The Kremlin has threatened Europe and the US with “serious consequences”, including tit-for-tat financial seizures or even a break in diplomatic relations, if Russian assets held abroad are given to aid the Ukrainian budget and war effort.
A spokesperson for Vladimir Putin told reporters on Friday that if the Biden administration and European leaders planned to seize Russian central bank assets believed to be in excess of $300bn (£236bn) that were frozen after Moscow launched its full-scale invasion of Ukraine in February 2022, they should “realise that Russia will never leave those who do it alone”.
The New York Times reported on Thursday that the Biden administration had begun urgent discussions with G7 nations on how it could plan the unprecedented seizure of the funds, which are mostly believed to be held in Europe, and whether the funds could be spent directly on the Ukrainian military effort or just for reconstruction and budgetary use.
Joe Biden was said not to have signed off on the strategy, the newspaper reported. But the discussions have accelerated as Republicans have blocked a deal in Congress to provide new military aid to Ukraine, potentially defunding the Ukrainian war effort at a desperate moment after a Ukrainian counteroffensive failed to provide a decisive breakthrough in the war.
“The illegitimate seizure of our assets invariably remains on the agenda both in Europe and in America,” said the Putin spokesperson, Dmitry Peskov, on reports that the Biden administration is pressing European countries to draw up plans for a potential seizure by February, the two-year anniversary of Russia’s full-scale invasion. “This issue is unacceptable to us. Potentially, it is extremely dangerous to the global financial system.”
In an indication that European nations may be ready to sign on to the strategy, prosecutors in Germany said this week that they were applying to confiscate more than €720m (£624m) from the Frankfurt bank account of a Russian financial institution.
Biden on Friday also signed an executive decision that would blacklist banks and other financial institutions that support Russian arms-making industries, in an effort to starve the Russian war machine of key components like semiconductors and machine tools.
The US Treasury secretary, Janet Yellen, said the US would “not hesitate to use the new tools provided by this authority to take decisive and surgical action.” It would also affect the exports of diamonds and seafood, both of which originate in Russia but are mostly processed outside of the country.
Russia has warned of the diplomatic fallout of further escalation. Sergei Ryabkov, a deputy foreign minister, said he did “not want to dwell on negative scenarios”, but suggested that an asset seizure could serve as the “trigger for a possible outbreak of confrontation that may potentially lead to breaking off relations”.
Other triggers could include “further military escalation”, he said, including the placement of short and medium-range missiles in Europe or the Asia-Pacific region.
The Ukrainian government had previously called on its supporters in the west to seize Russian assets to create a reconstruction fund for Ukraine, but the Biden administration has demurred, with Yellen saying in 2022 that the seizure was “not something that is legally permissible in the United States” without an act of Congress.
“It’s necessary to work on concrete mechanisms for using frozen Russian assets to compensate for the damage caused by Russia,” said the Ukrainian leader, Volodymyr Zelenskiy, during a gathering of global finance leaders in Washington in April. “It will be a peacemaking act on a global scale. Potential aggressors must see this and remember that the world can be strong.”
Some European banks, such as Austria’s Raiffeisen, have continued operating in Russia. They claim that they are being held hostage as the Kremlin says it won’t let foreign banks leave the country easily.
Putin signed a decree in April authorising the state to take temporary control over foreign companies’ assets in Russia in an apparent retaliation to the freezing of Russian assets abroad. Since then, Russia has targeted certain businesses that have halted their Moscow operations, including brewing company Carlsberg Group and French food company Danone.
Putin this week ordered stakes held by Germany’s Wintershall Dea and Austria’s OMV in gas- and condensate-producing ventures in Siberia to be given to Russian companies.
“Both Europeans and Americans are perfectly aware of the legal consequences that will have for the initiators and the enforcers,” Peskov said of the reported plans to seize Russian assets abroad. “In the end, if somebody confiscates something from us, we will see what we can confiscate in return. And if something is found, we will, of course, do it immediately. Therefore, these are steps that cannot but have serious consequences.”
