The United States and its Group of Seven (G7) partners must transfer some $500 billion of Russian frozen assets – of which at least $300 billion is Russian Central Bank reserves and up to $200 billion of funds belonging to sanctioned oligarchs – so Ukraine can achieve its dual objective of liberating its country from Russian occupation and becoming a full member of the European Union.
President Joe Biden, as his wartime predecessor Franklin D Roosevelt did, could bypass isolationist opposition in Congress by instituting a “finance and lease” program where Ukraine can immediately access Russian assets to purchase war materiel, finance the country’s budget and reinforce the country’s private sector.
And unlike FDR’s “Lend-Lease Act of 1941” to Great Britain, the Soviet Union, and the Republic of China, Ukraine would be merely accessing funds already earmarked for postwar reconstruction, a task that becomes every day more burdensome and costly as the war with Russia enters its third year.
It is also time for Biden to have US Treasury Secretary Janet Yellen openly campaign that Ukraine immediately be given full drawdown authority on the $300 billion of frozen Russian Central Bank assets and US Attorney General Merrick Garland aggressively use the long arm of US law to force the transfer up to $200 billion of oligarch wealth to refinance and regrow the country’s critical private-sector economy.
The White House has already been utilizing news-media leaks by high-ranking US Treasury officials (such as Deputy Treasury Secretary Wally Adeyamo) to put out the message that Russian Central Bank assets must be transferred to Ukraine.
It is now time for Yellen to lead the call for the asset transfer as the former US Federal Reserve chairwoman did when she orchestrated the original freeze with former European Central Bank president and Italian prime minister Mario Draghi after the Russian invasion on February 24, 2022.
Former British prime minister and current UK Foreign Secretary David Cameron was the first G7 official to demand publicly the transfer of Russian state assets to Ukraine during his first Foreign Office visit to the United States on December 9 ahead of a contentious congressional vote to approve $61 billion in financial and military aid to Ukraine.
“Instead of just freezing that money, let’s take that money, spend it on rebuilding Ukraine and that is, if you like, a down payment on reparations that Russia will one day have to pay for the illegal invasion that they’ve undertaken,” Cameron said. “I’ve looked at all the arguments and so far, I haven’t seen anything that convinces me this is a bad idea.”
The vote on US aid to Ukraine is expected early in the new year after being hijacked by “America First” Republicans, while the EU package was delayed by a veto by Hungary’s Viktor Orban.
Former World Bank president Robert B Zoellick and former US treasury secretary Larry Summers both agree that seized Russian Central Bank assets could be transferred and reutilized by Ukraine under US and international law.
Zoellick and Summers – highly influential figures in the Republican and Democratic administrations of George W Bush and Bill Clinton – made it abundantly clear earlier this year that the Biden administration and the G7 have no valid reasons not to transfer Russian state assets to Ukraine.
In fact, Biden’s closest foreign-policy adviser outside the executive branch, Senator Chris Coons, said in an interview just prior to the Christmas recess that the bipartisan Rebuilding Economic and Economic Prosperity for Ukrainians (REPO) Act will further empower Biden to shift Russian assets to Ukraine.
Harvard Law graduate Zoellick stated that while the transfer of Russian Central Bank state assets is legally straightforward but noted the transfer of confiscated assets of sanctioned Russian oligarchs such as Rusal aluminum tycoon Oleg Deripaska, Alfa Bank founder and oil asset raider Mikhail Fridman, and Severstal steel baron Alexei Mordashov have added legal complexities.
‘Mafia bosses’
Ukrainian Prosecutor General Andriy Kostin, speaking at the Carnegie think-tank in Washington in September, bluntly stated that oligarchs should be treated and seen by all as organized-crime bosses on the lines of Mexico’s El Chapo or the late Italian mafia capo Toto Riina and not robber barons of the John D Rockefeller and J P Morgan ilk.
Kostin said he does not differentiate between Russian and Ukrainian oligarchs as they all use the same mechanism and means as organized-crime outfits. In fact, Kostin oversaw the arrest of notorious Ukrainian oligarch Ihor Kolomoisky for corruption and money-laundering related to the bankruptcy of the oligarch’s PrivatBank.
Notwithstanding wide-ranging discussions with Attorney General Merrick Garland at the US Department of Justice, Kostin seemed surprised that neither Garland nor DOJ officials requested the extradition of Kolomoisky on US federal fraud charges.
