President Biden Backs Legislation to Seize Frozen Russian Assets for Ukraine Reconstruction
President Joe Biden’s administration has expressed its support for legislation that would allow it to seize approximately $300 billion in frozen Russian assets to help fund the reconstruction of Ukraine. The move aims to increase congressional support for financial aid in the ongoing war against Vladimir Putin’s forces. A November memo from the National Security Council to the Senate Foreign Relations Committee states that the administration welcomes the bill in principle, as it would provide the authority needed for the executive branch to confiscate Russian sovereign assets for the benefit of Ukraine.
The decision comes as Republicans in Congress have blocked over $60 billion in funding for Ukraine, citing concerns about the United States carrying too much of the financial burden while Kyiv’s counteroffensive stagnates. The White House is cautious about balancing the move to avoid tarnishing the US financial system’s reputation and triggering a potential flight from the dollar. It also seeks to align the initiative with its Group of Seven (G7) allies, particularly in Europe, where approximately $200 billion of the frozen Russian assets are held.
The National Security Council considers the proposed authority as part of a range of tools to hold Russia accountable for the damages caused by the war, according to a senior administration official. The World Bank estimates that the reconstruction of Ukraine could cost approximately $411 billion.
Although the European Union is considering a windfall tax on profits generated by the frozen Russian Central Bank assets, progress has been slow due to concerns from key member states, such as Germany and France, as well as the European Central Bank about potential impacts on the eurozone’s stability. Moreover, there are fears that Russia might retaliate by confiscating blocked funds within its territory.
Discussions on this matter are expected to take place during the G7 leaders’ meeting next month, near the anniversary of Russia’s invasion of Ukraine.
Congressional officials believe that the measure may potentially pass as part of a supplemental spending package for Ukraine, but it would require approval from committee and chamber leaders. Utilizing Russia’s own funds to support Ukraine’s reconstruction is seen as a way to gain greater US support for the war, as some Republicans are reluctant to provide further funding. House Speaker Mike Johnson has expressed support for the idea, considering it a responsible step.
The proposed legislation, called the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act, has garnered bipartisan support from members of both parties in the Senate and the House. However, critics have voiced concerns that seizing the assets could strain relations with countries that are undecided on the Russia-Ukraine conflict, including India, Brazil, South Africa, and China.
It is important to note that international repercussions are a significant factor in this decision. Benn Steil, the director of international economics at the Council on Foreign Relations, argues that the world will judge whether the action is a legitimate use of US governmental authority. The sentiment among a majority of countries, representing the world’s population, is expected to be overwhelmingly against the move.
Although US law initially did not permit the seizure of sovereign assets, the Biden administration’s position began to shift as it became clear that Republicans were hesitant to approve additional taxpayer funds for Ukraine. Treasury Secretary Janet Yellen and other administration officials have previously stated that US law does not allow for such seizures.
The bill’s progress has been hindered, prompting Senator Jim Risch, the top Republican on the Senate Foreign Relations Committee, to place a hold on the Biden administration’s nominee for deputy secretary of state, Kurt Campbell. Risch asserts that the lack of progress on the bill is unacceptable after a year of negotiations.
Despite bipartisan agreement, disagreements exist regarding two key portions of the bill. It requires Biden to coordinate with the G7 to seize the assets but does not necessitate their approval. Some fear that such a provision could allow the US to act unilaterally. Additionally, the bill includes language intended to prevent Russia from challenging the seizure in US courts, potentially leading to constitutional challenges.
The White House initially had reservations about the G7 approval requirement, but it has since emphasized the need for global coordination to move forward. This requirement is believed to make Europe more likely to support the move, as the majority of the frozen Russian assets are held in European countries. The United States aims to avoid undermining faith in itself as a destination for foreign investment.
Considering that a mere $4 to $5 billion of Russia’s assets are located in the US, it would not be sensible for the US to act unilaterally and risk provoking a flight from the dollar over a symbolic amount.
In conclusion, President Biden’s support for the legislation to seize frozen Russian assets for Ukraine’s reconstruction is a significant development. The move aims to secure much-needed funds while garnering support from Congress. However, challenges may arise from Europe, concerned about the impact on the eurozone, as well as potential retaliation from Russia. Future discussions within the G7 are expected to shed more light on the international response to this development.
