It's hard to put a number on the ultimate cost of the destruction. But it may need at least $500 billion to reconstruct Ukraine, officials there say.
That is three times more than the $135 billion present-day value of the U.S.-led Marshall Plan that helped rebuild Europe after World War Two.
At least $500 billion is needed, says Martin Kenney, a lawyer specializing in global asset recovery in the British Virgin Islands, whose wife is Ukrainian. “It would be nice to make the Russians pay for that,” he told Univision.
An estimated $340 billion of Russian Central Bank cash currently sits frozen in Western banks that could be used to contribute to the cost, plus some of the frozen property and super yachts of oligarchs, as well as payments for Russian oil and gas.
“But some law reform is necessary to seize sanctioned assets. Freezing is temporary,” says Kenney. “We’re going to have to develop an endgame for these frozen assets to be able to liquidate them and get them to Ukraine,” he added.
Russia is one of the world’s largest exporter of oil and gas. Russia receives an estimated $1 billion per day from several countries in Europe from exports of its oil and gas.
“There will be enormous pressure not to return the funds to the Russian Federation,” said John Kavulich, a sanctions expert who was visiting Ukraine when the war began. “Governments will contort political logic and legal logic and courts will likely defer to the governments because the issue will be foreign policy-related,” he said.
A tax on Russian oil and gas?
Kavulich and others say a 10% export tax on Russian oil and gas is "politically viable and preferable as no government wants to fund in whole or in part the cost of reconstructing Ukraine". Some of the funds need to be reserved to reimburse the taxpayers in countries bordering Ukraine who have accepted refugees, as well as those who have provided equipment and funding to Ukraine.
“Everyone needs to be made whole. United States taxpayers should not pay for what the Russian Federation has done to Ukraine,” he said.
European Union officials say they are already considering the establishment of escrow accounts into which they could funnel at least some of Russia’s energy payments. But Putin has warned that Russia would cut off its energy supply if the country can't access payments for it.
The same move was used to freeze a large swath of Iran's foreign energy sales under the U.S. and international sanctions over the last decade.
On Wednesday, US Treasury Secretary Janet Yellen said that creating an escrow account for Russian energy proceeds was “an approach worth exploring” as a way to ramp up pressure on Moscow.
Chasing down Russian oligarch wealth
Tracking wealthy individuals wealth isn’t easy as it is usually hidden behind layers of corporations and trusts with assets spread all over the world. Usually, the real, or ‘beneficial owner’, is hidden behind bank secrecy or corporate names. However, while offshore jurisdictions may appear to be “information fortresses,” Kenney said authorities are required to reveal the true owners if police request it.
Current law generally only allows for forfeited assets to be handed over to their rightful owners, rather than being confiscated or liquidated for cash. But this could be done through so-called ‘unexplained wealth orders’, said Kenney who has worked on a number of cases involving Russians oligarchs.
“We need to create a statute that asks ‘How did you become the richest man in Russia? Put the burden of proof on them to show that their wealth is bone-fide,” he said. “If you can’t explain it, you lose it.”
$7 billion frozen in Jersey
Authorities on the British island of Jersey, a popular tax haven, on Wednesday froze assets estimated at more than $7 billion "suspected of being linked" to another Russian oligarch, Roman Abramovich, owner of the Premier League soccer club Chelsea, and one of those sanctioned for his ties to the Kremlin.
The mega yachts of Russian oligarchs also make a promising target, though there may be few potential buyers given their extraordinary price tag.
German authorities on Thursday seized the world's largest yacht, named Dilbar, after determining that a sanctioned Russian oligarch, Alisher Usmanov, had transferred its ownership to his sister, a gynecologist with multiple Swiss bank accounts.
Dilbar measures some 511 feet and has two helipads and one of the biggest indoor pools ever installed on a yacht, according to the U.S. Treasury Department, which puts its estimated worth between $600 and $735 million. Usmanov is one of Russia's wealthiest billionaires worth an estimated $13 billion, and a known close associate of the Russian president. Usmanov was sanctioned in March by the U.S., United Kingdom, the European Union and Switzerland.
Are the Russian Central Bank's foreign exchange reserves untouchable?
Russia’s Central Bank assets are trickier.
Typically, foreign sovereign nations are immune from lawsuits in the United States under the Foreign Sovereign Immunities Act (FSIA) which recognizes the principle of international law that protects the actions of the government, and the country’s assets, from the jurisdiction of foreign courts.
There are few exceptions to the law, including claims by individual persons. The law also states that foreign states are not immune when property was taken in violation of international law, but that usually applies to property owned by U.S. citizens, not that of another country.
Anti-terrorism laws in the United States had been used to seize funds owed Cuba from international telephone calls for distribution to plaintiffs in court cases. Other legal efforts are currently seeking to prevent Cuba from earning revenue from cruise ships docking at ports that were once privately owned before being seized by the island’s communist government.
“The FSIA, the statutes of many other countries, and international law all provide near-absolute protection to foreign central bank assets used for central banking purposes,” according to Ingrid Wuerth, professor of International Law at Vanderbilt Law School.
While sanctions can be used to freeze Russian, Afghan, Venezuelan and Iranian central banks assets held at U.S. banks, it’s a lot more complicated to actually confiscate the money permanently and give it to someone else.
The U.S. has refused to turn over $3.5 billion in assets of the Afghan central bank after the Taliban seized power in August 2021. Rather than hold onto the money it has said it will designate a non-Taliban representative of Afghanistan. The U.S. also froze Venezuelan central bank assets after ceasing to recognize President Nicolás Maduro and gave Venezuelan opposition leader Juan Guaidó control over them, leading to complicated litigation with creditors.
To lobby for more punitive measures against the Kremlin, the Ukrainian government has hired a team from a top U.S. law firm led by John Smith, the former director of the Treasury Department's Office of Foreign Assets Control (OFAC) which administers U.S. sanctions. Smith, who served at OFAC until 2018, oversaw sanctions against Russia after its invasion of Crimea and the Donbas region in 2014.
Congress could resolve any immunity problems by amending the FSIA, but that could still be challenged as a violation of international law, Wuerth argued in a recent blog post. Congress could resolve any immunity problems by amending the FSIA, but that could still be challenged as a violation of international law.
However, if the war between Russia and Ukraine drags on, “pressure will grow on Congress to allocate frozen assets to politically sympathetic people harmed by Russia or by the conflict,” she wrote.
While the assets might be turned over to help the people of Ukraine, that could raise questions of due process, the constitutional powers of the president and sovereign immunity.
“It is possible that confiscation of central bank assets might be excused under international law as countermeasures in response to Russia’s violations of international law in Ukraine,” she added.