Seizing Russia’s Central Bank Funds Is Illegal and Unwise

Here’s a bill winding its way through the US Congress that looks great at first blush: the REPO for Ukrainians Act. Or, in full, the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act. I even like the pun on “repossession.”

REPO is bicameral and bipartisan legislation sponsored by the Republican leaders on foreign-policy matters: Jim Risch, the ranking member of the Senate Foreign Relations Committee, and Michael McCaul, chairman of the House Foreign Affairs Committee. Its gist is as bold as it is simple. The law, if it becomes one, would authorize the US president to confiscate billions of dollars owned by the Russian central bank but held in the US, and to give that money to the Ukrainians instead.

That’s why a lot of people, including the White House but also pro-Ukraine Republicans such as Risch and McCaul, are eyeing the roughly $300 billion in assets held by the Russian central bank in accounts in Western countries. Since Putin’s attack, those funds have been frozen, so that Russia can’t access them. But as Philip Zelikow, a scholar and former US diplomat, puts it, “the potentially decisive assets lie there, inert and useless to anyone. Why?”

The REPO Act seeks to answer that rhetorical question. But it would only apply to sovereign Russian funds inside the US, which amount to a mere handful of billions. The bulk of Russia’s money abroad is sitting in Europe, and in particular in Belgium, home to a securities depository called Euroclear. For REPO to help Ukraine, it would therefore have to inspire the Europeans to emulate it.

This raises bigger questions. First, would such an asset grab break international law? And second, legal or not, would it be geopolitically wise? So I called up Ingrid Brunk, an expert at Vanderbilt Law School. There are three legal ways to seize sovereign assets, Brunk told me; unfortunately, none of them is available in the present context. 

One path would lead through the United Nations Security Council. It was Russia that broke international law by invading a sovereign member of the UN, so the council could impose reparations on the Kremlin. But Russia is a veto-wielding member of that Council — as is its partner, China — so that won’t happen.

Another route would go through an international peace agreement. Picture the Treaty of Versailles that ended World War I and imposed reparations on Germany. But that could come about only after the war ends, whereas we need to get money to Ukraine right now, so that it wins. 

A third option, as some people argue, is customary international law. As distinct from the treaty-based sort, it is the cumulative body of precedents that nations accept as binding. And customary law explicitly allows “countermeasures” against countries that break the law. But it’s the victim that has permission — in this case, Ukraine. There are only weak precedents of third-party countries launching countermeasures, and none on the scale of seizing a nation’s currency reserves.

More pertinently, says Brunk, the logic of countermeasures in customary law is to induce compliance by violators. If you close your airspace, say, we’re allowed to close ours until you reopen. Countermeasures are not meant to be self-help for third countries that want to compensate partner nations that are victims of aggression.

The REPO Act implicitly concedes these problems by going a different route: simply writing the power to confiscate into domestic law. In that way, it would take a short cut through the entire American court system while simply ignoring international law.

Such a move would raise geopolitical questions. One practical consequence would be to signal to China and other countries that have tense relations with the US that their central-bank assets will be confiscated next — if, say, China attacks Taiwan. So they will redouble their efforts to hold reserves in neutral banking centers, and in currencies other than the dollar and the euro. In the long run, this could undermine American power. 

The more immediate problem, though, is that passing ad hoc laws to seize sovereign assets would look hypocritical to most of the world. Since Putin’s invasion, the US and its Western allies have professed that Ukraine is the front line of a global struggle to defend the “rules-based international order.” But countries from Indonesia to South Africa and Brazil don’t buy it. They think the US does whatever it wants and justifies it afterward. By seizing Russian assets with bespoke legislation, Washington would feed that narrative of hypocrisy and further alienate the so-called Global South.

The REPO Act and other efforts to confiscate the Kremlin’s money mean well, because they want to help Ukraine. But they’re the wrong policy to answer the big question of our time, which is whether freedom-loving countries will prevent a neo-imperialist aggressor such as Putin from conquering nations that don’t threaten anybody, while hewing to their own principles in the process. 

The US and Europe must rise to the occasion — but in the proper way, by overcoming domestic polarization and disinformation and helping Ukraine out of their own resources. If Kyiv were to lose, the world would be a darker place. And if Kyiv prevails, we can always decide what to do with the Kremlin’s dollars at the peace conference to follow.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Andreas Kluth at akluth1@bloomberg.net

To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net
 

Andreas Kluth is a Bloomberg Opinion columnist covering US diplomacy, national security and geopolitics. Previously, he was editor-in-chief of Handelsblatt Global and a writer for the Economist.