11th Dec 2023


Can G7 make Russia pay for reconstruction of Ukraine?

  • As part of the sanctions a group of countries has imposed on Russia, more than $300bn of Russian sovereign assets held abroad have been frozen (Photo:
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A joint assessment by the government of Ukraine, the World Bank, the European Commission and the United Nations of March 2023 estimated that the cost of reconstruction and recovery in Ukraine would amount to $411bn [€385bn]. This would be more than 2.5 times the 2022 Ukrainian GDP. Since nine months have gone by since the publication of the analysis, the figure is most likely higher now. Who will fund this huge amount?

The answer seems to be pretty logical and straightforward: it should be the one inflicting the damage, i.e. Russia. This is indeed in line with the resolution passed by the UN on 14 November 2022, according to which under international law, Russia will owe Ukraine reparations for the unprovoked war.

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  • It is estimated that there are €125bn of Russian assets are held in Belgium-based Euroclear (Photo: Benoit)

As part of the sanctions a group of countries has imposed on Russia, more than $300bn of Russian sovereign assets held abroad have been frozen. A vast majority of these assets consist of deposits made by the Russian Central Bank and more than €200bn are held in EU financial institutions, €125bn in Belgium-based Euroclear.

A possible solution raised by some experts to fit the bill of the reconstruction costs in Ukraine would entail the outright confiscation and repurposing of Russian assets to Ukraine.

Indeed, a report by a group of legal experts and commissioned by Garry Kasparov argues that such a proposal would be legally feasible and refers to a similar precedent, when President George H. Bush transferred Iraq's frozen assets in the US to the UN Compensation Commission for victims of Iraqi aggression.

Although on this occasion the US has somehow already tested this avenue with privately-owned assets, by for instance transferring to Ukraine more than $5m of forfeited assets of Russian Oligarch Konstantin Malofeyev, further expanding such a possibility to sovereign assets would raise a number of legal doubts, as conveyed by the US treasury secretary, Janet Yellen.

Moreover, since the assets to be seized belong to the Russian Central Bank, some experts indicate the stability of the monetary system could be put at risk and even the international role of the currencies of the sanctioning jurisdictions could be harmed.

Besides, there has not been significant progress in approving legislation introduced in June 2023 by a group of bipartisan US senators and representatives to grant the president of the US the authority to confiscate Russian sovereign assets that have been frozen in the United States and transfer them to assist in Ukraine's reconstruction efforts.

A similar bill is being discussed in Canadian parliament: while Canada can at present seize the assets of Russian citizens and companies by court order, it does not have the legal means to do so with sovereign assets of offending states, which benefit from immunity.

Since seizing Russian sovereign assets seems to raise legal doubts, another idea has been put forward: seizing the proceeds generated by these frozen assets, leaving the underlying principal untouched.

As an example, Euroclear has already generated €1.7bn in profits in the first half of this year from reinvesting Russian securities as they reach maturity. This proposal has been reflected in the G7 statement of ministers of finance and central bank governors of 12 October 2023, which states that G7 countries "will explore how any extraordinary revenues held by private entities stemming directly from immobilised Russian sovereign assets, where those extraordinary revenues are not required to meet obligations towards Russia under applicable laws, could be directed to support Ukraine and its recovery and reconstruction in compliance with applicable laws".

After pledging to fund a high proportion of the reconstruction costs of Ukraine, the EU is most interested in finding alternative funding sources. Otherwise, the EU budget could be severely strained and the financing of the green and digital transitions could be hindered.

This is why last week's statement by the European Council points out that "decisive progress is needed, in coordination with partners, on how any extraordinary revenues held by private entities stemming directly from Russia's immobilised assets could be directed to support Ukraine and its recovery and reconstruction, consistent with applicable contractual obligations, and in accordance with EU and international law. The European Council calls on the high representative and the commission to accelerate work with a view to submitting proposals".

By the time of writing this piece, a proposal has not been tabled yet and technical work is still ongoing.

Western allies should proceed with a very prudent approach. While seizing Russian assets and using them for the reconstruction of Ukraine seems to be a logical and even ethical avenue to follow, it also needs to fully abide by all international and national legal standards. Replying to an unlawful physical aggression with potentially unlawful financial actions does not seem advisable for democratic societies.

Thus, all the precautions and deep legal analyses currently undertaken by G7 members seem the right way forward. If a legal solution is found for the confiscation and rechanneling of assets' proceeds, even if the amounts will probably be far from substantially contributing to fitting the bill of the reconstruction, a staggered approach before possibly moving to the confiscation of underlying assets is adequate.

Author bio

Judith Arnal is a senior research fellow at CEPS and Real Instituto Elcano. She holds a PhD in economics and finance and is a state economist in Spain.


The views expressed in this opinion piece are the author's, not those of EUobserver.

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