Decision in Favor of Ukraine: Plans US and EU Have on Seized Russian Assets

In recent months, Ukrainians have read a lot of news about the potential confiscation of Russian assets frozen in Ukraine’s partner countries. The determined effort to seize assets from Russia and its allies echoes the early stages of the full-scale invasion. After studying existing practices and legal mechanisms, Ukraine’s partners realized that new solutions were needed. Taking such steps always carries risks, risks that the Western coalition was not prepared to undertake for a long time. 

However, not so long ago, the second year of a full-scale invasion passed. Concerned about exhausting taxpayer-funded assistance to Ukraine, the allies have renewed their focus on the confiscation of Russian assets. 

We will explore whether they will succeed in completing the task this time and delve into what the partners are proposing further in this article. 

USA 

While the US Congress delays the adoption of a bailout package for Ukraine, President Biden’s administration, in coordination with the G7, has begun actively seeking ways to confiscate Russia’s sovereign assets frozen in the US and EU. According to various estimates, the value of these assets ranges from $3.3 trillion to $5.5 trillion, with the majority located in the EU. 

The Biden administration sees the greatest potential for confiscating funds from the Central Bank of the Russian Federation in the bill known as the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act. The REPO document proposes granting the US president the authority to confiscate sovereign assets of the Russian Federation that belong directly or indirectly to the government, the Central Bank, and Russian private equity fund. Funds from the confiscated Russian assets will be allocated to a special fund for the “Support of Ukraine,” to be administered by the US Secretary of State. 

The bill specifies the targeted use of such funds, particularly for the restoration and humanitarian assistance of the Ukrainian people. This document does not yet mention military assistance. 

The REPO bill was supported by the Senate Committee on Foreign Relations back in January. For its adoption and enforcement, the bill requires a vote in both the Senate and the House of Representatives, as well as the president’s signature. Given the challenges with passing the aid package for Ukraine, we can only hope that the REPO bill will be swiftly voted on in Congress. It’s important to understand that the REPO bill does not replace the assistance package to Ukraine, as the latter provides military equipment and its components. However, the speaker of the House of Representatives, Republican Mike Johnson, in a recent interview said the following about the REPO bill: “If we can use the seized assets of Russian oligarchs to allow Ukrainians to fight them, it’s just pure poetry.” 

Despite the optimistic stance of the Republican, it’s important to remember the tensions surrounding the upcoming US presidential election scheduled for November 2024. The REPO bill largely entrusts the US president with the decision regarding the seized Russian assets. This could involve either confiscating them or initiating the lifting of their arrest. There is justified concern that if Donald Trump wins the presidential election, granting him such powers could potentially harm Ukraine’s interests. 

Congressmen are expected to vote on this bill, along with aid packages for Ukraine, Israel, and US allies in the Indo-Pacific region, this week.

EU 

While the United States focuses on the direct recovery of the Russian Federation’s sovereign assets, the EU is considering a “less aggressive” option: the confiscation of interest on excess profits generated from seized Russian assets. This path, according to EU partners, is more legally secure. 

On February 16, 2024, the EU Council adopted a resolution stating that the central depositories of the bloc, including Euroclear located in Belgium, will be required to separately account for and store the excess profits from the frozen assets of the Central Bank of the Russian Federation. Although Russian securities and funds are frozen in the EU, they still generate unexpected income through deposit rates. It is from these incomes that a separate amount will be allocated to help Ukraine. This resolution applies to depositories holding more than 1 million euros in such assets. It’s important to note that, in this case, we are referring to funds that depositories will receive from Russian assets only after the EU Council makes the aforementioned decision. That means the percentage of income generated in the EU from 2022-2023 is not planned to be transferred to Ukraine. 

The EU Council’s decision refers to the “possible establishment of a financial contribution” to the EU budget, which would then be transferred to Ukraine. Specifically, through the Ukrainian Foundation, on which the Council and the European Parliament reached a preliminary agreement on February 6, 2024. 

