Justice in war comes in two forms – punishment for willful civilian injury and death, and material reparations as compensation for damage to civilian infrastructure. When not served by other means, justice is best carried out through the courts so that the crime can be thoughtfully and properly prosecuted, the evidentiary material fully vetted and itemized, and indictments delivered to all those who have perpetrated or promoted the crime. The process is unduly slow, having to do with investigation, of course, but, at times, largely because of regulatory proceedings and delays, or legislative issues that must be resolved. This has the unfortunate consequence of delaying restitution in situations of overt criminality when it is most needed as in the case of the current highly destructive war waged upon Ukraine by Russia – when survival of a nation is at stake.
The Damage and Cost
In Part 1 of this series, the argument for blame is laid out against Russia with attention given to rejecting arguments put forward that attempt to legitimize or somehow forgive the invasion. The terrible consequences of the crime continue to accrue. As of November 27, 2022, civilian casualties in Ukraine reported by the Office of the High Commissioner for Human Rights (OHCHR) of the United Nations amount to 6,655 killed, and among these, 419 children. A further 10,368 have been injured including 769 children. In reality, the numbers are certain to be higher given the limitations to conducting investigations in a war zone. From the start of the invasion on February 24, 2022, to November 22, 2022, more than 15.6 million Ukrainians crossed borders to other countries with some in Russian-occupied territory, forcibly transported to Russia. Among the latter, estimates of well over 8,000 children have been abducted and unconfirmed numbers illegally “adopted” by Russians.
A report by Statista estimated damage to housing infrastructure alone at $50.5B (USD) during the six months following the start of Russia’s invasion up until September. This has left large numbers of Ukrainians with less-than-adequate shelter in the absence of sufficient heating for the winter. Transportation infrastructure sustained damage estimated at $35.3B (USD) while a further $41.3B (USD) accounted for losses in industry, agriculture, energy, utilities, health care and other entities. By September, over 24,000 kilometers of roadway and 320 bridges had been destroyed and 2,300 educational institutions struck by shelling with 286 fully destroyed. Perhaps most troubling has been the destruction of medical facilities. A total of 927 have been damaged with 127 of them destroyed. As of this month, 40% of Ukraine’s energy infrastructure has been compromised leaving 4.5M people without power. Of course, the destruction continues, particularly with the energy sector now intentionally targeted as winter approaches. Ukraine’s GDP declined 30% between January and September and the National Bank has forecast a decline of 33.4% for the year.
Projections for the cost of reparations in Ukraine based on estimates put forward on September 9, 2022, by the World Bank, the European Commission and the Government of Ukraine will exceed $349B (USD). Their Rapid Damage Needs Assessment (RDNA) estimates $105B (USD) of this is needed on a more urgent timeline to afford restoration of health care infrastructure, heating, housing, transportation routes in addition to the safe clearance of debris, including landmines. The work cannot be fully engaged until cessation of hostilities that currently only perpetuate the problem.
The Mechanics of Funding
It seems a natural thing to have the perpetrator pay for the reparations attributable to the crime committed particularly when that crime has been so well planned and orchestrated to make it perfectly obvious for all to appreciate. The perpetrator here presents as two subsets of a whole – the State and Putin with his nest of dependents. Both entities have considerable global assets much of which have been frozen although the former, thus far, accounts for the greater of the two. The Central Bank of the Russian Federation has deposited over $300B (USD) in foreign investments, $100B of which resides in the United States. Private overseas Russian assets, otherwise, may account for as much as $1T.
The U.S. Treasury Secretary, Janet Yellen, has indicated that the outright confiscation of frozen foreign assets would be illegal as current U.S. legislation, specifically the 1977 International Emergency Economic Powers Act (IEEPA), prohibits such action. International law has similarly lagged with the enforcement of reparations from Russia . The only circumstances presently allowing the U.S. to seize Russian assets would be either direct engagement in armed hostilities or to be in a position to contest lawful ownership of the assets. New legislation, however, could bring this about as was the case in Canada where legislative action in June 2022 has allowed for the seizure of assets of individuals and entities on the country’s sanctions list and to dispense with them for the purpose of reparations.
