Britain can lead the way in forcing frozen state and private assets into a reconstruction fund

Roger Boyes

June 13, 2023

The Times


When the western powers handed a hefty reparations bill to a defeated Germany after the First World War, the economist John Maynard Keynes warned that it was going to be a “Carthaginian peace”. The Romans after the Punic wars famously stripped Carthage of its colonies, forced its demilitarisation and imposed a constant punitive tribute. The kind of humiliation, in other words, that would generate future wars.

Some of this nervously remembered history is feeding into next week’s Ukraine Recovery Conference, to be held in London. There is no doubting the huge, devastating damage being inflicted on Ukraine by the Russians. The World Bank estimates that the cost of the destruction was $411 billion for the first year of war, from February to February. Since then raids on Kyiv and the destruction of the Nova Kakhovka dam have pushed up the total. Ukraine will be taking into the conference a list of 75,000 smashed residential buildings, more than 2,500 schools, 500 hospitals, about 100 energy infrastructure facilities and 120 churches.

It should be clear that Russia as the aggressor state must be held not only politically and morally accountable for this systematic, pulverising attack on a European neighbour, but that ultimately some of its frozen assets ($397 billion at the last count) will be made available for the rebuilding of Ukraine. Yet as far as I can make out the question of how to deploy Russian assets does not significantly figure on next week’s London agenda. If the conference concludes that western taxpayers should take the lion’s share of rebuilding a country that is being bombed by Vladimir Putin, what does it say about the rule of law, the Kremlin’s impunity and our inability to shape global order?

There are two pragmatic arguments for leaving Putin out of the debate. The first is that the war isn’t over. What if Putin resorted to tactical nuclear weapons? There would have to be a complete rethink about the nature of Ukrainian recovery. Second, part of the western strategy is to ensure that Ukraine emerges this year as a viable, intact state capable of defending its own borders. That could then lead to Nato candidate membership and the kind of security against renewed Russian attack that would reassure investors.

To reach this goal there would have to be a peace settlement with Russia that can hold better than the Versailles treaty that bound Germany after the First World War. The German generals claimed they were betrayed by the home front and were ready two decades later for another world war. Hitler claimed that the reparations bill was a humiliation that had to be avenged. One lost war, the defeat not fully acknowledged, led to another.

So this weighs down the London conference, leaving the disposal of Russian assets as seemingly too complex, too prejudicial of an eventual peace settlement. The Ukrainians, of course, have no such inhibitions. They have confiscated 13 aluminium-related plants in Ukraine from the Russian oligarch Oleg Deripaska. And the Ukrainian holdings of Putin’s ice hockey team-mate Arkady Rotenberg, including a shopping centre in Kyiv, have been confiscated too. Twenty lawsuits have been filed and $1 billion has been raised. The assets are seized under martial law, from people who already had assets frozen under sanctions.

Other countries have less legal freedom to convert frozen Russian assets into direct contributions to Ukraine’s rebuilding programme but Kyiv argues they should be doing more. Two oligarchs, Alisher Usmanov, founder of Metalloinvest, and Mikhail Fridman, co-founder of Alfa Bank, were sanctioned by Britain in March 2022. Both have, among other British property, mansions on Hampstead Lane in London. Both transferred right of ownership of some of their properties to offshore companies or family trusts before the sanctions order was passed. Kyiv says it must be possible to prove they are beneficial owners and to take action.

Britain’s broader role should be to build a coalition for the seizure of sanctioned Russian state and private entities. “You built a coalition to supply tanks,” says Olena Halushka of Antac, a Kyiv anti-corruption NGO. “Now you can do something similar by building support in the G7 for the confiscation of Russian assets.”

The first steps are being taken. Last month Council of Europe heads established an international register of damages; next should be a claims commission and a compensation fund. There should be a multinational agreement to legitimise the process. As long as Russia is a member of the security council, the UN is plainly not the right umbrella.

The key is to get the tracked-down assets, including Russian central bank funds, into one pot, administered perhaps by the World Bank. The interest accrued could be taxed by national authorities and that revenue sent to approved Ukrainian reconstruction projects. The Kremlin will say this is an act of piracy. I see it more as essential creative thinking to save the economic fabric of a country that is being ripped apart by a serial violator of international law.

Ukraine is not only a model of resilience but also a breeding ground of ideas. Only days after the London conference, architects and urban planners are coming together in Lviv to launch a project to turn Mariupol — now a shelled-out wasteland — into one of the world’s most modern cities. Backed by European and US aid agencies, philanthropists and the cities of Utrecht, Vilnius, Gdansk and Lviv, it’s more than a pipe dream. Rebuild Ukraine thoughtfully and we will make a lasting statement about Putin’s barbarism.