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WAR IN EUROPE

Ukraine moves to seize $300bn in frozen Russian assets to help pay $800bn-plus war-damage bill

Ukraine moves to seize $300bn in frozen Russian assets to help pay $800bn-plus war-damage bill
Ukrainian Prime Minister Denys Shmyhal at the Ukraine Recovery Conference in London on 21 June 2023. (Photo: Dan Kitwood / Getty Images)

Confiscating the Russian assets would create a deterrent for future aggressors, it says.

Ukraine is trying to persuade the world to seize about $300-billion in Russian assets that are frozen abroad, to help it pay to replace or renovate the “colossal” infrastructure destroyed or damaged by Russia’s invasion and continuing war. 

And it believes that seizing those assets would create a major precedent which would deter other future would-be aggressors from invading their neighbours. 

The bill for replacing damaged or destroyed infrastructure just in the areas that Ukraine had already recaptured from Russia amounted to about $411-billion, according to World Bank calculations, says Prime Minister Denys Shmyhal.

And he told visiting African journalists that he expected that bill to double when Ukraine liberated its remaining territories and assessed the destruction there. 

The war has already cost Ukraine 3.5 million job stations, 30% of its GDP and many large production facilities. 

He said Ukraine had divided the reconstruction task into two parts: The first was “rapid recovery”, which was “where we recover infrastructure despite the risk of further ruination by the enemy”. This had included disbursing minimum humanitarian services to people at the frontline, rebuilding about 500 schools and kindergartens, as well as bridges to be able to supply water and food to those in need. 

This would cost Ukraine $14-billion a year for several years.

His government was also trying to create and recreate jobs in small and micro businesses since these were usually the backbone of any economy. And it was developing a programme for foreign investors to join public-private partnerships with Ukraine to help renovate its infrastructure. In addition, the government was financing the repair or renovation of 350,000 homes destroyed or damaged. 

And, Shmyhal said, Ukraine also faced the enormous cost of clearing the 174,000km² of its territory which had been polluted with landmines. With current technologies that would take 750 years, so Ukraine was trying to find new technologies to accelerate the process, so it could at least demine its rich agricultural land to be able to harvest and export some of the 30 million tonnes of food it had lost through the war. 

Russia is an aggressor state and ought to pay for the losses and destruction it has inflicted and the economic losses that we have to bear.

He said that despite the huge costs of fighting the war, Ukraine’s GDP would grow by 4% to 5% this year and next. “This would need to be sustained for the next six years to bring us back to the prewar production capabilities, and 10 years more to reach the production capabilities we would have reached if it were not for the war.

“Twenty percent of our territory is still occupied; 20% of our land remains under military action or under Russian control. Russia is openly robbing and looting Ukrainian lands, stealing our territories, our grain technologies and infrastructure.”

If Ukraine succeeded in recovering the $300-billion in Russian assets frozen abroad, it would boost and accelerate the recovery – although it would not cover the full costs. 

“Naturally we do hope for the confiscation of the frozen Russian assets across many countries in the world. Russia is an aggressor state and ought to pay for the losses and destruction it has inflicted and the economic losses that we have to bear. So, we are working in this direction as well because we do comprehend clearly that this is a very important issue, without which we cannot rebuild.” 

Shmyhal said Ukraine estimated that at least $300-billion in Russian assets, both sovereign (state) and private, had been frozen around the world since the war started. It could be more because not all countries disclosed this information.

What needs to to be done

To seize the assets, Ukraine needed to ensure an international compensatory mechanism was put into practice, drawing on national and international legislation from countries that held the assets. 

This mechanism should have three components: First, an international registry of losses and damages inflicted by Russia on Ukraine. This instrument existed – in Strasbourg – and Ukraine was represented on it. 

The second component would be an international compensatory commission that would include representatives of all countries that wanted to confiscate Russian assets. It would decide which renovation projects these funds should be directed towards. 

The third instrument would be an international compensatory fund to accumulate all confiscated Russian assets. Shmyhal said this mechanism was already being discussed on many international platforms.

“And we ask all our partners to support this instrument and its legislation so that we can use it successfully after the war is over.”

Shmyhal told Daily Maverick he was confident that Ukraine would be able to confiscate the Russian assets, and noted that Belgium – where most of them were held – had already decided to seize them and Canada was considering legislation to do so. 

An easier way?

Ukraine’s foreign minister, Dmytro Kuleba, agreed that Russia should pay to help Ukraine recover from the destruction it had caused and said this could prove a very important precedent to discourage future aggressors from invading other countries.

However, he was a bit more sceptical than the prime minister about the prospects of confiscating the assets. He suggested it would be easier to confiscate the assets of Russian businesses than those of the Russian state. 

“There’s almost no question that if it’s a business under sanctions then there’s a way to take away these assets as part of judicial court proceedings.

“There is a problem with sovereign assets.” These comprised three elements: The asset itself, the income on the asset, and the tax on the income. 

For example, an asset of $1-billion could still generate an income even though it was frozen – it could earn $100-million a year. 

And the state where the asset was held could, for example, levy a tax of 20% on the income which would generate $20-million. Kuleba said there was no doubt that the country where the assets are held could tax the income and pay it to Ukraine if it chose to (as Belgium is already doing). 

And he thought a legal mechanism could be created to confiscate the income also and pay it to Ukraine. 

“But the biggest problem is what to do with the $1-billion asset itself in this case. And there’s no answer to that question at the moment… because there is such a thing as sovereign immunity. And if you take away a billion of Russian money today, Russia can take away a billion of your money in return. So there is a big legal issue. 

“Nevertheless, the trend, and it has been activated right now, is that there would be some legal instruments generated and developed to force Russia to pay for the destruction that they caused in Ukraine. 

Read more in Daily Maverick: War in Ukraine

“And that would be a very critical precedent for the entire globe because every country that is going to attack someone would be aware that they would have to pay back with their own sovereign money and that could be a very strong restraining factor for anyone who would like to attack their neighbour.”

About $200-billion of the total of $300-billion in frozen Russian assets is held in Europe and about €125-billion of that is in Belgium, Reuters reported in October. 

It quoted a spokesperson for the Belgian prime minister saying Belgium expects to collect $2.4-billion in taxes from the assets and give it to Ukraine to finance reconstruction. 

And the European Union and the Group of Seven industrialised countries have been discussing a legal way also to take the interest earned on the $300-billion and give it to Ukraine. 

Reuters reported that US Treasury Secretary Janet Yellen had said the Biden administration supported taxing windfall proceeds from the Russian assets to funnel to Ukraine. DM

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