REPO Act: US to Transfer Frozen Assets of Russia to Ukraine

On April 24, the U.S. Congress finally adopted the long-awaited military aid package for Ukraine. Along with the military aid package, another equally important law was voted for in Congress.  

The Rebuilding Economic Prosperity and Opportunity for Ukrainians (REPO) Act was supported by the U.S. House of Representatives on April 20. President Biden, for his part, signed it on April 24. 

Support for the REPO Act allows the United States to transfer up to USD 5 billion of frozen assets of Russia to Ukraine. Read on to find out why this is important and how the Act proposes to implement it.

What does the REPO Act propose? 

The document proposes to give the U.S. president the authority to confiscate the sovereign assets of Russia, which directly or indirectly belong to the government of Russia, the central bank, and the Russian direct investment fund. 

The mechanism is as follows:

• within 90 days from the entry into force of the act, the president, through official requests, shall identify the financial institutions where the assets of Russia are stored and report such property to the Secretary of the Treasury;
• no later than 180 days after the entry into force of the act, and then annually within 3 years, the president shall submit to the relevant congressional committees a report detailing the status of Russian sovereign assets previously notified to the Secretary of the Treasury;
• 30 days after the president has submitted the relevant reports to the congressional committees, he may, by his decision, confiscate any sovereign assets of the aggressor state in whole or in part for the purpose of transferring them to Ukraine. 

Funds from confiscated Russian assets will go to a special fund for support to Ukraine, which will be administered by the U.S. Secretary of State. Every 90 days, the Secretary of State must submit a report on exercising such powers to Congress, regardless of whether they have been exercised or not. 

The act also provides for a clear, targeted use of the funds confiscated in this way, in particular for reconstruction and humanitarian assistance to the people of Ukraine. Assistance projects will be approved by the fund and the Administrator of the United States Agency for International Development (USAID). Priority projects will be determined at the request of the government of Ukraine. By the way, there is no mention of military assistance in this document at this time. 

In addition, the REPO Act obliges the President of the United States to work with allies and partners to create an international compensation mechanism for the transfer of confiscated or frozen Russian sovereign assets to assist Ukraine. To this end, the United States and allies shall create a Common Ukrainian Fund. It shall use the assets of the U.S. fund for support to Ukraine and contributions from foreign partners who also confiscated Russian sovereign assets to provide compensation to Ukraine.  

The activities of the Common Ukrainian Fund will be regulated by bilateral and multilateral agreements on compensation mechanisms for Ukraine, including an orderly and transparent distribution of these assets. Thus, the United States is ready to take the initiative and be a leader among Ukraine’s partners in the issue of accumulation and distribution of confiscated Russian assets. 

In addition, the REPO Act prohibits the return of any sovereign assets to Russia until it ceases hostilities and pays full compensation—voluntary or involuntary—to Ukraine for the damage caused by the invasion. In the event of such an unlikely scenario, the decision to lift the seizure off the Russian assets will also be made by the president, having previously notified Congress. 

The REPO mechanism will operate for 5 years or until Russia agrees to pay reparations to Ukraine.

What are the risks of this law?

The REPO Act establishes that the decision to confiscate the sovereign assets of Russia will not be subject to judicial appeal by Russia as a state in U.S. national courts, but individuals and legal entities still have the right to do so. That is, we should expect lawsuits, at least from Russian banks and companies, regarding the confiscation of their assets.  

The new law also recognizes the possibility of Russia’s appeal to international courts based on international treaties, where the parties are the United States and the aggressor country. This effectively allows the possibility of considering the dispute in the International Court of Justice. 

The process of appealing the confiscation of certain assets of Russia may delay their transfer to Ukraine for several years. According to international standards, it is important that the owners of confiscated property have an effective remedy, so we cannot do without courts. 

Another problematic point is that the act stipulates that the confiscation of assets by the U.S. president must be agreed upon with international allies, primarily the G7 and the EU. Thus, the decision on confiscation should be common. Such a step was obviously envisaged in order to somewhat “blur” the responsibility. International experts and U.S. lawyers criticized this provision as unprecedented and unconstitutional because never before did domestic decisions of the American authorities require prior consent from outside. 

If, at the political level, there are statements that the sovereign assets of Russia should be used to support Ukraine, then in practice, the collective West finds it more difficult. At a recent meeting, G7 finance ministers were unable to agree on how to use the frozen Russian assets. They said they would continue to work on options to present them to the G7 leaders ahead of a summit in Italy in June. 

It is also important to remind ourselves of some tensions surrounding the U.S. presidential election, which is due to take place in November 2024. Since, according to the REPO Act, the decision to confiscate or lift the seizure off frozen Russian assets is made solely by the president, there are some fears that if Donald Trump wins the presidential election, he will not rush with confiscation, to say the least. That is why it is important to quickly apply the law before the next presidential election.

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What are we left with? Western partners of Ukraine continue to work on the analysis of risks and benefits in the confiscation of Russian assets. Now, we have an example demonstrated by the USA.  

The REPO Act is a good transition from conversations and concepts to specific legislative steps. Currently, the rest of the Western world is still thinking about how to approach the sovereign assets of Russia: either exclusively within the criminal process or by additional taxation of income from such assets, while lawmakers in the United States are acting.  

I hope that each day of discussions will bring us closer to specific steps. For example, the transition to the introduction of a completely reasonable idea of 100% taxation of future income from the sovereign assets of Russia (approximately EUR 192 billion), which are stored in Euroclear in Belgium.  

In this discussion, in addition to risk analysis and searching for options, it is worth remembering that attempts to use peacetime tools in times of war may be of little effect, and we will simply lose precious time.

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.