Foreign state assets in the U.S. are covered currently by a sovereign immunity and protected from lawsuits. In the event, that this was overcome, some argue that Russia would have less incentive for peace or, in other circumstances, could invite retaliatory action of a similar nature resulting in an unraveling of international order. In the first place, Russia would have to rethink its financial well-being if it found itself suddenly short $300B knowing that this would no longer be available to replenish the massive losses it has sustained in the war. Peace might be the first and only consideration as opposed to further escalation of a conflict that it could ill-afford to sustain while its money was being handed over to the country it was currently victimizing. Otherwise, a nuclear option would imperil its relations with China and India even before attempting to face the repercussions of such an action with NATO. Secondly, international legislation could be undertaken to reset the means by which nations act to mitigate the overt belligerence and atrocities committed by others. These criminal acts that undermine the well-being of other nations, as in the current conflict, would seem to be the greater threat to international order. And why would it not be more civilized to bring about a halt to hostilities by legislative and financial means rather than protracted physical hostilities that do more to drain national reserves than bring about lasting solutions.
Current bipartisan legislation is underway in the U.S. Congress offering an amendment to the FY2023 National Defense Authorization Act to give the President authority to confiscate assets of the Central Bank of Russia. A Ukraine Support Fund would be established and the Secretary of State given authority to send funds to Ukraine. The Office of Sanctions Coordination at the State Department would be given the resources to partner with allies to acquire similar Russian sovereign assets elsewhere. Likewise, further bipartisan legislation is proposed that would empower the President to seize assets belonging to Putin and his enablers to provide similar funding for Ukraine’s reconstruction. Here, legislation would further establish an administrative forfeiture process allowing the seizure of assets derived from overt acts of terrorism or clear violation of international agreements.
The U.S. and Canada are not alone in pursuing the matter. Both European Council President Charles Michel and European Union (EU) foreign policy chief Josep Borrell have expressed support for the same action as has German finance minister Christian Lindner. The argument in opposition makes note of the fact that the Bank of Russia reserves are public money and should be regarded as legitimate holdings unlike the assets belonging to those who have benefited from a close association with Putin’s kleptocracy. Yet, the bank does function for a state that continues to perpetrate atrocities and the public, according to state media, remains supportive of a war that cannot be justified. The suggestion that the debate over confiscation of Russian assets somehow distracts from efforts to reduce the effect of Russian energy imports in Europe doesn’t seem to have much traction. The latter has included discussion of a tariff on Russian oil and gas but creating a consensus among 27 countries on the matter is unlikely to occur as would also be the case of creating an escrow account that would force Russia to pay a set portion to Ukraine before it could claim the remainder. What would prevent Russia from simply refusing to sell to Europe with such impositions? A cap on the price of oil would also appear unlikely to have much impact for the same reason.
Then, there is the weaker argument that seizure of the bank’s reserves would not provide the immediate benefit of withdrawal of Russian forces or Russia’s recognition of Ukrainian territorial integrity. This seems not to recognize that the purpose of these funds would be to secure payment for reparations. Moreover, the idea that under current restrictions, Putin and his ultra-nationalist camarilla would consider withdrawing their military and recognizing Ukrainian sovereignty over territory that they had just annexed, borders on the delusional.
Finally, the U.S. and the European Union do not have endless reserves to ensure not only a successful prosecution of the war but to secure the sort of funding necessary to provide for both immediate relief and the reconstruction of a nation. Each nation will have its own pressing needs and unique circumstances that will direct national priorities and inevitably effect contributions toward another struggling nation’s cause. Short-term financial solutions (https://www.politico.eu/article/commission-weighs-joint-borrowing-for-ukraine/) are critical but are not meant to provide the long-term security that is needed. For a Marshall Plan like that of 1948 – 1951 to be re-instituted in the present circumstance requires massive funding and consistency of effort among all nations and it should be expected that Russia, as the aggressor, be required to fund the effort.
