G7 Eye up options to Seize $300 Billion Russian Assets

The US has mooted the possibility to other G7 nations of confiscating Russian Sovereign Assets currently held in the West. Currently under international law, such a move would be illegal and would completely erode the trust that Nations have in depositing their reserves in other countries.

Currently no legal mechanism exists to move forward with this plan, however proponents point to the confiscation by President George H. W. Bush of Iraqi assets in the 1990s and transferring them to the U.N. Compensation Commission for victims of Iraqi aggression.

If initiated, Central bank reserves which are typically shielded by sovereign immunity would face a potential threat to this protection. Sovereign immunity is the principle that a country’s national courts cannot pass judgment on the actions of another or utilise its assets for judgments. The fear is that breaching this immunity could jeopardise international financial stability and undermine the status of the Dollar and Euro as reserve currencies. This erosion of trust in depositing reserves with other nations could lead countries like China and Saudi Arabia to question the safety of reserves held in Euros or Dollars overseas.

Furthermore, there is a broader concern that seizing Russian assets, even through a special G7 mechanism, may set a precedent. This precedent could encourage other nations to resolve disputes by seizing reserves, raising the spectre of a destabilising trend. Such actions, whether justified or not, might be perceived by many nations in the Southern Hemisphere as wealthy democracies adapting rules to suit their own interests. While the US and its allies frame Ukraine’s conflict with Russia as upholding a rules-based international order, it is crucial for the response to be seen as legally irreproachable, especially if Moscow has violated global norms.

The matter has been under discussion this month by G7 finance ministers and their deputies. The discussions focused on the development of a policy and the assessment of associated risks. The US, along with support from the UK, Japan, and Canada, has put forward a proposal to advance the preparatory work. This initiative aims to have options ready for consideration at a potential meeting of G7 leaders around February 24, marking the anniversary of Vladimir Putin’s 2022 offensive on Kyiv.

Washington’s proposal outlines three working groups tasked with examining legal considerations related to confiscation, determining the application method and risk mitigation strategies, and exploring options for effectively channelling support to Ukraine.

It is understood that two possible options could be possible;

• The direct confiscation, thereby funding the war effort and rebuilding in Ukraine.
• Using the assets as collateral against debt, again to fund the war and rebuild Ukraine.

Whichever option if used, would have the potential of disrupting international financial stability, along with jeopardising the status of the Dollar and Euro as reserve currencies and undermine the fundamental trust inherent in depositing reserves with other nations.

Russia responded that it has a list of Western assets that it could potentially seize in a retaliatory measure and it asserts that any attempt to confiscate its funds would be deemed as “theft.”

Kremlin spokesman Dmitry Peskov said;

It will be a significant blow to the main parameters of the international economy, it will undermine the international economy,”

“It will undermine the confidence of other countries in the United States, as well as the EU, as economic guarantors. Therefore, such actions are fraught with very, very serious consequences.”

According to 2020 figures, Russia’s central bank held a diverse portfolio of foreign assets, totalling approximately $207 billion in euro, $67 billion in U.S. dollars, and $37 billion in British pounds. Additionally, it held holdings in other currencies, including $36 billion in Japanese yen, $19 billion in Canadian dollars, $6 billion in Australian dollars, $1.8 billion in Singapore dollars, and approximately $1 billion in Swiss francs. These assets were primarily invested in foreign securities, bank deposits, and nostro correspondent accounts, contributing to the central bank’s diversified international holdings.

Would the G7 risk this strategy with these Sovereign assets held in Russia, not to mention the Billions invested in the business sector.

In the event that the G7 could seize the assets, Russia has veto power on the UN Security Council and therefore the likelihood of the world body authorizing compensation to Ukraine is virtually impossible, albeit without a change to the rules that the West seem quite adept at doing.