The damage sustained by the Ukraine since Putin’s illegal invasion is enormous and the cost of rebuilding is staggering. In June 2022, the World Bank estimated it at more than $300 billion, but that figure is now outdated and probably closer to $1 trillion. Consequently, there has been a substantial discussion on how to compensate Ukraine for its losses. One option that has been considered is to seize the Russian Federal Reserves held in Western countries, which amount to approximately $300 billion. However, this option faces significant legal and economic challenges that need to be carefully considered.
First, state assets are generally protected by the doctrine of sovereign immunity, which means that foreign interference is restricted. While there are some precedents for the seizure of state assets through an international mechanism, they are rare and usually linked to a UNSC resolution or a court decision that might not be enforceable or desirable. In the case of Russia, as a permanent member of the UNSC with veto power, it is unlikely that any such resolution would pass. Therefore, the only viable option might be the implementation of a domestic law that would allow the seizure of Russian state assets, but that would require a clear legal basis and, crucially, political will.
Such a domestic law would need to be narrowly defined to avoid creating a dangerous precedent that could harm global trade and investment or trigger retaliatory measures. It could be limited to Russia specifically in the context of large-scale armed aggression that violates international humanitarian and human rights law, or to states whose armed activities violate a ruling by the ICJ or another international court. Additionally, it could be limited to states whose sovereign immunity is limited based on a UNSC resolution in the future, but only in the context of a conflict not involving a permanent member. By taking this approach, the legislation would limit its potential negative consequences and avoid violating the doctrine of sovereign immunity.
However, even if such a law is passed, there are potential repercussions to consider. Many non-Western countries might be very reluctant to keep their foreign assets in Western countries that might seize them, which could diminish the status of the Dollar as the global reserve currency.
Fortunately, the European Commission has proposed a third way. Instead of attempting to seize the assets held by the Central Bank, which would be protected by sovereign immunity, the EU suggests that the assets be managed and invested for the benefit of Ukraine in the short-term. This would allow Ukraine to receive some measure of compensation for the damages it has sustained while avoiding the thorny issue of sovereign immunity. In the long-term, the EU proposes that the return of the assets held by the Central Bank should be linked to a peace agreement and war reparation owed to Ukraine. By offsetting the returned assets against the war reparation, the EU is offering a way to avoid violating sovereign immunity while still ensuring that Ukraine is fairly compensated for the harm caused by the conflict.
While the idea of seizing Russian state assets might seem appealing, it is not a straightforward or risk-free option. It is important to explore other options that might offer a more viable and sustainable solution to the issue of compensation for Ukraine’s losses. By doing so, we can avoid creating dangerous precedents and promote a rules-based international order that upholds the principles of sovereignty, accountability, and justice.