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11 December 2024
Visegrad Insight recently travelled to the US to meet with numerous officials, key stakeholders and think tankers to discuss policy suggestions and foresight material. One of the most notable issues for improvement was the impact of Russian sanctions; below, find our suggestions for how to give this important issue more strength and efficiency.
The White House played a fundamental role in uniting the sanctions coalition and took unprecedented steps, designating numerous Russian sectors of the economy and oligarchs. Now, interlocutors in Washington, DC, are actively seeking ways to strengthen the grip of sanctions over Moscow.
Varying efficiencies
However, the sanctions camp is not uniform; at least three sub-camps might be identified on Capitol Hill: realists, pessimists and cautious optimists.
The realist camp notes that even ongoing sanctions programmes are imperfect, and many loopholes can easily be used to circumvent Russian sanctions. Commentators add that companies could register fake entities to avoid direct sanctions prohibition or seek alternative routes via third-country jurisdictions.
Many consider that keeping Russia’s frozen assets on hold is a shrewd approach to the strategic deterrence of Russia. However, it appears to be among many other myths floating around understanding how Moscow acts — the so-called realpolitik.
Others express pessimism over the position of European leaders, arguing that most funds are frozen in EU capitals. So, without consensus in Brussels, any model for the centralised confiscation of Russian assets is hardly imaginable. Moreover, there are legal intricacies in confiscating assets under US legislation.
Ukraine’s approach aligns more with the cautiously optimistic sideline. Russia has to pay, and our frozen assets are our sole resources. The pace of compensation is vital for rebuilding Ukraine, and the fixation of frozen assets is critical unless we want oligarchs to successfully escape sanctions.
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Between $300 billion and $350 billion are frozen under sanctions against Russia in G7 (including EU) jurisdictions. The question of how to measure the damages caused by this freeze to the Russian state is yet to be decided; however, the International Register of Damage for Ukraine has been established with this goal in mind. The next primordial question is funding.
During Visegrad Insight’s trip to DC, President Biden appointed Secretary Penny Pritzker as US Special Representative for Ukraine’s Economic Recovery. Pritzker joined the Multi-Agency Donor Coordination Platform, which helps Ukraine with economic recovery and identification of the priorities for rebuilding. More importantly, she recalled that confiscation of Russian assets for Ukrainian reconstruction is a part “of the policy of the US government”, and her role is to serve as a focal point for “interdepartmental interaction” to make it happen. However, Pritzker’s official approach to using frozen assets remained clouded and restrained.
The other key element for reconstruction infrastructure is the Russian Elites, Proxies and Oligarchs (REPO) task force. The task force involves representatives from the G7 countries. Accordingly, the last report indicates that the REPO was able to block more than $58 billion worth of sanctioned Russian assets, get seized luxury items (e.g., yachts, property, private jets, etc.) and counter sanctions-evasion schemes.
Alternative avenues for sanctions
The US legislative branch is also willing to suggest its vision for reconstruction, as one draft was submitted for consideration in the US Senate on Rebuilding Economic Prosperity and Opportunity for Ukrainians Act.
It opens the possibility of confiscating Russian assets to the specifically founded Ukraine Support Fund. While the initiative goes in the right direction, it lacks backup from the executive and has shortcomings because the provisions implied restrictions on the presidential authorities as to sanctions policy.
Upcoming elections in the US make it more challenging to get bi-partisan support, although the White House might be reluctant to leave such triggering issues as the confiscation of Russian assets to the legislature alone.
Sanctions policy suggestions
During our working sessions in DC, Ambassador Fried noted that Russia has to pay for its aggression but not the US or European taxpayers, which would be attractive for politicians and could garner popular support. So, there are notable prospects to get bi-partisan backing and leadership of the White House in making policy to confiscate Russian assets.
To do so, Visegrad Insight proposes to focus policy-making strategy within a strategic triangle for confiscation: pace, internationality and transparency.
Pace – the frozen assets shall be used as soon as possible for compensating damages Ukraine and its citizens suffered from the Russian aggression. There are two following scenarios upfront. The first Ukrainians will get compensation in 3-5 years if we have installed a mechanism in the near future. In the second worst scenario, Ukrainians can expect just compensation in the decades to come.
Internationality means that the compensation mechanism shall, at least, involve the participation of all G7 countries and EU member-states. Otherwise, domestic and uncoordinated efforts can undermine any meaningful compensation strategy.
Last, but not least, is transparency. Transparency means that confiscated assets shall be estimated and fixed, for instance, in a register. US, European and other Ukrainian allies can map all Russian assets and make them visible and accountable. This can be achieved regardless of political will.
The sound proposal is to make REPO or the newly appointed Ms Pritzker the coordinator of such policy effort. Otherwise, Russian oligarchs will continue to spend millions of frozen dollars for humanitarian needs such as yoga services, cleaning the yachts and renting private jets.
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Published as part of our Future of Ukraine Fellowship programme. Learn more about it here and consider contributing.
