No Compromise on Assets. Why $300 billion immobilized by the West Must Not Be Returned To Russia

The issue of possible negotiations with Russia has recently become one of the main topics in the media, discussed by both foreign leaders and Ukrainian officials, including the top brass. US President-elect Donald Trump believes ending the war to be his top priority. However, the partners have no real leverage and tools to bring Russia to the negotiating table, except to encourage it with a carrot in the form of partial lifting of sanctions and to scare it with increased aid to Ukraine if it refuses. But will this be peace through strength, as President Trump has repeatedly mentioned?

It is obvious that Russia does not want any peace, especially now that its military has made progress on the battlefield. A complete conquest of Ukraine remains their goal. However, this does not mean that Russia will not want to take advantage of the tactical pause by setting traps for our partners and Ukraine, including a demand to unfreeze the $300 billion in assets of the Russian central bank that are currently frozen in the G7 and EU countries, either as a precondition for negotiations or as an agreement for a ceasefire.

Neither the Ukrainian government nor our partners should agree to this under any circumstances. Ukraine’s receipt of these funds is one of the pillars of guaranteeing our long-term security, available resources for reconstruction, compensation for victims of aggression and strengthening our defense capabilities. Any other systematic source of compensation for losses or reparations by Russia is unlikely to be ensured.

The potential return of these resources to Russia would have a number of catastrophic consequences extending far beyond Ukraine.

First of all, just as immobilizing these assets in the first days of the full-scale invasion did not stop Russia, unfreezing them would not strategically convince the Kremlin to abandon its imperialist ambitions in the long run. Moreover, unofficially, Russian officials agree that these funds are already lost to them, and their goal is not so much to return them as to ensure that they do not reach Ukraine.

Therefore, if the $300 billion in assets are unfrozen and returned to Russia, the aggressor country will not only receive a nice unexpected bonus as a reward for its aggression but also an instant powerful financial resource to strengthen its own military machine and accelerate preparations for the next stage of the war. To understand the scale: $300 billion is slightly less than Russia’s three annual military budgets for 2024, which total $112 billion.

Moreover, after all the Russian atrocities that the world has seen in Bucha, Mariupol or Bakhmut, after Ukraine has already suffered more than $800 billion in damages, unfreezing the assets will be interpreted as weakness not only by Russia but also by China, which is closely watching how the Kremlin is learning to circumvent Western sanctions and could potentially be preparing for aggression against Taiwan. Trends in the Asia-Pacific region are a priority for the United States. Russia and other tyrannies must not be encouraged to continue their subversive activities aimed at replacing the rules-based world order with a power-based world order.

Full confiscation for Ukraine is justice and a security guarantee.

In return, the full confiscation and transfer of these assets to Ukraine is essential for the future of Ukraine and Europe. Against the backdrop of accusations of unprecedented corruption in our country, which have escalated alongside talks of a quick end to the war and appeasement of the aggressor, we propose a transparent, effective and accountable mechanism for managing confiscated Russian assets that will take into account Ukraine’s urgent needs and the concerns of our partners.

If we analyze the existing instruments for administering Western assistance to Ukraine, they all have several common shortcomings that complicate the potential management of confiscated assets. In particular, they have too wide a range of global priorities, a limited mandate, especially in terms of investing in the defense industry, and a lack of decisive influence of Ukraine in the decision-making process. In addition, global institutions, such as the World Bank and the IMF, are experiencing growing Chinese influence, while European programs are significantly hampered by Hungary’s veto power.

In view of this, it is proposed to create a new development bank with the working title “Ukrainian Bank for Restitution and Reconstruction” (UBRR), which will manage confiscated assets. A positive precedent after the Second World War was the creation of a separate bank for reconstruction in Germany, KfW.

The functions of the new bank should include financing Ukraine’s reconstruction, providing restitution to victims of aggression, maintaining the country’s macro-financial stability and promoting European integration reforms, as well as supporting strategic industries, including the defense sector. In general, such a bank should become a central hub for Ukraine’s development, setting strategic goals, monitoring and evaluating progress, working with Ukrainian state-owned banks to provide affordable loans and grants to small and medium-sized businesses and municipalities, and partnering with the private sector and other organizations to pursue investment opportunities.

In addition to rebuilding, compensating and developing Ukraine, this bank could be a source of significant additional funds to meet our weapons needs. Currently, of all the institutions where the assets of the Russian central bank have been frozen, only the Belgian Euroclear is receiving profits from the $191 billion frozen there: in 2023, it was €4.34 billion before taxes and is expected to be the same in 2024. The EU has used these profits to support Ukraine since February 2024. The first tranche of €1.5 billion was disbursed in the summer, with a significant portion of the funds being used to purchase weapons; the second tranche is expected to arrive soon. Starting in 2025, these revenues will cover $50 billion in loans from the G7 and the EU to Ukraine.

However, the confiscation of Ukraine’s assets and their transfer to the new bank could significantly increase these profits. Unlike Euroclear, which does not aim to maximize profits, the UBRR would have to invest these funds in more profitable assets. According to British banker and financial expert Timothy Ash, a portfolio of assets in emerging markets can provide a return of 10%. It is with these funds that Ukraine will be able to ensure a systematic and long-term purchase of American and European weapons, making the proposal of full confiscation more attractive to President Trump and European leaders. In addition, it is with these revenues that Ukraine can systematically invest in its own defense sector over the long haul, enabling domestic producers to scale up production. Most drone and electronic warfare manufacturers in Ukraine cannot significantly increase their capacity due to a lack of stable access to financial capital.

Given that most of Russia’s sovereign assets are currently immobilized in the Belgian securities depository Euroclear and to increase the trust of our partners and ensure transparency of the process, the UBRR could be headquartered in Brussels, with a Board of Directors consisting of representatives of the US, EU and Ukraine. The Director-General of the bank must be a citizen of Ukraine, selected through an open and transparent competition determined by such a board.

In her article for Foreign Affairs, Elaine McCusker, former Deputy Under Secretary of Defense during President Trump’s previous administration, estimated that Russia’s victory in Ukraine would cost the United States an additional $800 billion over the next five years. Helping Ukraine survive and win will be much cheaper, especially if partners can do it with the resources of Russian assets. The approach to supporting Kyiv through escalation management has led to Ukraine defending itself against the axis of evil led by Russia, which has rallied totalitarian leaders around it. Containment and appeasement worked neither in 2008 nor in 2014–2015. Now is the time to act decisively to bring peace through strength closer.

 

Read this article in Ukrainian and russian.