Could the West use Russia's own money to help Ukraine? US officials think so

A U.S.-EU plan would use frozen bank assets to aid Ukraine.

ByAnne Flaherty, MaryAlice Parks, and Shannon Crawford
March 8, 2024, 4:42 PM

Support is building in the U.S. and in Europe for the unprecedented idea of seizing frozen Russian bank assets to help Ukraine defend and rebuild itself.

Several administration and congressional officials say the proposal -- once eyed with skepticism -- is gaining significant momentum and could gel in coming months.

In recent weeks, both the international "Group of 7" – a coalition that includes the U.S. and other major world economic powers -- and Treasury Secretary Janet Yellen have publicly endorsed the idea.

"I am quite confident that we (will) get there and that this becomes a very significant piece of addressing Russia's criminal and brutal invasion," said Sen. Sheldon Whitehouse, a Rhode Island Democrat who recently led a congressional delegation to the Munich Security Conference.

Here's what to know about the discussions underway:

A 'big hammer' to move Russia to the negotiating table

In 2022, the U.S., European Union, United Kingdom, Canada and Japan blocked Russian central bank's access to its holdings of foreign exchange.

Along with that move and other sweeping economic punishments, Russia quickly became the most sanctioned country in the world.

But thanks to Russian reserves still held in China, gold stored in central bank vaults and its partnerships with China and Iran, Russia's economy and military base has largely remained intact.

Frustrated that Russia has been able to continue to finance its war against Ukraine, Republican Sen. Jim Risch of Idaho calls the idea of seizing Russian bank assets for Ukraine's benefit a "big hammer" that could finally push Russia to negotiate a ceasefire.

"We must be willing to put them on notice that they will not be allowed to act with impunity. They will be made to pay," he said as a co-sponsor on legislation that would make the U.S. seizures legal.

PHOTO: U.S. Secretary of the Treasury Janet Yellen speaks during an interview at the G20 Finance Ministers and Central Banks Governors meeting, in Sao Paulo, Brazil, Feb. 29, 2024.
U.S. Secretary of the Treasury Janet Yellen speaks during an interview at the G20 Finance Ministers and Central Banks Governors meeting, in Sao Paulo, Brazil, Feb. 29, 2024.
Carla Carniel/Reuters

The idea got a public boost last week when Treasury Secretary Janet Yellen called it "necessarily and urgent" for the U.S. and other major world powers "to find a way to unlock the value" of Russia's assets to support Ukraine.

"I believe," Yellen told reporters in a prepared statement, "there is a strong international law, economic, and moral case for moving forward."

Moving toward seizing Russian assets would signal "Russia cannot win by prolonging the war and would incentivize it to come to the table to negotiate a just peace in Ukraine," Yellen said.

Just days before Yellen's remarks, the U.S. and other leaders in the G7 issued a statement welcoming the idea of using the "extraordinary revenues" from Russia's sovereign assets and citing some $486 billion in damage done to Ukraine in the past two years.

The leaders vowed to look at "all possible avenues" to use the Russia assets to support Ukraine by its Apulia Summit in Italy next June.

The big question is how to do it

Officials say discussions in recent weeks have focused less on whether to seize Russian assets and more on how to do it, including setting up the right legal mechanisms so it could survive any court challenges. Another challenge will be to avoid rattling other international investors, making clear that the seizure of a country's assets is only being done with global support.

Whitehouse said one way to move forward would be an immediate seizure of the $300 billion all at once -- with the "hope that creates some shock to the Russian financial system as people realize those funds are never coming back."

Another option would be to do it in installments as an incentive for Russia to negotiate, he noted.

A third option would be to use the money as a kind of collateral that would enable the Ukrainian government to take out loans to rebuild its infrastructure or create assistance funds.

Ukraine says it can't wait much longer

Tuning Russian bank assets into aid might not happen quickly enough for Ukraine's purposes. For starters, it requires the US to clinch a deal with the European Union, since only about $5 billion of the immobilized Russian assets reside in US financial institutions.

U.S. officials also believe they would need legislative approval – a tall order in a divisive Congress. While such a bill is in the works in both the House and Senate, deep division among House Republicans with the Senate and White House has meant that both chambers are struggling to push through even routine spending bills.

Biden administration officials also don't want lawmakers to view the proposal as a substitute for approving U.S. military aid, which would be immediate. A $60 billion military aid bill would be able to supply Ukrainian forces with shells, bombs and interceptors as soon as it's passed by Congress.

Still, U.S. and other world leaders say the move would send an undeniable message to Moscow that the world opposed its actions in Ukraine.

"Russia should not be able to indefinitely delay payment it owes. We recognize the urgency of disrupting Russia's attempts to destroy the Ukrainian economy and Russia's continued failure to abide by its international law obligations," the G7 leaders wrote in their latest statement.

"We are determined to ensure full accountability and we support Ukraine in obtaining compensation for the loss, injury and damage resulting from Russia's aggression," they added.