Wealth of the Anointed
Emblematic of the current economic state-of-affairs in Russia has been the creation of a class of people who have amassed wealth on a scale never before realized in a country in which the average hourly wage is about $8 (USD) and the minimum wage is $2 while the median salary is $1,473. In 2020, the wealthiest 1% in Russia received more than 20% of the nation’s income while benefiting from favorable tax rates. This wealth disparity has increased over the more than 20 years that Putin has been in power to the extent that nearly 50% of total wealth is in the hands of this 1% of the population. Put another way, the wealthiest 500 Russians have greater wealth than the poorest 99.8% of Russians, three times the global average. Putin himself appears to have amassed considerable wealth estimated by Bill Browder, CEO Hermitage Capital Management and Head of the Global Magnitsky Justice Campaign, to be $200B.
Putin has created a privileged class of wealthy dependents by providing opportunities for them to procure lucrative contracts or acquire holdings of substantial worth at minimal cost through privatization of national resources. Apart from kickbacks he has received in return, Putin has retained control of the wealth of the country through these operatives and, in doing so, has centralized his authority to a degree seen only in the past when tsars oversaw Imperial Russia. Several of these individuals with their palatial estates, yachts and jets have been identified and targeted but, at this stage, only about $50B (USD) has been frozen. Their assets have not only been hidden through layers of anonymous shell companies scattered throughout several offshore jurisdictions but passed through family members and other proxies. Much detailed investigation is still required to uncover the vast amounts of money hidden globally. To this end, The U.S. Justice Department has a “KleptoCapture” task force that allows it to seize assets traced to unlawful conduct. The United Kingdom (U.K.) has required individuals now to identify sources of funds with which they purchase assets in the U.K. while Account Freezing Orders (AFOs) provide courts a means of freezing funds suspected of being tied to criminal activity. An Economic Crime (Transparency and Enforcement) Act, introduced in 2022, requires a registry of beneficiary ownership for foreign entities holding U.K. real estate. A “Golden Visa” provision has existed for some time in several countries around the world providing residency rights to foreigners who invest large amounts of money within the country. Malta became a favorite haven for Russian money as a consequence as did Cyprus. Both countries and the U.K. have now abandoned the policy. Several other countries have continued the practice with subsequent paths to citizenship.
The Moral Thing
Typical of current international financial deliberations regarding the war in Ukraine is the lack of urgency for a solution to the conflict. It is as if there is no appreciation of the tragic acuity of the situation and that reasonable argument cannot be undertaken to weaponize finance in order to force the issue to a rightful conclusion. Fiscal pundits seem to be under the illusion that undertaking economic sanctions and seizing foreign assets somehow destabilizes the international financial order without taking into account that the naked belligerence already on display has succeeded in doing just that. The point here is to establish a means of reining in such behavior with more immediate effect without the further loss of life, disruption of society and the international repercussions upon global trade and welfare. Rather than offer sanctimonious judgment on corrective financial solutions such as this, we perhaps should consider how global finance can be used effectively to minimize human suffering and establish an effective regulatory procedure by which this might be accomplished. The delicacy with which we regard the safe-asset status of foreign reserves stands in marked contrast to the brutality and the clear criminality of an illegitimate invasion of a sovereign nation.
The confiscation of the Bank of Russia’s reserves appears also to raise concerns that the move would deny options for Russia to gain leverage in future negotiations and that returning the reserves would provide for a means to bargain. This approach would leave it for Russia to offer financing for reparations. The only thing worse for Russia than the confiscation of its reserves would be for it to now admit guilt for the invasion and voluntarily commit to pay for the rebuilding of Ukraine.
A unilateral U.S. confiscation of reserves has also been seen as having the potential of destabilizing its alliance with other nations united against Russia in the conflict. This now appears to be much less the case with other nations taking the same prerogative to address the situation.
Several past instances in which deliberate criminal activity has been in plain view have warranted immediate action of the sort that would have saved numerous lives and spared nations from catastrophic infrastructure loss and economic ruin. With the global community now so economically interdependent, is it not time for there to be an effort put forward internationally to create a direct fiscal means of stopping egregious, and frankly outdated and brutish behavior, before it reaches the extent it has in Ukraine?
Copyright @Kost Elisevich, MD, PhD 2022. All rights reserved. Any illegal reproduction of this content will result in immediate legal action.
Thank you for your very thoughtful essay. I am a second generation American of Ukrainian descent. The pain that Ukraine is suffering is beyond words. Your essay points to a solution that would help. Thank you.