Economic Sanctions Europe & Eurasia European Union Financial Regulation Russia The Caucasus Ukraine Western Europe
Econographics March 24, 2023

Global Sanctions Dashboard: What to do with sanctioned Russian assets

By Kimberly Donovan and Maia Nikoladze

Key takeaways

  • Western allies have blocked $58 billion worth of sanctioned Russian oligarch assets and $300 billion of sovereign assets. The location of only approximately $100 billion of blocked sovereign assets is actually known.
  • Legal mechanisms exist and are being used to seize sanctioned Russian oligarch assets. Separately, channels are in place for providing support to Ukraine including through the IMF which recently approved a $15 billion dollar loan. Leveraging existing channels and using the Russian state assets as collateral for current and future funding presents the best opportunity for immediate financial support.
  • Most of the blocked Russian state assets are likely held in European banks. Currently, the authority does not exist to seize state assets and transfer them to Ukraine. It would require new legislation or amendments to existing law.

In this edition of the Global Sanctions Dashboard, we answer the most controversial question about the blocked Russian state assets: to seize them or not to seize them? We propose a solution that would transfer funds directly and quickly to Ukraine without triggering a host of legal obstacles in the United States and Europe. We also look into Georgia and its ruling party Georgian Dream’s attempt to pass the foreign agent law, which has prompted widespread global criticism. 

Russian oligarch assets should be used now to support Ukraine

The European Commission estimates that Russian President Vladimir Putin’s war has caused an estimated $650 billion (converted to dollars from the original source) of damage to the Ukrainian economy. There is broad international agreement that Russia should pay for the damage it has caused. However, the debate remains as to how and when Russia should pay. It is important to distinguish between immobilized Russian state assets and blocked Russian oligarch assets. Currently, the authority does not exist to seize state assets and transfer them to Ukraine. It would require new legislation or amendments to existing law. It could also erode non-Western countries’ perception of the United States as a safe place for parking their reserves. Meanwhile, the United States and European Union (EU) member states already have the legal authorities and mechanisms to seize and transfer sanctioned oligarch assets. 

What are the immediate steps? 

Seize the blocked fifty-eight billion dollars worth of sanctioned oligarch assets and expedite their transfer to Ukraine. The multilateral Russian Elites, Proxies, and Oligarch (REPO) Task Force, run by finance and justice ministries of Western ally states, recently reported that REPO member states have blocked fifty-eight billion dollars’ worth of sanctioned Russian oligarch assets. Fortunately, in the United States the legal process for seizing sanctioned assets is already in place: a judge in Manhattan federal court recently ordered the confiscation of $5.4 million from sanctioned Russian oligarch Konstantin Malofeyev. The forfeited funds will be transferred to the State Department to provide assistance to Ukraine. 

Additionally, last month, the US Department of Justice’s (DOJ) KleptoCapture Task Force filed a civil forfeiture complaint against six properties owned by sanctioned Russian oligarch Viktor Vekselberg, worth seventy-five million dollars. DOJ is aggressively moving forward with its civil and criminal forfeiture tools and new authorities to seize sanctioned Russian assets to make them available to Ukraine. The same steps should be repeated across REPO member states with asset seizure authorities for the rest of the fifty-eight billion dollars held in their jurisdictions on an expedited timeline. 

There is also likely more Russian oligarch money abroad that has not yet been identified and frozen. Western authorities should use existing mechanisms and processes to locate these assets, freeze them, seize them, and transfer them directly to Ukraine.

One potential challenge to this plan is that prosecutors will need to provide evidence of oligarch assets’ involvement in international money laundering and sanctions violations. This could limit the pool of forfeitable money. However, the successful transfer of millions of dollars from Malofeyev and Vekselberg to Ukraine will prove that this path is worth going down. 

Make Russia pay for reparations. Not seizing Russian state assets right now does not mean that Group of Seven (G7) allies will simply transfer them back to Russia once the war is over. The United Nations (UN) General Assembly has already adopted a resolution calling on Russia to pay reparations for its damage to Ukraine. State assets can remain immobilized until Russia agrees to pay and if Moscow fails to do so, sovereign assets can then be seized as collateral. 

Further, it is important to remember that allies have rightfully provided significant amounts of funding to support Ukraine in its efforts to fight back against Russian aggression. The top ten contributors have pledged approximately $131 billion in military and financial assistance. The reparations discussions should include requirements for Russia to pay the United States, EU, and other contributors back. 

