The Western countries simply can’t use Russian frozen assets to fund Ukraine

The idea of ​​the West handing over billions of US dollars of frozen Russian assets to Ukraine in order to fund reconstruction seems simple, but it faces major legal problems.

After the Russian invasion, Western banks and officials, under unprecedented economic sanctions against Moscow, froze an estimated $350 billion in state assets, foreign reserves and the properties of wealthy people close to power.

Almost 12 months later, politicians and activists in the West are pressing for this wealth to be used in the process of rebuilding destroyed infrastructure, Ukrainian homes and businesses.

What are the legal problems that hinder a move of this kind?

First: The position of Western countries isn’t unified.

In December, Canada launched proceedings for the first time to hand over nearly $26 million belonging to a sanctioned company owned by businessman Roman Abramovich, in a move the Russian ambassador described as daylight theft.

Observers say that Ottawa is taking a hard line in this matter, and it is unlikely that Brussels or Washington will follow it.

Earlier this month, the European Commission pledged to intensify its efforts to use frozen Russian assets to support the reconstruction process of Ukraine, but the President of the European Council stipulated that such a step be taken on a legal basis, that is, after the enactment of internal European legislation that justifies the use this money before international law.

In the United States, Congress held sessions on ways in which US law can be changed to make assets permanently confiscated, although President Joe Biden’s administration has publicly expressed reservations about this idea.

So far there have been many proposals in this regard and it is not clear whether progress will be recorded.

Second: criminal activities and the law.

Legal experts distinguish between private assets frozen by Western governments, such as a wealthy man’s yacht, and state property such as the foreign exchange reserves of the Russian Central Bank.

In the case of private assets, legal safeguards mean that Western countries aren’t allowed to confiscate them permanently except in very limited circumstances, most of the time when it can be proven that they are the proceeds of criminal activities.

Anton Moiseyenko of the Australian National University said that wealthy Russians close to power are active in dubious businesses, but we don’t really know that the properties that have been frozen are the proceeds of criminal activities.

The seizure of these assets constitutes a challenge to legal rights and basic human rights such as the right to property, protection from arbitrary punishment, and the right to a free trial.

The West’s public commitment to respecting the rule of law will also be at stake.

“How do you prove that the confiscated assets came from the proceeds of criminal activities without Russia’s cooperation?” Moiseyenko said.

There are other problems related to bilateral or international investment agreements signed with Russia, which may expose the concerned countries to legal claims in international courts.

Canada is the only country so far that has taken what Moiseyenko called a “uniquely hardline”.

Third: Sovereign immunity.

On the other hand, state assets such as central bank reserves pose different problems, but they are also thorny because they are covered by the so-called “sovereign immunity”, which is an understanding that a state doesn’t seize the property of another state.

It’s believed that Western central banks such as the Federal Reserve, the European Central Bank and the Bank of Japan have frozen reserves of about $300 billion that Russia holds with these institutions.

Written by Paul Stephen in the Capital Markets Law Journal last June reviewed existing legislation “customary international law of state immunity generally protects a state’s assets from confiscation, exceptions exist, but their scope isn’t clear,” he added.