the aggressor to the victims of the war in Ukraine.
Firstly, this is about sanctions. The European Commission is looking into defining common rules for seizure, confiscation and sale of assets of those evading sanctions, Politico reports. For that, circumventing sanctions has to be defined as a crime first. At the moment, this is a matter for national law. It is a crime in 12 EU countries and an administrative offence in 15 member states. All EU member states would have to agree on common rules unanimously, and the European Parliament would have to approve such a directive too.
How far will this go? Didier Reynders, EU Commissioner for Justice, told reporters yesterday that any kind of attempt to circumvent sanctions would be considered a criminal offence. Could not declaring assets to the authorities already be seen as a crime? The Commission is also strengthening common rules for EU crimes, including expanding the grounds for confiscation of assets without needing a conviction if the court is convinced that the assets derive from criminal activities. It also proposes selling assets before a confiscation order is obtained, to avoid their devaluation. These options may also apply to assets owned by oligarchs if they are also involved in a criminal activity.
EU countries have so far frozen nearly €10bn in assets belonging to Russian individuals and entities under EU sanctions. And some of those funds may be confiscated and sold by EU countries as part of criminal proceedings, according to Reynders. He proposed transferring the proceeds of those sales to a common fund that will help Ukrainian victims of the war, but also conceded that this would yield small amounts.
Will this initiative succeed? Some EU capitals and Washington have already expressed their doubts. But there is clearly some momentum building up that has political consequences. Ukraine already put pressure on countries like Cyprus, where wealthy Russians were offered golden passports, to vet their clients and confiscate their assets there. It would be the end of that particular business model.
Will it also mean Russian currency reserves could be seized? Maybe. Nothing will happen without the US though. Congress is already discussing a law to confiscate money from Russian oligarchs. Laurence Tribe, emeritus professor of law at Harvard, suggests in the Lawfare Blog that the president could use his emergency powers to confiscate some $300bn in Russian reserve assets to finance the arms the US is sending to Ukraine. In Europe, Christian Lindner said last week he is open to a discussion about confiscating assets from Russia's sanctions-hit central bank to help pay for Ukraine's reconstruction. Some European top diplomats start to call for it. Politically, the more pressure there is on taxpayers to fund Ukraine’s defence, the more seizing Russian assets becomes attractive. What a fine mess we are in.