Leverage the International Monetary Fund (IMF) and its existing channels for funding Ukraine. Just this week, the IMF moved forward with a $15 billion loan package for Ukraine, the first ever lending to a country at war in the seventy-seven year history of the institution. This significant step provides Ukraine with an amount nearing 10 percent of its total gross domestic product. Due to the existing transmission and oversight mechanisms between the IMF and Ukraine, the loan can be delivered and administered quickly. This is the kind of aid which can make an immediate difference, and more aid can—and should—be given through these existing channels. Further, Russian state assets could be used as a collateral on Ukraine’s IMF loans. 

Concerns with immediate confiscation of Russian state assets 

Legal obstacles cannot be dismissed. At a time when Western unity is key in countering Russian aggression, the potential value gained from seizing Russian state assets may not be worth the internal disagreements and tensions it would cause within the EU and the United States. EU member states can confiscate assets only if there is evidence of a specific criminal offense. This rule does not cover blocked sovereign assets. Seizing Russian state assets in this instance would require new legislation and while not insurmountable, gaining consensus among twenty-seven EU member states will be a challenging and lengthy process at a time when other coordination between Western allies is needed including on military aid.

Similar legal challenges exist in the United States. Former senior US officials and Atlantic Council colleagues argue that the United States has legal justification for moving forward with seizing Russian sovereign assets. They cite the implementation of the International Emergency Economic Powers Act (IEEPA) through Executive Order (EO) in 1992 in response to Iraq’s invasion of Kuwait. EO 12817 directed US financial institutions to transfer any Iraqi state funds they held to the Federal Reserve Bank of New York in compliance with a UN resolution, and to eventually disperse those funds to affected countries. 

However, this precedent does not apply today. In 1991, the United States Congress authorized the use of military force in the Gulf War consistent with a UN Security Council (UNSC) Chapter VII Resolution. It was “engaged in armed hostilities” with Iraq, triggering the IEEPA authorities that allowed the President to confiscate foreign-owned property. Today, the United States is not engaged in armed hostilities with Russia, Russia has not attacked the United States, and there is no UNSC Chapter VII Resolution because Russia and China hold veto power. These distinctions matter. While the moral case for transferring Russian sovereign assets now to support Ukraine is strong, the legal case is more nuanced. The legal challenges cannot be dismissed because they will potentially delay delivery of aid for years. 

Third-party states might perceive the United States as an unsafe destination for parking their reserves in the future. Meanwhile, Washington worries about discouraging other central banks from using the dollar as a reserve currency. That is one of the reasons why the Biden administration is resisting proposals from congressional lawmakers allowing seizure of sovereign assets in certain cases. Central banks choose locations for parking reserves based on a risk-based approach and their perceptions of how secure and accessible those assets are going to be. If non-Western countries are worried about getting sanctioned by the United States one day, they will work toward diversifying their portfolios with non-dollar and digital currencies. This could accelerate the recently emerged dedollarization trend and weaken the power of US economic statecraft tools in the future. While countries in the Global South have viewed the blocking of assets warily, it is likely they would view the seizing of assets as a significant escalation.

Private banks would likely be involved in the Central Bank of Russia (CBR) asset seizure process. In 2021, CBR held most of its reserves in the form of government securities. Currently, we don’t know the location of about two-thirds of the blocked $300 billion Russian state assets. There is a likelihood that at least a portion of these assets is still kept as government securities in European commercial banks. All of this will require extra steps and a new directive from the government to the private sector in any forfeiture action.

Georgia on the radar

Finally, let’s zoom in on a country we have never covered in the Global Sanctions Dashboard before: Georgia. Several days ago, experts in Washington called on the United States and Europe to sanction members of the ruling Georgian Dream party if they pass the proposed foreign agent law. The controversial draft legislation, which would require organizations to register as “foreign agents” if they received 20 percent or more of their funding from foreign donors, passed the first parliament hearing. This triggered massive protests in Tbilisi and the Georgian Dream, under pressure, stated it would pull the draft law. 

The draft legislation, based on a similar infamous law in Russia, is yet another sign of Georgia’s democratic backsliding under the rule of the Georgian Dream party. It goes against the aspirations of strongly pro-Western Georgian people and if passed, could tilt Georgia’s future away from the West and closer to the Kremlin. 

Although the Georgian Dream said that it will withdraw the draft law, many strongly pro-Western Georgians are continuing demonstrations to ensure the ruling party delivers on the promise. The situation in Tbilisi remains volatile, and whether we will see individual sanctions against Georgian Dream members may depend on how they vote during the second parliament hearing.

Castellum.AI provides sanctions data for the Global Sanctions Dashboard.

Global Sanctions Dashboard

The Global Sanctions Dashboard provides a global overview of various sanctions regimes and lists. Each month you will find an update on the most recent listings and delistings and insights into the motivations behind them.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Image: Wooden law gavel on us dollar money background