What are the main challenges for seizing all Russian assets abroad? You broke it, pay for it

Russia's invasion campaign of Ukraine in February 2022 provoked a reaction from the West, resulting in the imposition of harsh economic sanctions on Moscow. Simultaneously, the sanction regime and devastating war in Ukraine generated debates regarding the seizure of frozen Russian assets belonging mainly to well-known oligarchs in foreign banks in favour of Ukraine to use for the reconstruction of the war-torn country. Ukraine has been urging partners to pass over frozen Russian assets since the start of the full-scale invasion, which has already caused more than $150 billion worth of damage to Ukraine’s economy.

Since the US levied sanctions against Russian oligarchs last year in response to Russia's invasion of Ukraine, Russia's wealthiest have gone to great lengths around the globe to hide their wealth. Some Western partners, such as Canada, are proposing a trust fund be created to redistribute seized Russian assets to Ukrainians. As such, Canadian Deputy Prime Minister Chrystia Freeland pioneered an effort last year to seize and sell Russian assets to fund the reconstruction of Ukraine and has already announced plans to seize a massive Volga-Dnepr cargo plane parked in Toronto as well as US$ 26 million belonging to a company owned by Russian billionaire Roman Abramovich. There are other assets available to liquidate as well as more than $ 135 million of assets in Canada have been frozen as a result of sanctions imposed on Russia.

Indeed, amid the raging war and demolished urban settlements, Ukraine’s top priority is to develop a strategy envisaging the smooth post-war reconstruction process. For example, in September 2023, the European Union (EU) leaders backed unprecedented moves to use profits generated from Moscow’s state assets for reconstruction. However, Western leaders are under enormous pressure to redeploy these funds for the benefit of Ukraine — but concerns that such a move is legally dubious under both domestic and international law have prevented any action so far.

Since 2022, the US and EU have managed to confiscate several private jets and yachts of Russian oligarchs, including a 106m (348-foot) vessel owned by Suleiman Kerimov valued at over $300m, which had been docked in Fiji. According to the Justice Department, the vessel could be confiscated based on probable cause of violating US law, including the International Emergency Economic Powers Act, money laundering, and conspiracy. The Justice Department also requested the seizure of a $90 million yacht off the coast of Spain, which had been owned by oligarch Viktor Vekselberg.

Seemingly, the Western partners are still struggling to find legal ways of confiscating foreign assets. In this regard, US President Joe Biden called on Congress in 2022 to make it easier to transfer seized oligarch assets to Ukraine. In December 2023, Congress passed a law that allowed certain assets seized by the Justice Department to be funnelled to Ukraine via the US Department of State.

Even so, countries like Hungary, Slovakia, Belgium, and Italy show less commitment to following suit and seizing all Russian assets on their soil. For example, Belgium is reluctant to agree to raid the funds for Ukrainian reconstruction without the rest of the G7 moving with the EU simultaneously, even though it sits on the majority of Russian state assets frozen in the EU. As of today, the US and its allies have reportedly frozen $58 billion worth of Russian oligarchs’ assets, including 24 billion euros in Europe.

The situation becomes more complicated with the frequent threats from Russia to retaliate in case of the seizure of all its assets overseas. In April 2023, Vladimir Putin signed a decree that lets the Kremlin introduce “temporary” state control over the assets of companies or individuals from “unfriendly” states, including the US and its allies, which make or threaten to make similar moves. Undoubtedly, the decree was a signal of caution to the West, particularly the European Union, amid its attempts to find legal ways of seizing Russian assets.

The Kremlin has long threatened to nationalize companies' assets that leave Russia—especially after Germany took over and nationalized the local arm of Russia’s oil giant Rosneft and natural gas producer Gazprom. In addition to the deterrence factor, the main purpose of the decree is to form a compensation fund for the possible application of reciprocal measures in response to the illegal expropriation of Russian assets abroad.