Since the beginning of March, the EU has been working to consolidate this mechanism at the legislative level. It is important to note that high-level representatives of the European Union emphasize that the funds from this mechanism should be directed to Ukraine not for restoration, but to finance the supply of weapons and the development of the defense industry. However, for such a legislative proposal to pass, it still needs the support of all members of the bloc. 

In December 2023, the European Commission announced a political agreement between the European Parliament and the Council of the EU to update the Directive on asset recovery and confiscation. This Directive aims to strengthen criminal confiscation mechanisms by enhancing all stages of the process: from the search for criminal assets, their seizure and disposal, to the final confiscation. Among other things, the Directive proposes to expand the range of crimes in the EU for which the penalty includes confiscation of assets, such as arms trafficking, fraud, and most importantly, circumvention of sanctions. To achieve this, circumvention of sanctions must be recognized as a crime at the EU level. This requires a completely different Directive, which we will discuss later. 

In December 2023, the European Commission published another press release that the European Parliament and the Council of the EU had reached a political agreement on updating the Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures. In particular, this press release states that if the Directive is updated, the following actions will be considered crimes:

•  failing to freeze assets of a sanctioned person,
• breaching travel bans and arms embargoes,
• providing prohibited or restricted economic and financial services,
• transferring funds to a third party or providing false information to conceal funds that should be frozen. 

Why is the criminalization of sanctions important for Ukraine? Because in the EU, more than one and a half thousand people and companies associated with the Russian Federation are currently under sanctions. If both directives are enacted, recognizing the circumvention or attempted circumvention of sanctions imposed on Russians and Russian companies as a crime, the EU will have a legally secure way to confiscate their assets. Of course, this is provided that these individuals continue to attempt to circumvent the sanctions restrictions and are caught “red-handed.” 

It’s worth noting that, for the same reasons, Ukraine should have long criminalized the circumvention of sanctions. Despite the fact that, since the spring of 2022, most Russian assets will be confiscated in favor of Ukraine through a new sanctions mechanism, the risks of appealing confiscation in criminal proceedings are significantly lower. 

In March, the European Parliament supported adoption of both mentioned directives. There is still a vote in the EU Council and the publication of new laws in the Official Journal of the EU. It’s also important to understand that even after the official publication and entry into force of the new Directives, their implementation in the national legislation of EU countries may take several more years. 

As for the vote in the EU Council, we may also face disappointing prospects. It’s already known that from July to December 2024, Hungary, which doesn’t fully support the anti-Russian initiatives of other bloc members, will preside over the institution as part of its priorities.

Cases of confiscation for violation of sanctions legislation 

To support the argument for the need to criminalize the circumvention of sanctions, we can cite numerous cases of asset confiscation from sanctioned Russians by countries where this is already legally provided for. 

The leader in such seizures is the United States, which last year seized over $55 million from sanctioned Konstantin Malofeev and a $300 million yacht belonging to Suleiman Kerimov. Despite the announcement last May by the US Secretary General allowing the transfer of these funds, it is still not known whether they were transferred to Ukraine. 

Additionally, on February 17 of this year, it was announced that the United States would transfer $500,000 to Ukraine. This amount was confiscated from a network of companies that, bypassing sanctions, attempted to illegally export high-precision equipment to Russia. However, these funds will be transferred through Estonia under an international treaty. 

It’s also worth mentioning that since September of last year, Latvia, Lithuania, and Estonia have permitted the confiscation of cars with Russian license plates. This is due to the sanctions policy that bans the entry of Russians into these countries, which also extends to vehicles. It is planned that the confiscated cars will be transferred to Ukraine. 

***

Thus, we can definitely say that the issue of confiscating Russian assets in the West has intensified. But it is still in the initial stages of political agreements. 

The main holders of the reserves of the Central Bank of the Russian Federation, the EU and the United States, are negotiating over who will risk taking the lead. This is all unfolding against the backdrop of a very unstable pre-election political situation. Therefore, there are two options: either partners interested in helping Ukraine will be able to advance the issue of confiscating Russian assets until a potential change of power, or this issue will be postponed to an even more indefinite period.

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