Russia Threatens To Break Ties With Washington, After U.S. and EU Eye Seizing $300 Billion in Moscow’s Overseas Reserves

America ‘must not act under an illusion … that Russia is clinging with both hands to diplomatic relations with that country,’ Russia’s deputy foreign minister, Sergey Ryabkov, says.

Russian Presidential Press Service via AP
President Putin at Moscow, June 26, 2023. Russian Presidential Press Service via AP

Russia on Friday is threatening to break ties with America if Washington proceeds with plans to orchestrate the confiscation of half of Moscow’s foreign reserves. The threat comes after Western leaders on  both sides of the Atlantic increasingly see salvation for Ukraine in the $300 billion in Russian Central Bank reserves frozen in American, British, Swiss, and European Union banks. 

Last week, political minorities at Washington and Brussels held up a total of $104 billion in aid to Ukraine.

“The trigger could be asset confiscation, further military escalation, many other things,” Russia’s deputy foreign minister, Sergey Ryabkov, said at Moscow. America “must not act under an illusion … that Russia is clinging with both hands to diplomatic relations with that country.” About a half of Russia’s $563 billion in foreign reserves are at risk. 

A few hours later, the Kremlin spokesman, Dmitry Peskov, told reporters that Russia would “never leave in peace” any country that seized its assets. In such a scenario, it would look at what Western assets it could confiscate in retaliation. Over the last 18 months, President Putin has been expropriating American and European investments at a steady clip.

On Wednesday, in the biggest foreign asset seizure since the communist revolution of a century ago, Mr. Putin signed a decree expropriating two billion-dollar gas fields, one owned by Austria’s OMV, and the other by Germany’s Wintershall Dea. In response, a Wintershall spokesman said via email to Reuters: “The presidential decree is further confirmation: Russia is no longer a reliable economic partner and is unpredictable — in every respect.” On Friday, Mr. Putin signed a decree expropriating Rolf, Russia’s largest car dealership. 

The Kremlin threats come in response to Biden administration moves to set a mid-February deadline for unveiling with Europe a unified confiscation strategy. This would happen at a meeting of American and European leaders on the weekend of February 16-18 for the annual Munich Security Conference, officials at Washington say. 

This summit comes one week before the second anniversary of Mr. Putin’s full-bore invasion of Ukraine. Tapping into Russia’s foreign reserves would sour the re-election campaign of Mr. Putin. In power since 1999, he goes before voters March 15-17 for another six-year term that would keep him in the Kremlin until 2030.

Britain’s foreign secretary, David Cameron, told a parliamentary committee last week that he is “pushing hard” inside the G7 to establish a collective “legal route” for confiscating Russian reserves.  “Extraordinary times require extraordinary measures,” he said, adding that Britain might go it alone with America if other countries do not come on board. 

Separately, President Zelensky of Ukraine reported after his December 12 visit to Washington that “the issue of frozen assets was one of the very important decisions addressed” in his meetings with President Biden and congressional leaders. In a video address to Ukrainians, he said: “The assets of the terrorist state and its affiliates should be used to support Ukraine, to protect lives and people from Russian terror.”

While Western lawyers work around Russia’s sovereign immunity defense, the confiscation of reserves is expected to be billed as an advance payment of reparations to Ukraine for the February 24, 2022, invasion. The latest World Bank estimate for rebuilding Ukraine is $411 billion. Win or lose the war, Russia is not expected to pay reparations voluntarily.

Seizing foreign assets makes many bankers queasy. They fear it would undermine international trust in Western banks. Supporters of the move, like a former Treasury secretary, Lawrence Summers, cite a precedent: After Iraq invaded Kuwait in 1990, $50 billion of Iraqi funds were seized and transferred through the United Nations to compensate victims of Baghdad’s occupation.

Lawyers have moved from debating to working out legal steps after two big aid tranches were recently blocked. Last week, Hungary’s premier, Viktor Orban, single-handedly blocked $54 billion in European Union aid to Ukraine. On Tuesday at Washington, Congress gave up for now on crafting a larger aid package that included $50 billion in fresh aid for Ukraine. Senate leaders agreed to meet in early January to try to find a formula that would appease a minority of Republican members in Congress.

Moving from freezing to confiscating, German prosecutors said Wednesday they will confiscate $790 million from the Frankfurt bank account of a Russian financial institution. This is Germany’s first such attempt. Germany’s justice minister, Marco Buschmann, posted on X: “We will not allow Russian money, with which the illegal attack on Ukraine is being financed, to remain unchecked in German accounts.”

Before the invasion, Mr. Putin had left about half of Russia’s reserves in Western banks. Apparently, he did not bring the money home for fear of tipping off the West that his peace proclamations were lies. Today, only $5 billion is frozen in American banks. About $8.6 billion is in Swiss banks and $21 billion is in French banks. The biggest total — $210 billion — is held by a securities depository headquartered at Belgium, Euroclear.

Two months ago, Prime Minister De Croo of Belgium said a 25 percent tax would be levied on windfall profits made on these assets due to high interest rates. He said this money, about $2.6 billion, would be sent to Ukraine. The European Commission planned to do the same, but pulled back 10 days ago. The European Central Bank said that unless a crime had been committed, the euro’s reputation as a safe currency would be tarnished.

“But the unprovoked invasion and destruction of Ukraine was a crime and, besides that, Moscow gleefully confiscates the assets of foreign companies who have decided to leave Russia,” a Canadian-American financial writer, Diane Francis, wrote last week in a column titled: “Mug Moscow Now.” She added: “Seizing Russia’s wealth is not about the law. It is about justice and moral courage.”

Citing legal work this fall by a Harvard law professor, Laurence Tribe, and others, a retired Reagan appointee, George Woloshyn, writes that President Biden can issue an executive order and transfer Russian foreign reserves “immediately” to Ukraine. He writes: “The legal authority is fully in place and has already been exercised by George W. Bush when he freed up frozen Iranian assets for payment of private claims against the Iranian government.”

With Russia’s expropriation cutting Western foreign investment in Russia to about $300 billion today, an American-born British investor, Bill Browder, says Western governments should not be intimidated by Kremlin threats. Mr. Browder’s was the largest foreign portfolio investor in Russia until 2007, when his company, Hermitage Capital, was stolen by state employees.

“We shouldn’t spend any time worrying about Western assets being frozen or seized in Russia, because they’ll all be seized, so it doesn’t matter what we do,” Mr. Browder recently told the Kyiv Independent news site. “My advice to governments is to focus on the Russian Central Bank reserves. … Russia has committed a crime. The crime is provable, and it is easily provable. And the damage has already been calculated, and we have custody of the assets.”

As  Washington and Brussels approach Christmas without any presents under the tree for Ukraine, they might keep in mind the famous New York Sun editorial of 1897: “Yes, Virginia, there is a Santa Claus.”

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