Commentary on Political Economy

Wednesday 22 March 2023

The moral and legal case for sending Russia’s frozen $300 billion to Ukraine

 The moral and legal case for sending Russia’s frozen $300 billion to Ukraine

A resident of a bombed building removes his belongings after a rocket strike in Kramatorsk, Ukraine, on Tuesday. (Wojciech Grzedzinski for The Washington Post)
Opinion by Lawrence H. Summers, Philip D. Zelikow and Robert B. Zoellick
March 20, 2023 at 7:30 p.m. Taiwan Time
Lawrence H. Summers, a professor at and past president of Harvard University, was treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama from 2009 through 2010. Philip D. Zelikow, a lawyer and a history professor at the University of Virginia, held foreign-policy posts in five administrations. Robert B. Zoellick has served as president of the World Bank, U.S. trade representative and deputy secretary of state.
Russia’s assault on Ukraine has become a brutal war of attrition — militarily but also economically and socially. Russian President Vladimir Putin recognizes the nature of this struggle. Ukraine, having lost one-third of its GDP, with one-third of its population already displaced and the lights flickering on and off, could win battles and still lose the war.
Ukraine’s allies have rallied to its aid with armaments, but they have faltered on the decisive economic front. Using the approximately $300 billion in Russian central bank assets that were frozen by Western governments at the war’s onset would show Putin he cannot outlast Ukraine and the West economically. There is elegant justice in using Russia’s state funds, now lying idle, to counter the costs of Moscow’s destruction. Plans have been prepared, with ways to avoid corruption and linked to the European Union. That would be a strategy of hope.

Last month, the leaders of every state in the European Union, hosting millions of Ukrainian refugees, announced that the E.U. will “support Ukraine’s reconstruction, for which we will strive to use frozen and immobilised Russian assets in accordance with EU and international law.” They added measures to trace all those assets in their countries. Canada has already enacted its own legislation to move ahead.
In the Group of Seven, all now look for U.S. leadership. To its credit, the United States spends billions per month in emergency aid just to help Kyiv pay its monthly bills. But this is not sustainable, and it does not seriously begin the tasks of recovery and reconstruction. Transferring frozen Russian reserves would be morally right, strategically wise and politically expedient — particularly with a restive U.S. Congress.
Governments would have plenty of legal justification for moving ahead. On Nov. 14, 2022, the United Nations formally recognized that Russia must “bear the legal consequences of all of its internationally wrongful acts, including making reparation for the injury, including any damage, caused by such acts.” The United Nations called for creation of an institution, now, to implement this compensation.
In the last such case, after Iraq’s 1990 invasion of Kuwait, using the same emergency powers that President Biden has invoked in this crisis, an October 1992 executive order “directed and compelled” every bank holding Iraqi state funds to transfer them in compliance with a U.N. resolution that called for compensation of the victims of that aggression. More than $50 billion of Iraqi state funds from around the world were eventually paid out to injured countries, widening the supportive coalition. None of this required court action or the aggressor’s permission.
Those who hold Russian assets are entitled, under the international law of state countermeasures for a grave breach of international law, to cancel their obligations to the Russian state and apply Russian state funds to pay what Russia owes. This asset freeze should not be treated, as some think it should be, under a surreal “sanctions” paradigm, waiting upon a fantasy of Russian surrender. Ours is a wartime paradigm, and the compensation cannot wait. And applying the debtor's funds to pay its debts is a common way to encourage a settlement.
In addition to the unfortunate hesitations about deploying the frozen Russian central bank assets, public debate has been muddied by a mistaken focus on Russian oligarchs’ yachts and other seized assets. That involves a comparably minor amount of money, not very liquid, and is much more complicated legally.
In state action against another state’s property, there are no due process concerns. Russia is not a “person” under the U.S. Constitution, and the property being taken is not “private.” There is no sovereign immunity issue, because this is state-on-state; there are no private litigants.
Some warn of the precedent of embittering reparations imposed on a bankrupt Germany after World War I. It is a terrible analogy. Russia has received massive windfall oil profits, worth at least $100 billion, since the war started, and these are not frozen. Putin has likely already written off the frozen funds. It is hard to conceive the scenario in which he gets them back, with Ukraine still broke.
Some financial types will wring their hands about harming the U.S. dollar. This is an important issue. That is why it is so important for the G-7 to move in concert, including with euros and yen. This would deter aggressors but have little other effect, because countries that want to trade in dollars and euros and yen don’t have alternate liquid assets to hold.
European leaders have stepped up. The Biden administration has not yet followed suit. It should use Russia’s frozen funds and its diplomatic leverage now, while it can decide the outcome of the war. The time has arrived for President Biden to tell his advisers what FDR would have told them: This is the right thing to do. Find a way.

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