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Commentary: Using seized Russian assets to rebuild Ukraine won't be easy

Western leaders are scrambling for legal mechanisms to make use of frozen assets while preserving trust and due process, says the Financial Times' Gillian Tett.

Commentary: Using seized Russian assets to rebuild Ukraine won't be easy

The US$300 million megayacht Amadea belonging to Russian oligarch Suleiman Kerimov was seized by local authorities in Lautoka, Fiji, on a United States Justice Department request for allegedly being tied to sanctions violations and money laundering. (Photo: AFP/Leon Lord, Fiji Sun)

LONDON: When Volodymyr Zelenskyy addressed the World Economic Forum (WEF) via video link on May 23, he issued a heartfelt appeal to the West: Use the assets seized from the Russian central bank and the country’s oligarchs to fund the estimated US$500 billion cost of rebuilding Ukraine. 

“If the aggressor loses everything, then it deprives him of his motivation to start a war,” he said. “Values must matter when global markets are being destabilised.”

Many Western leaders seem to agree. Josep Borrell, the EU’s chief negotiator recently suggested there is “logic” in using Russian foreign exchange reserves to rebuild Ukraine. And Ursula von der Leyen, the European Commission president, responded to Zelenskyy’s appeal in Davos by noting that Russia “should also make its contribution” to reconstruction.

This makes for rousing political rhetoric. However, the dirty secret at this week’s WEF meeting is that these public appeals are causing private angst for many of the Davos corporate and financial elite, from the West and its allies.


This is not because of a lack of sympathy for Ukraine’s plight, nor a failure to recognise that the post-war reconstruction bill will be vast. Instead, the issue is the lack of due process. While most think there is an overwhelming moral case to help Ukraine and punish Russia’s aggression freezing assets is quite a different matter from disbursing them. 

If either is done without a consistent and transparent framework, Western governments will either face years of costly lawsuits or end up smashing apart the trust that underpins their political economies. As Zelenskyy himself noted, “values” matter now, more than ever particularly when markets are destabilised.

“We have been told for decades that the West upholds the rule of law, and we invested in the West on that basis,” one leading non-Western sovereign wealth investor observes. “Is that being ripped up now? What are we supposed to think?” 

Of course, many Western observers and Ukrainians might argue this is now a second-order question, given the horrors of Russia’s invasion. But I think that those worrying about due process have a point. 


So, how should this be resolved? Leaders are scrambling for solutions. Von der Leyen told the WEF this week that “our lawyers are working intensively on finding possible ways of using frozen assets”. Separately, Western lawyers sympathetic to Ukraine are studying existing legislative tools to see whether they can be repurposed to this end.

One idea floating around is to use America’s extensive civil tort laws to enable Ukraine to claim “damages” from the oligarchs’ US assets. A variant of this might be attempted by plaintiffs in France and the Netherlands too, I am told.

Another idea is to use arbitration processes linked to some little-known direct investment treaties signed between Russia and Ukraine in the 1990s, which create a way to impose damages in cases of economic harm.

Separately, the US administration could seek express legislative authority from Congress to introduce new legislation enabling Russian currency assets to be seized. Or the US president might use the International Emergency Economic Powers Act of 1977 to redeploy assets in American banks, possibly drawing on precedents established in the 1980s in relation to Iran.

Ukrainian President Volodymyr Zelenskyy addresses, by videolink, the opening plenary session of the 51st annual meeting of the World Economic Forum, WEF, in Davos, Switzerland, on Monday, May 23, 2022. (Laurent Gillieron /Keystone via AP)

One of the most interesting ideas of all has emanated from Kyiv, which has quietly drafted a memo calling for a new UN commission for “constitutional, legal, transparent and effective” blocking and seizing of assets belonging to those connected with armed aggression.

While the current war in Ukraine is being cited as the pilot project, the idea or hope is to create a global framework to be used in other conflicts too.

The good news is that this shows Kyiv’s recognition of the need for due process. Some Ukrainian business figures are thinking the same way: Rinat Akhmetov, the Ukrainian billionaire, said this week that he would sue Moscow for “appropriate reimbursement for all costs and lost revenue” from the destruction of his assets in Mariupol, such as the Azovstal steel plant.

The even better news is that Ukraine’s ideas are likely to be welcomed. “The underlying concept of having an international framework covering sanctions could potentially lead to an improvement over the current rather ad hoc imposition of sanctions,” says one Western lawyer, who has seen the draft memo.

But the bad news is that Russia’s veto in the Security Council will make it hard to establish a UN commission. The idea of deploying the 1977 US emergency powers act is legally controversial, and passing any American legislation swiftly is likely to be difficult.

Unless the concept of due process and property rights is overturned, Russian assets will probably remain frozen for many years or endless legal battles will ensue.

None of these prospects is remotely appealing. But the latter two are arguably the least bad. Unless, of course, von der Leyen can now find a legal process or, better still, the UN embraces Ukraine’s sensible ideas.

Either way, the one certainty is that lawyers will soon be reaping fat fees. Therein lies the reality of kinetic and economic war in the 21st century.

Source: Financial Times/geh


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