White House throws support behind seizing frozen Russian assets

President Joe Biden’s administration is backing legislation that would let it seize some of $300 billion in frozen Russian assets to help pay for reconstruction of Ukraine, a shift as the White House seeks to rally support in Congress to further fund the war against Vladimir Putin’s forces.

The administration welcomes “in principle” a bill that would allow it to confiscate the funds, according to a November memo from the National Security Council to the Senate Foreign Relations Committee.

“The bill would provide the authority needed for the executive branch to seize Russian sovereign assets for the benefit of Ukraine,” the NSC said in the memo, one of three such communications seen by Bloomberg News.

Biden’s support for the move emerges as Republicans in Congress have blocked more than $60 billion in funding for Ukraine, partly over concerns that Washington is carrying too much of the financial burden as Kyiv’s counteroffensive stalls.

The White House is seeking to balance that with competing worries that the move could taint the reputation of the U.S. financial system and spark a flight from the dollar. The administration also wants to align the move with Group of Seven allies, particularly in Europe, where about $200 billion of the frozen Russian assets are held and where support for seizure, particularly unilaterally, has been tepid.

The National Security Council supports the new authority as part of a range of tools the U.S. is considering to help make Russia pay for damages from the war, according to a senior administration official. The World Bank has estimated the reconstruction of Ukraine could cost about $411 billion.

The National Security Council declined to comment, as did the office of Ben Cardin, chairman of the Senate Foreign Relations Committee.

“Alongside our G-7 partners, we are exploring all options consistent with our respective legal systems and international law to aid Ukraine in obtaining compensation from Russia,” the State Department said in a statement.

E.U. Wariness

Support in Europe is far from certain. The European Union is considering a windfall tax on profits generated by the frozen Russian Central Bank assets, approximately $190 billion of which are held at Belgian clearinghouse Euroclear. Progress on that proposal has been slow as several key member states, including Germany and France, as well as the European Central Bank, are concerned about the impact the move could have on the euro zone’s stability. And there is also worry that Moscow could retaliate by confiscating funds that are blocked in Russia.

The subject is expected to come up at the G-7 leaders meeting near the anniversary of Russia’s invasion of Ukraine next month, the person said, requesting anonymity to discuss the sensitive deliberations.

Congressional officials see the possibility that the measure may pass as part of a supplemental spending package for Ukraine, though committee and chamber leaders would need to sign off on its inclusion. The idea of using Russia’s own money to finance the reconstruction of Ukraine is seen as a way to bolster U.S. support for the war as some Republicans balk at continued funding. House Speaker Mike Johnson voiced support for the idea in an interview with the New York Post, calling it “an eminently responsible thing for us to do.”

There’s already bipartisan support for the measure - it has 14 sponsors from members of both parties in the Senate and 62 sponsors in the House - but some critics have voiced concern that actually seizing the assets would be a bridge too far and could further weaken support from countries on the fence over the Russia-Ukraine war, particularly India, Brazil and South Africa, as well as further straining relations with China.

Global Response

“At the end of the day, the rest of the world is going to make a judgment about whether this is a legitimate use of U.S. governmental authority,” said Benn Steil, the director of international economics at the Council on Foreign Relations. “Overwhelmingly it’s going to be rejected by countries who represent a majority of the world’s population. Including countries we are trying to move closer to in many areas.”

Administration officials, including Treasury Secretary Janet Yellen, have said in the past that current U.S. law doesn’t allow seizure of the sovereign assets, which were frozen after Russia’s February 2022 invasion of Ukraine. While the White House wasn’t seeking such authority from Congress as recently as this summer, its position began to shift as it became clear that Republicans were hesitant to approve more taxpayer funds for Kyiv, according to a person familiar with the situation.

Yellen said on Monday that she’d want to see an assessment of the potential risks posed to the international role of the dollar and whether “mitigation” could be put in place against such risks. She has said Congress would have to pass new legislation for the U.S. to participate in the seizure of any sovereign foreign assets.

The bill - the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act - is sponsored in the Senate by Jim Risch of Idaho and Sheldon Whitehouse of Rhode Island.

In protest over the legislation’s lack of progress, Risch, the top Republican on the Senate Foreign Relations Committee, has placed a hold on the Biden administration’s nominee for deputy secretary of state, Kurt Campbell, until the bill comes up for a vote in committee.

“There is broad bipartisan agreement on this in the Senate,” Risch said in a statement. “After a year of negotiations, it’s past time for the committee to consider this legislation.”

Democrats and Republicans on the committee disagree on two key portions of the bill. The proposed legislation requires Biden to coordinate with the G-7 to seize the assets but doesn’t require their approval, which some fear risks allowing the U.S. to move unilaterally. It also includes language designed to block Russia from challenging the seizure in U.S. courts, which may be potentially vulnerable to constitutional challenges.

According to the memos viewed by Bloomberg, the White House was initially ambivalent about inserting a G-7 approval requirement but has since emphasized the need to move in concert with allies.

Such a requirement “would make it more likely that Europe (where the vast majority of assets are located) will be willing to take this step, given their concerns that taking this action in the Russia context could increase the likelihood that we seize assets in other cases where the legal and policy justification is less strong,” the NSC said in one of its memos.

“It also reduces the risk that this step undermines faith in the United States as a destination for foreign investment,” it said.

With only about $4 billion to $5 billion of Russia’s assets in the U.S., it wouldn’t make sense for the U.S. to act in isolation and risk sparking a flight from the dollar over a symbolic amount of money, according to a congressional aide with knowledge of the debate over the provisions.

The International Monetary Fund on Thursday said it’s monitoring the situation, and would assess the impact of any seizure or windfall taxes on the global monetary system and individual member countries.

“Any assessment that we would make would depend, of course, on the precise details of any actions that are taken,” IMF spokeswoman Julie Kozack said in a briefing.