US demostrates leadership in confiscating Russian assets. What's next?

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.

It is about the law on the confiscation of Russian assets REPO (Rebuilding Economic Prosperity and Opportunity).

Read more on the law and its impact on allies in the article by Ivan Horodyskyy, the Dnistryanskyi Center Cofounder – Biden, confiscate it! What will be consequences of the US Congress' decision to divest Russian assets?

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.

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.

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

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.

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

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.