West wavers on Ukraine proposals to seize Russian assets as reparations

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Ukraine is facing a battle to persuade its western allies, including the UK, to back its proposal for any peace settlement with Moscow to include multibillion reparations by Russia, in part using seized Russian state and oligarch assets.

Ukraine is lobbying the UN general assembly to adopt a resolution that will become the basis for the creation of an international compensation mechanism that could lead to the seizure of as much as $300bn (?260bn) of Russian state assets overseas.

The US Department of Justice said in June the US and its allies have frozen $30bn of Russian elite assets and $300bn of Russian central bank assets held overseas.

Ukraine’s deputy justice minister, Iryna Mudra, was in London last week to discuss the issue with the Foreign Office after lobbying the Council of Europe’s council of ministers in Strasbourg alongside Olena Zelenska, the wife of the Ukrainian president, Volodymyr Zelenskiy.

A former banker, Mudra has been at the helm of the detailed legal and political discussions on reparations, holding talks in Germany, Paris and Brussels and with the US treasury assistant secretary, Elizabeth Rosenberg.

At the end of the last meeting in Strasbourg the Council of Europe ministers backed the principle of reparations, but issued a lukewarm statement about Ukraine’s specific proposals, saying it “noted with interest the Ukrainian proposals to establish a comprehensive international compensation mechanism, including, as a first step, an international register of damage”. The US treasury secretary, Janet Yellen, has said reparations would be unlawful under current US law.

But Ukraine has become increasingly ambitious that any definition of a military victory must include Russian agreement to reparations, a demand that Moscow would resist and complicate any peace negotiations. The issue is separate to establishing a legal mechanism to hold Russian leaders to account for war crimes.

Those close to the talks on reparations in London came away with an impression that British enthusiasm in principle for the plan is being weighed against the potential legal and property rights issues involved.

It is argued that if Russian central bank assets are appropriated, as opposed simply to being frozen as at present, any western assets held overseas could also become prey to seizure.

State property is protected abroad under the doctrine of state immunity, a principle endorsed in UN articles in 2011, which provides a foreign state with immunity from the jurisdiction of domestic courts, at least in respect of non-commercial activities.

In May, in conjunction with Columbia law school, Ukraine set up an International Claims and Reparations Project including the British barrister Alison Macdonald, the former state department legal adviser Jeremy Sharpe and two Columbia professors, Lori Damrosch and Patrick Pearsall.

They claim there is precedent for seizure of Russian state assets historically, pointing to compensation claims made against Iraq after the invasion of Kuwait, compensation paid by Iran to the US over the embassy hostage crisis, and the recent US seizure of Afghan central bank assets.

Ukraine accepts that at present Russian state assets overseas enjoy sovereign immunity, but believes this can be changed through national legislation, as has occurred in Canada. It says a second process is required to seize assets of Russian companies or oligarchs.

Yellen’s claim that the US does not have the current legal authority to seize Russian assets is partly because the US is not engaged in armed hostilities with Russia, and the US does not contest Russia’s lawful ownership of the assets.

Others say the US could deploy the Trading with Enemy Act or the International Emergency Economic Powers Act. Reparations have been backed in a joint statement issued by the finance ministers of Estonia, Latvia, Lithuania and Slovakia. Liz Truss as foreign secretary expressed support for the idea in principle, but has not repeated the proposal recently.

UK and European sanctions legislation allows states to freeze assets of the Russian central bank and some oligarchs, but does not provide for the permanent seizure, let alone their unilateral transfer to a fund to rebuild Ukraine.