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The big battle over whether to snatch Russia’s billions
When Russia invaded Ukraine in February 2022, it had about $300 billion in central bank assets that were carried out outside Russia. Most of this money was invested in assets denominated in euros, dollars or pounds sterling.
A US-led coalition will promptly imposed a series of sanctions on Russia intended to isolate its financial system and deprive Russia of the capital needed to carry out its war. The sanctions essentially froze that $300 billion, preventing Russia from exploiting its own assets.
With the war in Ukraine in its third year and experts predicting it could continue for more years, some of Ukraine’s allies now want to seize Russia’s money and give it to Ukraine for reconstruction or ongoing defense needs. But this is not as simple as it may seem. Russia has legal protections like anyone else investing in Western financial markets. Even some Ukraine hawks warn that seizing any investor’s money, however morally justified it may seem, could destroy confidence in the world’s most developed financial market and drive away some important investors. It could even undermine the US dollar’s status as the world’s reserve currency and undermine the considerable privileges that are, because of it, granted to the United States.
This dispute played out at the recent Milken Institute financial conference in Los Angeles, where investment tycoons discussed the pros and cons of seizing Russian assets. Billionaire Ken Griffin, CEO of investment giant Citadel, told a ballroom audience that giving Russian money to Ukraine would be “a really terrifying choice of direction for us to go. When we foreclose on dollar assets, we say to every country: think about how many dollars you want on your balance sheet, because if it crosses America, you can’t use that.”
Better, Griffin says, is for the United States and Europe to provide direct aid to Ukraine for as long as necessary to deplete Russia’s military forces and ensure that Russian President Vladimir Putin does not move deeper into Europe. Griffin praised $61 billion aid package for Ukraine Congress approved in April.
Vladimir Putin walks to take the oath as Russian president during an inauguration ceremony in the St. George Hall of the Grand Kremlin Palace in Moscow, Russia, Tuesday, May 7, 2024. (AP Photo/Alexander Zemlianichenko, Pool) (ASSOCIATED PRESS)
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Others think that fears of an exodus of dollars are exaggerated and that the seizure of Russian assets would be an appropriate punishment for Russia’s aggression. “Ken Griffin is completely wrong,” Bill BrowderCEO of Hermitage Capital Management, said during a different panel at the Milken conference. Browder was a prominent investor living in Russia when his lawyer Sergei Magnitsky, was arrested, tortured and murdered in 2009 for reporting on the alleged theft by Russian authorities of $230 million in state funds. Since then, Browder has become a prominent critic of Putin.
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“I hear this a lot, mostly from hedge fund types on Wall Street,” Browder said, “that if we accept this money, it will ruin the international financial system and no one will trust anyone again. This could be true if the United States did it alone. But we would do this with the Europeans, with the British, with the Canadians, with the Japanese, with the Swiss,” he said.
“There is an argument that this is illegal,” Browder continued. “I would say that invading a neighboring country is illegal and there should be some consequences for that.”
Browder’s appeal drew applause from the audience.
The Ukraine aid bill that Congress passed in April specifically allows US president to seize Russian assets carried out in the United States, which total around US$5 billion of the US$300 billion. But it’s unclear whether that will happen. Biden administration officials have said they would only do so if there was a broad agreement with other leading nations, and so far, there isn’t.
If there is ever a deal on the theft of Russian assets, it will likely start with appropriating the interest that the Russian assets are generating, rather than the assets themselves. European authorities estimate Russian investments maintained in Europe generate around US$3.3 billion in profits per year.
The whole issue may eventually depend on how long the war lasts and how much more help Ukraine needs. It took Congress six months to pass the latest aid package, and although in the end there was strong bipartisan support, staunch opposition from some conservatives nearly sank the bill.
If Joe Biden is reelected in 2024, he will likely continue to pressure Congress for aid to Ukraine indefinitely. This could become easier if Democrats take back the House from Republicans, which analysts consider to be equal probabilities.
If Donald Trump wins the presidency in 2024, there is a good chance that US aid to Ukraine will end. Trump is the Republican Party main anti-Ukraine instigator and his promise to end the war in 24 hours it could only occur by appeasing Putin.
Trump, who has repeatedly praised Putin, may not be interested in seizing Russian assets in the United States. But if Trump turns his back on Ukraine, it may become more urgent to find other sources of support. The longer Ukraine’s allies look at these Russian assets, the more irresistible they may become.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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