The Senate Foreign Relations Committee voted Wednesday to advance legislation that would establish a fund to transfer proceeds from liquidated Russian assets to Ukraine. The bill would authorize President Biden to sell off Russian central bank assets held in the US and send the funds directly to Ukraine.
Bill Would Tap Over $300 Billion in Frozen Russian Assets
The legislation targets over $300 billion in Russian central bank funds that the US froze shortly after Russia’s invasion of Ukraine last February. If signed into law, it would represent one of the most significant confiscations of state assets by one country of another in modern history.
Supporters argue it would provide vital budgetary aid to Ukraine as it defends itself and rebuilds infrastructure destroyed in the war. The White House has expressed support for the effort, calling it “an elegant solution.” Russia has warned that confiscating its foreign reserves would be “outright theft” and threatened “harsh retaliatory measures” if the policy is enacted.
Some legal experts caution that repurposing Russia’s funds could undermine central bank independence and set dangerous precedents in the global financial system. The EU has also signaled it is unlikely to participate in asset seizures.
Transfer Would Provide Direct Budgetary Aid to Ukraine
The proposed Russian Asset Recovery Fund would bypass traditional foreign aid bureaucracy. Assets sold off in the US would be transferred directly from the Federal Reserve to Ukraine’s central bank on a quarterly basis. Backers say direct budgetary assistance is needed to reduce Ukraine’s growing deficit and debt burden as the country stays on a wartime economy.
“What we want is for Ukraine to have direct budgetary assistance,” said cosponsor Sen. Lindsey Graham (R-SC). “We’re going to make Russia pay for this war.”
The money could pay Ukrainian government salaries, import food and energy, rebuild critical infrastructure like water systems and schools destroyed in the fighting, and possibly free up other aid for Ukraine’s military.
|Est. Russian Central Bank Assets Frozen Globally
|> $300 billion
|Est. Russian Assets in US Jurisdiction
|2022 Ukraine Govt. Budget Deficit
|14% of GDP
|Ukraine Public Debt, % of GDP Pre-Invasion
|Current Ukraine Public Debt, % of GDP
Table showing amount of frozen Russian assets available and Ukraine’s rising fiscal deficits and debt costs over the course of the 2022 invasion.
EU Reluctant on Asset Seizures
Despite reservations, the legislation enjoys broad bipartisan support in Congress. However, the effort faces roadblocks convincing US allies in Europe to participate in asset seizures.
The EU has called asset confiscation unwise, warning it could undermine the legal protections of sovereign deposits that undergird the global banking framework.
On Monday, top EU finance officials ruled out participating in seizures or supporting changes that would greenlight taking Russia’s overseas assets. They argued asset seizures could call into question whether funds deposited by other nations remain truly inviolable.
“We are not embracing the idea of confiscating these assets by touching the reserves of the central bank,” said one senior EU finance official. “This is not something that we would consider to do.”
Without EU participation, only Russian assets directly frozen in the US and UK jurisdictions could be repurposed. That would limit the total to between $30-60 billion based on current estimates.
Backers counter that laws protecting central bank assets should not shelter funds fueling aggression.
“Russia started this war using its rainy day fund,” said bill sponsor Sen. Ben Cardin (D-MD). “We’re just taking that rainy day fund and we’re going to help a country that wants democracy.”
White House Backs Effort But Faces Resistance
The Biden administration has publicly supported transferring Russian funds to Ukraine. However, Treasury Secretary Janet Yellen cast doubt last spring whether the US can legally repurpose Russia’s frozen reserves.
In April 2022, Yellen told Congress, “This is not something that is legally permissible in the United States.” Since then, the White House has not addressed questions around the effort’s legality.
Critics argue asset seizures violate norms insulating central banks and create unwanted precedents even for a justified cause like assisting Ukraine.
“While the end goal is commendable… the means raise serious concerns,” wrote legal scholar Prof. Luis Enrique Rodriguez over the complexities around repurposing Russian funds under international law.
Russian officials have protested vociferously. Former President Dmitry Medvedev warning confiscating Russia’s reserves would permanently rupture relations.
“It would just be blatant thievery. Such actions would be beyond any reason. They would lead to the most serious aggravating consequences for relations for a long time,” said Medvedev.
Congress Weighs Options to Transfer More Assets
Lawmakers are already considering mechanisms to potentially expand how much Russian cash could flow to Ukraine.
One proposal gaining steam would create a dedicated Russian Asset Recovery Fund. The fund would pool international contributions and sell off non-central bank Russian state assets seized abroad.
By targeting commercial assets like oligarch property, ships, money from energy exports, and even sovereign debt payments, the fund could potentially generate billions more for Ukraine on top of central bank transfers.
The idea has won praise from experts and former world leaders.
“Taking the $300 billion Russia holds in reserves abroad and giving it to Ukraine would be elegant justice,” said former World Bank president Robert Zoellick.
Outlook: Seizures Raise Stakes in Russia Standoff
Passage of the asset transfer legislation would mark a major escalation as global powers increase pressure on Russia to halt its aggression. Supporters hope confiscation threats give Moscow added incentive to seek peace.
But critics see danger in pushing Moscow against the wall economically. Russian officials have darkly warned of “economic warfare” and threatened harsh retaliation. Confiscation risks provoking spiraling sanctions and countersanctions that could roil the global economy.
For Ukraine, though, direct budgetary aid cannot come soon enough. Whether through frozen central bank funds or commercial assets, accessing Russia’s overseas cash hoards provides Kyiv its best shot at keeping the country financially afloat as the war drags on.
With bipartisan determination in Congress to pry open Russia’s wallet, the task now falls to US diplomats to bring along skeptical European capitals. Absent unified Western participation, ambitions to deal decisive economic blows to Russia via asset seizures may prove difficult to fulfill. For Ukraine’s sake, the West will need to get on the same page.
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