Biden, confiscate it! What will be consequences of the US Congress' decision to divest Russian assets?

President Joe Biden has been authorized to confiscate Russian assets. Until recently, it was believed that this initiative had no high chances of being adopted

Along with the allocation of long-range ATACMS missiles to Ukraine, one of the most discussed items in the aid package approved by the US Congress last week was the provision that gives the president the authority to confiscate Russian assets.

Until recently, it seemed that these provisions of the REPO (Rebuilding Economic Prosperity and Opportunity) bill, which was introduced to Congress last summer, had no chance of passage.

The success was made possible both by an active advocacy campaign and by the need for a symbolic guarantee that Ukraine's funding would not be provided solely by American taxpayers.

However, while we will be able to see the effect of ATACMS in the near future, the implementation of REPO will take longer.

The United States regains leadership

Despite the loud headlines and expectations, it is important to remember that the new legislation creates a mechanism for confiscation, and does not automatically confiscate Russian assets.

The REPO's logic is based on the already widely recognized approach that confiscation of Russian sovereign assets would be a legitimate countermeasure under international law to counter Russia and guarantee compensation to Ukraine.

According to the law passed last week, the US President is authorized to confiscate the sovereign assets of the Russian Federation and transfer them to the Ukraine Support Fund.

Subsequently, these assets can be transferred to a future international compensation mechanism, used to rebuild Ukraine, or transferred to Ukraine as humanitarian or economic aid, according to the decision of the US Secretary of State.

Congress, in turn, has the power to block the Secretary of State's decision to transfer assets.

These mechanisms should be in place for five years or until Russia agrees to pay compensation to Ukraine.

Approval of this mechanism was likely a compromise in the Congress' debates over support for Ukraine.

For the Republicans, its adoption could be a political guarantee that in the future the burden of supporting Ukraine will not be entirely on American taxpayers. And for Democrats, it is a counterargument to the Biden administration's indecision in confronting Russia.

But most importantly, the creation of this mechanism officially declares the US leadership in the confiscation of Russian assets.

But whether Ukraine's other allies will follow the example of the United States is still an open question.

Fears from allies

The decision of the US Congress caused delight in Ukraine but was met with the most restrained reaction in the West.

In particular, the President of the European Central Bank, Christine Lagarde, in her commentary called for a cautious approach to steps "that violate the international legal order that you want to protect and that you want Russia to respect."

There are many reasons why the administrators of Russian sovereign assets (and the European Union, which controls about $200 billion of them, is the key one) are reluctant to confiscate them, and many of them have been voiced in the last week.

There are economic reasons – fears for the future of the global financial system and the fate of European business assets in Russia. There are also political reasons – the desire to use the frozen assets as a lever in the future political settlement.

And there are even historical ones, such as setting a precedent that will allow other states to decide to confiscate assets, such as those of Germany or Japan, on account of losses from the Second World War. Despite the outward lyricism, this reason is a serious counterargument, as stated in a recent Wall Street Journal article.

After all, many concerns have been voiced in Washington over the past year.

It was also said that this precedent could be used to confiscate Israel's assets for the operation in the Gaza Strip, and fears were raised that Donald Trump might be given such powers if elected president of the United States.

Although the adoption of the REPO is a powerful signal, we can predict that the most realistic decisions on the future of Russian assets will be made at the June G7 summit in Brindisi, Italy.

And these decisions will not concern confiscation, but the use of Russian assets in the interests of Ukraine. This could be either the issuance of "reparations bonds" secured by assets or the long-discussed transfer of part of the proceeds to Ukraine.

However, in any event, Ukraine should work out its vision of the fate of these assets more carefully.

An interim victory

"Confiscation of assets can be one of the alternative plans to provide Ukraine with systemic support," Olena Halushka, co-founder of the International Center for Ukrainian Victory, commented on the adoption of the law on confiscation of Russian assets last week.

The logic of this statement is clear: in the context of the ongoing war, Ukraine needs more and more financial support, and the provisions of the REPO law allow for such a development. However, this formulation of the issue also raises certain controversies.

Since the spring of 2022, the primary goal of confiscating Russian assets has been to compensate for the damage caused by Russian aggression. In turn, this makes it difficult to use Russian assets to finance economic, humanitarian, or military needs.

This use of Russian assets will put the payment of compensation at risk, at least in the short term. This argument should be taken into account by the Ukrainian government in formulating a clear strategy for future actions, primarily in the interests of the victims of Russian aggression.

The adoption of the REPO law is definitely a success and an important step towards justice for Ukraine.

However, this does not mean that the assets have already been confiscated – the relevant decisions can only be made and will take into account the conсerns that exist within the United States and internationally.

The previous practice of confiscating private assets of Russian oligarchs is not very convincing – only $5.2 million was confiscated and transferred to Ukraine during the two years of the war.

Therefore, the basic strategy remains a joint decision on the fate of these assets by the Group of Seven, which probably will not yet involve confiscation.

And Russia itself will not sit idly by. Kremlin spokesman Dmitry Peskov said: "The prospects for a court appeal (against the confiscation of Russian assets) will be wide open. Russia will take advantage of this and will endlessly defend its interests."

To use the football terminology popular among public figures, we have won a half (not even a match yet) of the group stage and have not yet guaranteed our place in the playoffs. And the interim final may be held in June at the G7 summit.

The material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase III: Advocacy of steps to guarantee a sustainable compensation strategy."

Ivan Horodyskyy

PhD, Dnistrianskyi Center, Cofounder

The material was prepared with the support of the International Renaissance Foundation within the framework of the project "Compensation4UA / Compensation for War Damages for Ukraine. Phase III: Advocating for steps to ensure a sustainable compensation strategy."