Ukrainian fertilizer and metals oligarch Dmytro Firtash has been in Vienna since 2014 fighting US extradition orders on Boeing-related bribery charges and has admitted to business dealing with Ukrainian born Semion Mogilevich, the now Moscow-based godfather of the Russian mafia and on among the FBI’s Most Wanted.
Kostin’s attitude to oligarchs must be adopted by Garland and Western law enforcement as all their wealth was derived by ill-gotten gains from the mass theft of state-owned assets after the fall of the Soviet Union in 1991.
In fact, the reinvestment of Russian assets was the focus of Bearstone’s Asset Recovery CEE conference in Warsaw on April 18 featuring hedge-fund managers and international lawyers under the tutelage of Poland’s newly elected “rule of law” prime minister, Donald Tusk.
Ukraine defense sector
The $300 billion to $500 billion drawdown would allow Ukraine directly to manage its social spending and private-sector investment requirements but also make the country self-sufficient in its defense sector by co-producing its arms with major defense contractors such as F-16 and MGM-140 ATACMS manufacturer Lockheed Martin, RTX (Raytheon), and L3 Harris.
Ukraine already supplied up to 40% of the Russian defense industry prior to the annexation of Crimea in 2014 and such co-production would allow Ukraine to immediately join NATO after the end of hostilities.
The goal of co-production with major Western defense firms is a top priority of Ukrainian President Volodymyr Zelensky, who mandated his chief of staff, Andriy Yermak, to ink as many deals as possible when he traveled to Washington on December 5-7.
Zelensky and Yermak are fully aware of the billions of dollars Lockheed and Boeing invested in Polish industry as part of mandatory offsets in exchange for the Polish government acquiring F-16s and 787-9 Dreamliners, but US defense contractors continue to stiff Ukraine on jobs and in-country investment.
The Ukraine delegation was visibly upset when not one of the chief executives of the major US defense companies such as Lockheed’s James Taiclet, RTX’s Gregory Hayes, Boeing’s David L Calhoun or L3 Harris’ Chris Kubasik met with Zelensky during his critical mission to Washington on December 11.
John Herbst, the US ambassador in Ukraine during the last years of president Leonid Kuchma, said the lack of US defense CEOs was due to US Secretary of State Antony Blinken and national security adviser Jake Sullivan warning off US defense companies from direct investment in the Ukrainian arms industry.
Biden has publicly stated in Oval Office meetings with Zelensky that he supports US defense investment in Ukraine’s defense sector.
The up to $200 billion in oligarch assets can already be used to re-energize the Ukrainian private sector either through project finance or equity investments managed by the US International Development Finance Corporation (US DFC), European Bank for Reconstruction and Development (EBRD) and or the World Bank’s International Finance Corporation.
A good part of the funds could be used to provide private-sector war risk insurance via the World Bank’s Multilateral Investment Guarantee Agency (MIGA) or fund the rebuilding of Sweden SKF’s ball-bearing plant in Lutsk after Russia obliterated the factory in northwestern Ukraine this year.
Sadly, much of the good financial news surrounding Ukraine, such as the $480 million in financing and investment by the US DFC, EBRD and IFC in Ukraine’s MHP SE poultry concern or M&A talks between one of the America’s top three US private equity firms (Blackstone/Carlyle/KKR) and Ukraine’s game-hosting giant Boosteroid is being left off the pages of the Financial Times and Wall Street Journal.
Blackstone, which acquired a 40% stake in the Benetton family–owned Atlantia infrastructure group, is being actively courted by the Ukrainian government to participate in future privatizations of airports and highways.
The immediate transfer of Russian Central Bank and oligarch assets to Ukraine would kill any hope by President Vladimir Putin of a possible victory over Ukraine, especially ahead of presidential elections in March when he will be required to travel to restive Russian regions and occupied Ukraine.
However, the asset transfer would also create a privileged forum with the G7 for any future peace talks between a post-Putin Russian government and postwar, liberated Ukraine.
In the case of a permanent stalemate, Russian assets would be frozen for decades or more, and even longer in the case of Bolshevik Russia, where it took more than 70 years to repay Czarist Russian Railway bonds.
Biden’s and the G7 “finance and lease” program would finally allow Ukraine to focus on its dual mission of ending the Russian occupation and its stated goal to become a full member of the European Union by end-2025 after becoming an official EU ascension candidate with Moldova and Georgia on December 14.