How to Use Russia’s Frozen Assets to Rebuild Ukraine

Russia’s invasion of Ukraine has brought with it atrocities on a scale not seen in Europe since World War II. Critical civilian infrastructure including schools, hospitals, and homes have been intentionally targeted. The destruction of the Nova Kakhovka dam serves as the most recent reminder of a deliberate, callous, and systematic dismantling of the country.

Ukraine lost 29 percent of its GDP in 2022—13 million citizens have been displaced. Reconstruction costs are running over $400 billion—not including those areas to the south and east of the Dnipro occupied by Russia.

In November 2022, the United Nations formally acknowledged that Russia must bear the legal repercussions of its internationally wrongful actions, including making reparations for damages inflicted upon Ukraine and her people. This recognition also underscored the urgency for an international mechanism to facilitate this compensation.

But the stark reality is that an unrepentant Russia is bent on inflicting as much damage on Ukraine as possible and evading its international obligations. While Russia may well lose the war, it is unlikely to lose in the kind of total fashion that made extracting reparations from, for instance, Germany after the world wars possible. Russia has veto power at its disposal to obstruct conventional avenues of securing reparations through some international institutions. Progress on this, however, has been made by scholars at the New Lines Institute. The result is an innovative proposal that makes full use of the latent legal power nation-states hold through their domestic laws to do more than just freeze Russian state assets. Our report shows how these assets can be legally transferred to Ukraine for use in reconstruction efforts.

The Multilateral Asset Transfer proposal builds on past research, including the Multilateral Action Model on Reparations (MAMOR), to shed light on the legal potency of existing national law, empowering countries to go beyond the mere freezing of Russian assets. Our report shows how countries can instead legally take a step further and transfer the roughly $350 billion in Russian assets to Ukrainian escrow accounts in central banks using legal entitlements under the law of countermeasures.

A distinctive feature of this model is its ability to legally function without being trapped in international institutions. The model sidesteps Russia’s United Nations Security Council veto power by using only seized and frozen Russian assets, a method already provided for in U.S. law. This innovative approach could accelerate Ukraine’s economic recovery and societal rebuilding, eliminating the waiting game usually associated with traditional reparation models.

The Multilateral Asset Transfer proposal’s second great strength lies in its simplicity and adaptability—it can be molded to the legal context of each nation adopting it, enabling a unified yet flexible approach to enforcing accountability. By design, this proposal leads to the creation of a global fund that will serve as a reservoir for these assets, effectively and efficiently making resources available for reconstruction to begin as early as this year.

The result will be a global fund securing the necessary finances for a war-torn Ukraine while simultaneously preserving Russian incentives to reengage with the international order strategically. The possibility of returning remaining funds to Russian state bank accounts and restoring Russian sovereign immunity is kept open, contingent on Russia’s constructive reengagement with international law. This fits seamlessly into NATO’s carrot-and-stick approach to coercive diplomacy.

Given the global backdrop of soaring inflation, recession, rising national debts, and tightening budgets, funding Ukraine’s reconstruction from domestic budgets is likely to be an unpopular and politically unpalatable move, even among Ukraine’s staunchest allies. Across Europe, parties opposing further financial support for Ukraine are gaining political ground, arguably including Italy, Spain, Greece, and Finland. Raising funds in a way that preserves political unity in the West is a clear necessity.

There are certainly other realistic sources of reparations, such as placing a charge on Russian oil and gas revenues and subjecting Russian sovereign debt to secondary sanctions. Yet these will also require specific legal infrastructure and legislation that will take time to bring about. For a start, Russian state assets—such as the Russian Central Bank and assets held by state-owned corporations such as Gazprom, Rosneft, and Rosatom—are potentially subject to forfeiture. These sources of capital will become necessary as the reconstruction costs exceed the $350 billion of already-frozen assets.

A further source of capital that can be seized is a broader range of Russian assets held in the West. Under President Vladimir Putin, Russia has developed into a fully criminal gang state where the courtiers and leading supporters of the Kremlin leadership have been permitted to plunder the state. This plundering has now continued for more than 20 years. And the state that has been plundered is a petrostate with natural gas and oil revenues with assets ripe for seizure in the order of what our MAMOR report assessed to be in the “low trillions” of dollars.

The late author Karen Dawisha, in her book Putin’s Kleptocracy, noted that in Russia, every year, hundreds of billions of dollars are paid to affiliates of the regime in bribery money alone. A creative treaty regime could render those assets available for seizure and use in the fund, and work should begin so that it can be actioned in time to benefit the reconstruction efforts.

A solution is also needed that can direct funds to the areas where they are most needed and where reparation money is warranted. The report’s proposed commission would work as follows: The Ukrainian state, individual Ukrainians, and Ukrainian private and public entities would provide proof of damages, which the commission would verify. Given the scale of potential claims, it is likely that there will be millions of claims from individuals and firms, as well as from the Ukrainian state. It is likely that the compensation commission will have to develop a new mass claim system to speed things along. Once positively verified, the commission would then make an assessment on the amount it could disburse and authorize a payment from the fund.

The West finds itself scrambling to project power in ways that both put paid to any idea that its resolve is weakening and avoid any accusation of illegality or escalation. The proposed approach, in this dimension, goes beyond the immediate needs of Ukraine. It sets a precedent that could deter other border conflicts, such as those between Azerbaijan and Armenia, Kyrgyzstan and Tajikistan, and potentially even China and Taiwan. It effectively conveys to nation-states contemplating acts of aggression that the international community will hold them accountable and seek compensation for damages inflicted.

Putin’s war has, unintentionally, of course, already spurred the deepening of NATO’s defense cooperation and led in several cases to a dramatic expansion of military spending. One of the defining elements of this crisis has been the unexpected solidarity among the democracies of Europe, and the swift dismissal of earlier “quietist” policies. Europe is now undergoing a phase of rearmament that demands more soldiers, expanded logistics corps, and additional resources.

Our hope is that the legal legacy will be held in equally high esteem and advance the precedents set by the postwar Paris Agreement on Reparation of 1946 and the actions of the U.N. Compensation Commission (UNCC), which used Iraqi oil revenues to compensate Kuwaiti claimants $52 billion over 30 years of operation.

The Paris Agreement saw multiple countries working together to define and collect a vast pool of assets, drawn from both public and private sources, from the defeated Nazi state. The victorious allies adopted the Paris Agreement on Reparation on Jan. 14, 1946. The agreement allowed for the seizure of German assets in those countries that had signed the treaty and provided for negotiation with those that did not to set up joint efforts to locate and seize Nazi assets internationally for use in reparations payments. Similar measures are now needed.

The New Lines Institute’s model aims to help international law and governance adapt to modern warfare—and is already under advisement by numerous major nations and economies worldwide. Its legacy will, we sincerely hope, be felt not just in the bricks and mortar of Ukraine, but in the full restoration of the peacekeeping function of international law.

This article was partially adapted from the New Lines MAMOR report.