Switzerland warns against seizing Russian billions to pay for Ukraine’s reconstruction

By bne IntelliNews July 6, 2022

Switzerland has warned against trying to seize hundreds of billions of dollars' worth of Russian state and oligarch assets to pay for the reconstruction of Ukraine.

Ukraine’s Prime Minister Denys Shmyhal estimated that $750bn was needed to rebuild Ukraine following Russia’s destructive invasion in February and said the money should be raised by seizing the wealth of Russia’s oligarchs and the $300bn of Central Bank of Russia (CBR) reserves frozen by Europe shortly after the invasion, at the Ukraine Reconstruction Conference held in Switzerland on July 5.

"We propose to find (a) formula to create national and international legislation for (creating the) possibility of confiscation of frozen assets in case of unprovoked aggression," Shmyhal said, referring to Russia's invasion of Ukraine.

Similar calls to use frozen Russian money to pay reparations and rebuild Ukraine’s smashed economy have been made by European Commission President Ursula von der Leyen. But the legality of such a move is questionable and von der Leyen has been careful to qualify her comments with an “if possible.”

The problem is that the Russian assets have only been frozen and not expropriated. Technically these assets still belong to their Russian owners, even if they have no access to them, and that ownership is protected by European property rights. Under Western law governments have no right to expropriate these assets unless the West were to declare war against Russia – something that the West has gone out of its way to avoid.

Switzerland prides itself on upholding these property rights and warned that Russian assets can’t simply be seized by the West for use in Ukraine.

Switzerland froze CHF6.3bn ($6.50bn) worth of Russian assets in May but says it will not hand over this money for use in Ukraine, as it has no legal right to do so. Swiss President Ignazio Cassis said it was important to protect individuals against the power of the state and to create a legal basis for confiscating funds.

"According to the rules we have in the vast majority of democracies ... we can freeze assets, we can freeze in order to clarify where these assets are from," Cassis said, reports Reuters.

But questions about the links between the money and the war in Ukraine and about the proportionality of measures also needed to be addressed, Cassis said.

"Now we can take a decision which is perfect for Ukraine, but we create the possibility to take the same decision in many other possibilities and ... give much more power to the state and away from the citizens."

Holders of Russian defaulted bonds have access to the CBR’s frozen $300bn if they sue the government for defaulting on bonds and a European court rules they can seize Russian assets in Europe to repay the debt.

A separate idea to raise money for Ukraine’s reconstruction has been to impose price caps on Russian oil, but take the difference between the cap and the market price and pay it into escrow accounts that can be spent on Ukraine.

A related idea is to heavily tax Russian energy imports and use the duties paid to fund the reconstruction and reparations.

 

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