A post-war reconstruction strategy for Ukraine: sanctions and frozen Russian and Belarusian assets - opinion
Dictators Putin and Lukashenko (Photo:Сputnik/Mikhail Klimentyev/Kremlin via REUTERS)
Policymakers need to understand better the experience of imposing sanctions against the Russian Federation and the Republic of Belarus to plan future sanctions strategies.
Strategy, priorities, and mechanisms for the post-war reconstruction of Ukraine are being discussed today both within the country and on various international platforms in multiple formats. At the same time, the emphasis is on finding sources and instruments for financing rebuilding projects in the war-damaged country. There is a consensus among Ukraine's allies today to use frozen Russian funds for this. Thus, financial sanctions have become a kind of tool for mobilizing recovery funds. This means that the sanctions policy of today must be explicitly written in the context of Ukraine's post-war economic recovery.
Economic sanctions against Russia and Belarus are the most vital tool to counter Russian aggression. Their goal is to undermine the economic ability of Russia and Belarus to wage war against Ukraine. It is expected that military defeats and financial problems caused partly by sanctions will force the aggressor to cease hostilities and abandon the aggressive policies they have been pursuing. In doing so, several important points should be considered. For the first time, the sanctions have targeted a country well-integrated into the world economy and occupying, if not dominant, then significant positions in a number of markets, both as an exporter and an importer. Russia is a member of the UN Security Council with veto power and has one of the largest nuclear arsenals in the world. At the same time, this sanctions policy is being implemented in an era of globalization, which creates opportunities for developing and implementing various schemes to circumvent sanctions restrictions.
Effective sanctions are an essential factor in ensuring Ukrainian victory and bringing the start of a full recovery process closer. This is, of course, not to understate the decisive role played by the Armed Forces of Ukraine in restoring the country’s sovereignty and territorial integrity.
Policymakers need to understand better the experience of imposing sanctions against the Russian Federation and the Republic of Belarus to plan future sanctions strategies. What does this mean?
Ukraine must demonstrate maximum transparency and responsibility in using these assets.
Firstly, this concerns the effectiveness of sanctions policy in undermining the economic viability of the Russian war machine. During the process of developing and implementing sanctions, countries have gained extensive experience in seeking consensus on the application of certain sanctions restrictions. At the same time, a number of documents have been adopted at the international and national levels, which developed the appropriate legal framework. Therefore, we are now able to speak of a common EU sanctions policy, which increases the sanctions’ effectiveness.
Two EU decisions took important steps in this direction. In June 2022, the Council of the EU adopted a decision making violating EU restrictions a criminal offense. This applies only to the restrictions explicitly intended to freeze targeted funds and assets. That December, a draft directive of the European Parliament and the Council of the EU was released to clarify the list of criminal offenses. The purpose of this document is to oblige EU member states to take several steps to ensure that the violation of restrictions imposed by the EU is classified as a criminal offense if the act was intentional.
Secondly, there is the transfer of frozen assets to Ukraine as an instrument of economic support from Ukrainian allies. These funds can serve as a serious financial resource for the country's economic restoration. At the same time, thanks to this financial transfer, the international community can, if not “save” on assistance to Ukraine, get the opportunity to more rationally use the available resources to solve acute domestic and international problems. In my opinion, under certain conditions, a certain (possibly "symbolic") amount can be transferred to our partners.
At the same time, at least in Ukraine today, there is no talk about the mechanism that may be used to transfer frozen assets. In particular, how exactly will the funds be transferred: as an “in-kind” grant or on some other terms? Regardless of the terms of the transfer, Ukraine must demonstrate maximum transparency and responsibility in using these assets. In my opinion, this is part of a more general problem – the problem of effectively using foreign funding to rebuild Ukraine.
Third, the international community needs more complete information on many seized assets. That is why the 10th EU sanctions package provides for an "inventory" of all frozen assets, including those of the Russian central bank, and introduces an obligation for financial institutions to report on these assets. This requirement is mandatory for the European Central Bank, the central banks of member countries, central securities depositories, commercial banks, and other institutions that are, in one way or another, involved in transactions with these assets. We are talking about the cost, location, structure, contractual obligations for the owners of funds, and potential creditors in the EU. This information must be communicated both to relevant Member State authorities and to the EC. Obviously, Ukraine should also have access to this data.
Fourth, it is already necessary to decide on the future prospects of the sanctions regime. Overall, given the previous reasoning, it should involve the partial transfer of frozen financial (cash) funds to Ukraine, as mentioned earlier.
In March 2023, EU experts proposed introducing a system to actively manage frozen assets. This primarily pertains to the funds of the Russian Central Bank and financial institutions controlled by it. It should be noted that the EU Council raised the issue of possible directions for the use of these funds for the first time back in October 2022. The idea is simple: a significant portion of these funds are now in cash due to the maturation of assets. These funds are invested in reliable, low-risk financial instruments, and the income ought to be used to finance the reconstruction of Ukraine. Implementing this initiative requires solving many legal problems that are generally connected to the principle of country immunity in international law.
And finally. I am convinced that the easing or lifting of sanctions should be politically linked to the payment of reparations to Ukraine. This is, perhaps, the only way to force the Russian Federation and the Republic of Belarus to compensate Ukraine for the damage they have caused while the existing political regimes in these countries remain in power. Even if their political regimes change, the strategy of using sanctions as a tool to ensure the economic responsibility of the aggressor will inoculate society and the Russian and Belarusian political elite against revanchism and imperial sentiments.
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