Frozen Russian assets might be diverted to Kyiv

US would want assent from partners before using seized funds

The big US aid package for Ukraine and other allies that President Joe Biden signed yesterday also allows the administration to seize Russian state assets located in the US and use them for the benefit of Kyiv.

That could mean another US$5 billion ($8.42b) in assistance for Ukraine, coming from Russian Central Bank holdings that have already been frozen in the United States. The seizures would be carried out under provisions of the Repo Act, short for the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act, that were incorporated into the aid bill.

But it’s not likely the US will seize the assets without agreement from other members of the Group of Seven nations and the European Union.

The US and its allies immediately froze US$300 billion in Russian foreign holdings at the start of Moscow’s invasion of Ukraine. That money has been sitting untapped — most of it in European Union nations — as the war grinds on. But roughly US$5 billion of it is located in the US.

For more than a year, officials from multiple countries have debated the legality of confiscating the money and sending it to Ukraine.

How quickly could this happen?

The new US law requires the President and Treasury Department to start locating Russian assets in the US within 90 days and to report back to Congress within 180 days. A month after that period, the President will be allowed to “seize, confiscate, transfer, or vest” any Russian state sovereign assets, including any interest, within US jurisdictions.

But the US wants to keep consulting with global allies and act together, which is likely to slow down the process.

What can the US do with the money?

Biden is given leeway to determine how the money can be spent for the benefit of Ukraine — but he must confer with other G7 members before acting.

The legislation states that “any effort by the United States to confiscate and repurpose Russian sovereign assets” should be done alongside international allies, including the

G7, the 27-member European Union and other nations as part of a coordinated effort.

Policymakers, including Treasury Secretary Janet Yellen, have said the US is not likely to act without the support of G7 allies.

Will Europe also seize Russian assets?

The European Union already has begun to set aside windfall profits generated from frozen Russian central bank assets. The bloc estimates the interest on that money could provide about €3 billion ($5.41b) each year.

Some European leaders have expressed hesitation about moving forward with a plan to formally seize Russia’s assets in Europe.

European Central Bank president Christine Lagarde said at a Council on Foreign Relations event earlier this

month that confiscating Russian assets “is something that could start breaking the international legal order”.

What are the risks?

Critics say the weaponisation of global finance against Russia could harm the US dollar’s standing as the world’s dominant currency.

To confiscate Russia’s assets could prompt nations like China — the biggest holder of US Treasuries — to determine it is not safe to keep their reserves in US dollars.

The conservative Heritage Foundation has criticised Russian asset seizure for, among other things, undermining the dollar-denominated global finance system, saying “it would expose an already fragile economy to unintended consequences and risks for which the United States is unprepared”.