KSE Institute has presented a report titled “U.S. Plans to Confiscate Russian Assets: Will the EU Follow?” It provides an overview of the newly adopted US Act On Confiscation Of Russian Sovereign Assets (Repo Act), and explores proposals to use revenues generated by the Russian reserves under discussion in the EU.

On 23 April 2024, the US Congress adopted a bipartisan bill “Rebuilding Economic Prosperity and Opportunity for Ukrainians Act” (REPO Act or “the Act”), which proposes to transfer immobilized Russian sovereign assets to fund Ukraine`s reconstruction. Anna Vlasyuk, Legal research fellow at KSE Institute, assesses that the adoption of the REPO Act is a significant step, as it removes legal ambiguity as to how the confiscation can be effectuated at the national level, and it is the first piece of national legislation that explicitly articulates the position that confiscation of Russian sovereign assets represents countermeasures as a matter of international law. 

The purpose of the Act is granting the executive branch the necessary powers for confiscation of Russian assets, and making them available for Ukraine. Authorization of the President to take actions in order to confiscate Russian assets also resolves the issues pertaining to applicability of sovereign immunities. Notably, the Act maneuvers around sovereign immunity issues by making a transfer of funds an administrative procedure rather than judicial process and by precluding judicial review of the measure. The Act also instructs the President to require US financial institutions to submit information on Russian sovereign assets to the Secretary of the Treasury.

It is crucial that the Act highlights the need for greater transparency with regard to location of Russian reserves. In addition, it emphasizes the role of international cooperation and instructs that the confiscation of Russian assets should be implemented as a multilateral effort. 

Another important aspect of the REPO Act is that it is not limited to CBR reserves, but covers any type of Russian state assets (except for what is covered by diplomatic immunities), including Russian sovereign wealth fund and potentially assets of Russian state-owned companies.

The Act also stipulates safeguards to prevent development of policy precedent of confiscation foreign states’ property, and outlines how the US may use Russian assets for the benefit of Ukraine. 

Next, Anna Vlasyuk explores the EU current proposal. It is reported that the mainstream idea in the EU is to use proceeds generated by Russian assets in European central securities depositaries (“CSDs”). However, there is no definitive information on whether the EU will choose to funnel CBR reserves proceeds to Ukraine or opt for securitization of these funds. 

The Council Decision 2024/577, which establishes grounds for any further appropriation of proceeds generated by CBR reserves stipulates the following important points: (i) exemption for balance sheet management transactions from general ban on any transaction with CBR reserves (ii) clarification on legal title to the proceeds; (iii) obligation on CSDs to account cash balances linked to CBR reserves separately; (iv) only future proceeds are subject to further disposition for the benefit of Ukraine.

The proposals to use extraordinary revenues accumulated at CSDs are still in development and no detailed plan has been publicly announced. There are three main proposals under consideration: (i) Ukrainian Reparation Loan, By Hugo Dixon, Lee Buchheit and Daleep Singh; (ii) Using proceeds accumulated on Russian reserves to cover coupon and raise funding on capital markets, by Torbjörn Becker and Yuriy Gorodnichenko; (iii) Placing RCB assets into an escrow account as collateral.

Notably, the bond and securitization proposals arise amid discussions for over a decade on creating a eurozone sovereign bond market or a European safe asset. There are strong legal arguments under international law for authorizing confiscation of Russian assets as a state countermeasure, showing readiness to respond to Russia’s military aggression and uphold the UN Charter. Therefore, it is important not to allow discussion of various aspects of financial engineering to stifle the progress on confiscation of Russian reserves.

KSE Institute advocates for confiscating Russian assets, and has provided an overview of the legal grounds for seizure of Russian assets   in “Legal Report on Confiscation of Russian State Assets for the Reconstruction of Ukraine.” The report also debunks myths about legal and practical hurdles surrounding the confiscation of Russian reserves.