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EU’s top diplomat wants to rebuild Ukraine using Russia’s frozen cash—but would that be legal?

May 9, 2022, 2:47 PM UTC

The European Union’s foreign affairs chief has backed the idea of seizing Russia’s frozen foreign exchange reserves and using them for Ukraine’s eventual reconstruction.

Ukrainian economists reckon Russia’s invasion is causing $4.5 billion of infrastructural damage each week in their country, and estimate a potential total bill of $600 billion.

Using Russia’s frozen reserves to help pay for this damage would be “full of logic,” Josep Borrell Fontelles, a vice president of the European Commission, told the Financial Times in an interview published Monday.

This would certainly be in line with what Ukraine has been calling for. However, it remains unclear whether the permanent seizure and redistribution of the frozen funds—which amount to over $300 billion—would be legal.

Borrell’s enthusiasm appears to be based on what he sees as a precedent set by the U.S.’s seizure earlier this year of $7 billion in frozen Afghan assets—half of which would go to humanitarian relief within Taliban-run Afghanistan, with the other half compensating victims of the Taliban-linked Sept. 11, 2001, attacks on the U.S.

“We have the money in our pockets, and someone has to explain to me why it is good for the Afghan money and not good for the Russian money,” Borrell told the FT.

But the Biden administration’s seizure of those Afghan funds was enormously controversial—indeed, it was characterized as theft by some Afghan-American activists and Western legal commentators.

It was also based on a very U.S.-specific set of legal circumstances, in which a group of 9/11 victims’ families and legal representatives won the right to $6 billion in damages from the Taliban a decade ago.

The default judgment was seen as a symbolic ruling at the time, but after the Taliban regained control over Afghanistan last year, it became central to the White House’s seizure decision in February.

There is as yet no analogous ruling to point to in the case of Russia’s frozen reserves, and the European Commission does not yet have any explanation for how those funds might be legally redistributed.

“[Borrell] was making the comment on one of a number of possibilities which are currently being discussed regarding the frozen Russian assets—no decision was taken about this issue at the EU level at the moment,” a Commission spokesperson told Fortune on Monday.

The legal quagmire is certainly apparent to Charles Michel, the president of the European Council—a group of EU national leaders, who set the bloc’s political direction.

In an interview with the Interfax-Ukraine news agency last week, Michel said he was “personally convinced” it would be the right thing to confiscate the frozen assets of Russian oligarchs and use them to rebuild Ukraine, but “because by a profession I use to be a lawyer, I recognized that legal level is not so simple.” For a start, he said, the EU’s 27 member states have different laws on such things.

“I instructed the legal service of the Council to prepare some possible ideas in order to find [a] legal solution in line with the principles of rule of law, that would facilitate and make possible the confiscation of the assets of the people who are sanctioned by the EU or by other countries in the world,” Michel said.

“In my opinion, this is question of fairness,” he added.

It’s worth noting that the Biden administration also tried to seize and liquidate Russian oligarchs’ assets via new legislation, but the bill was watered down following opposition from the American Civil Liberties Union, among others; the ACLU said it was unconstitutional in its original form, and a defeat in the courts may have handed Russia a propaganda victory.

Russia is adamant that, if Borrell’s plan were to become reality, there would be blowback.

“This is the destruction of the mere foundation of international relations, and these decisions, should they be taken, will hit the Europeans themselves, the financial system, and will undermine trust in Europe and in the West in general because this is an absolutely unlawful act and more like the law of the jungle,” Deputy Foreign Minister Alexander Grushko told Russian media on Monday.

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