When Russia invaded Ukraine in February 2022, it had about $300 billion in central bank assets that were held outside of Russia. Most of that money was invested in assets denominated in euros, dollars, or British sterling.
A US-led coalition promptly imposed a raft of sanctions on Russia meant to isolate its financial system and starve Russia of capital needed to prosecute its war. Sanctions basically froze that $300 billion in place, preventing Russia from tapping its own assets.
With the Ukraine war in its third year and experts predicting it could go on for years more, some of Ukraine’s allies now want to seize Russia’s money and give it to Ukraine for reconstruction or ongoing defense needs. But that’s not as simple as it might sound. Russia has legal protections like anybody else investing in Western financial markets. Even some Ukraine hawks warn that seizing any investor’s money, no matter how morally justified it might seem, could wreck trust in the world’s most developed financial market and drive some key investors away. It could even undermine the US dollar’s status as the world’s reserve currency and erode the considerable privileges that accrue to the United States because of that.
This dispute played out at the recent Milken Institute financial conference in Los Angeles, where investing tycoons argued the pros and cons of seizing Russian assets. Billionaire Ken Griffin, CEO of investing giant Citadel, told a ballroom audience that giving Russian money to Ukraine would be “a really terrifying choice of direction for us to go in. When we foreclose dollar assets, we tell all countries, think about how many dollars you want on your balance sheet because if you cross 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 it takes to exhaust Russia’s military and make sure Russian President Vladimir Putin forages no deeper into Europe. Griffin praised the $61 billion aid package for Ukraine Congress passed in April.
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Others think fears of a dollar exodus are overblown, and the seizure of Russian assets would be a fitting punishment for Russia’s aggression. “Ken Griffin is just plain wrong,” Bill Browder, CEO 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 imprisoned, tortured, and murdered in 2009 for reporting on the alleged theft by Russian officials of $230 million in state funds. Browder has since become a leading Putin critic.
“I’ve heard this a lot, mostly coming from hedge fund guys on Wall Street,” Browder said, “that if we take this money, it’s going to ruin the international financial system and no one’s going to trust anyone ever again. That might be true if the United States were to do that by itself. But we would do this with the Europeans, with the Brits, with the Canadians, with the Japanese, with the Swiss,” he said.
“There’s the argument that this is lawless to do,” Browder continued. “I would argue that invading a neighboring country is a lawless thing to do and there should be some consequence for that.”
Browder’s plea brought applause from the audience.
The Ukraine aid bill Congress passed in April specifically allows the US president to seize Russian assets held in the United States, which total about $5 billion of the $300 billion. But it’s not clear that will happen. Biden administration officials have said they’d only do that if there were broad agreement with other leading nations, and so far, there isn’t.
If there ever is an agreement on snatching Russian assets, it would probably start by appropriating the interest the Russian assets are generating rather than the assets themselves. European authorities estimate Russian investments held in Europe generate about $3.3 billion in profits per year.
The whole issue might eventually turn 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 while there was strong bipartisan support in the end, staunch opposition from some conservatives nearly sank the bill.
If Joe Biden wins reelection in 2024, he’ll likely continue to push Congress for Ukraine aid indefinitely. That might get easier if Democrats retake the House from Republicans, which analysts put at about even odds.
If Donald Trump wins the presidency in 2024, there’s a good chance US aid for Ukraine would dry up. Trump is the Republican Party’s chief anti-Ukraine instigator and his promise to end the war in 24 hours could only occur by appeasing Putin.
Trump, who has repeatedly praised Putin, might have no interest in seizing Russian assets in the United States. But if Trump turns his back on Ukraine, it might become more urgent to find other sources of support. The longer Ukraine’s allies eye those Russian assets, the more irresistible they might become.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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