Ukraine, war economy: confiscation of enemy property: Jun 2022
The Rada permits the seizure of Russian and Belarusian property
(for the EIU)
In the first half of May, the Verkhovna Rada, the Ukrainian
parliament, approved a bill, proposed by the president, Volodymyr Zelenskyi, to
permit the confiscation of Russian and Belarusian property.
The bill applies to the assets of individuals or organisations found to have contributed to threats to Ukraine’s security, sovereignty or territorial integrity. The legislation is wide-ranging, applying to assets both inside and outside Ukraine, albeit at present only for duration of martial law, introduced following the Russian invasion of late February. Property so taken is to be transferred to a new National Investment Fund, with the proceeds from any sales to be used to strengthen national defence and to restore war damage.
The new law paved the way for the immediate seizure of the
assets in Ukraine of Sberbank and Prominvestbank—the first, the largest Russian
bank, majority-owned by the Russian state; the second, a subsidiary of
Vnesheconombank (VEB), Russia’s state development bank. In mid-May, according
to Ekonomichna Pravda, an online business news site, a Ukrainian court took
possession of more than 400 railway carriages belonging to Russian firms, with
the proceeds from their sale (estimated at US$300m) earmarked for the Ukrainian
army. Amid reports of Russian forces appropriating economic quantities of grain
and steel in the parts of south-east Ukraine they newly control, the Rada’s new
law can be seen as part of a larger economic war that is running alongside, and
is integral to, the military campaign.
At the same time, the new law is part of a wider, ongoing
effort by Ukraine and its Western allies to lay the legal groundwork, at an
international level, both to increase the effectiveness of economic sanctions
on Russia and to access the Russian assets frozen by Western financial
institutions in response to the Russian invasion—not least, with a view to
helping Ukraine to pay for reconstruction, once the war ends. The sums of money
potentially involved are substantial, and could reach up to US$600bn, if the
assets of some state-linked Russia firms are included. This is roughly the same
size as Ukraine’s national wealth before the invasion, as well as Ukrainian
estimates of the total economic cost of the invasion so far, including physical
damage and lost earnings.
Charles Michel, the president of the European Council, had
earlier raised the possibility the use of frozen Russian financial assets to
aid Ukraine's reconstruction, but suggested this was likely to be harder
legally in the case of individuals oligarchs’ assets than for those of the
Russian Central Bank (RCB).
In this light, in late May the European Commission proposed
a bill to strengthen the legal basis for EU states to confiscate the property
of those involved in crime, including the violation of EU sanctions on Russia.
In particular, this would allow assets to be confiscated at the investigation
stage, rather than on conviction, and could apply when assets have been
transferred to a family member—as some Russian oligarchs have done.
Moreover, in late May, President Zelenskyi launched a
project, advised by international experts, to investigate whether the
establishment of a new international claims commission through inter-state
treaty might be an effective mechanism to facilitate the legal access to frozen
Russian funds by way of compensation claims for war damage.
These last two initiatives are in their early stages and may not bear fruit. Alongside the Ukraine’s own confiscation bill, however, they illustrate an important legal-financial dimension through which the conflict with Russia is being conducted.
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