Ukraine: Lawmakers express frustration over frozen Russian assets

Ruth Green, IBA Multimedia JournalistWednesday 21 February 2024

As the second anniversary of Russia’s invasion of Ukraine looms, there are growing calls to unlock frozen Russian assets to fund reconstruction efforts. Conservative estimates put wartime damage of Ukrainian infrastructure at more than $150bn in September.

The latest outcry comes from the UK House of Lords’ European Affairs Committee (the ‘Committee’), which used a report, published in late January, to highlight the case of businessman Roman Abramovich.

The former Chelsea Football Club owner was sanctioned by the UK in March 2022 alongside several other oligarchs with alleged ties to the Kremlin. The Office of Financial Sanctions Implementation (OFSI) issued a licence to permit Abramovich to sell the club. He pledged to donate the £2.5bn from the sale to support Ukraine’s war victims.

However, in December, the UK’s Minister for Europe, Leo Docherty, told the Committee there was still ‘disagreement’ over how and where exactly the funds should be spent. The government maintains that the funds should be used exclusively for ‘humanitarian purposes in Ukraine’.

The situation is, however, a little less clear-cut. In a statement at the time, Abramovich said he had instructed his team to set up a charitable foundation that would be tasked with administering and transferring the net proceeds from the sale ‘for the benefit of all victims of the war in Ukraine’.

The Committee labelled it ‘incomprehensible’ that the assets remain frozen in a UK bank account almost two years later. Baroness Anelay of St Johns, a former minister of state for the Foreign Office, who sits on the Committee, believes the UK government wasn’t ‘acute enough’ in ensuring there was sufficient clarity around how the proceeds should be spent, she told Global Insight.

Once the football club had been sold and the proceeds were sitting in an account in Abramovich's name, albeit frozen, then the UK’s proximate moment of leverage had gone

Tom Keatinge
Director of the Centre for Financial Crime and Security Studies, RUSI

The Committee called on the government to use ‘all available legal levers’ to resolve the ‘impasse’. Lord Cameron, the Foreign Secretary, told the Committee in December that the government was working on a ‘legal route’ to find a solution. When questioned about the delay, he said: ‘You are right to pressure us on this, and I am on it.’

However, actions now may not help matters, says Tom Keatinge, Director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute. ‘Once the football club had been sold and the proceeds were sitting in an account in Abramovich’s name, albeit frozen, then the UK’s proximate moment of leverage had gone,’ he says. ‘There is another opportunity now to negotiate, but that’s very sensitive. If you start giving oligarchs sanctions relief for donating, then there are all sorts of political implications both in London and Kyiv.’

The current OFSI licence for the frozen assets, which are still owned by Abramovich, expired on 30 November, but has since been extended. It is understood that Abramovich must apply to the OFSI for a new licence in order for the funds to be released to the charitable foundation and redistributed to Ukraine. A spokesperson from the Foreign, Commonwealth & Development Office (FCDO) said it remained ‘open to any arrangement’ that would allow the funds to reach Ukraine ‘as quickly as possible’.

In December, the Court of Justice of the European Union dismissed a legal challenge brought by Abramovich to overturn EU sanctions imposed on him in the wake of Russia’s invasion of Ukraine. In a statement issued by his representatives, Abramovich said he did ‘not have the ability to influence the decision-making of any government, including Russia, and [had] in no way benefited from the [Ukraine] war.’

Meanwhile, in August the High Court in England and Wales rejected an attempt by businessman Eugene Shvidler to declare his designation unlawful after he was sanctioned by the UK government over his alleged links to Abramovich. The case is currently being heard at the Court of Appeal. It’s not believed that Abramovich has launched any similar challenge against the UK government.

There are concerns that the protracted ‘disagreement’ over the proceeds from Chelsea FC could detract from the larger challenge of rebuilding Ukraine, says Anelay. ‘Even if that money were properly allocated to Ukrainians in Ukraine, there’s still a much bigger effort that is needed for reconstruction,’ she says.

The total amount of wartime damage to Ukraine’s infrastructure reached $151.2bn in September 2023, according to estimates by the Kyiv School of Economics. This doesn’t include data for damages sustained in the occupied territories, meaning this figure will probably be much greater. There’s mounting pressure on Western governments and banks to use sanctioned Russian assets to compensate for damage caused by the war.

In Ukraine, this is already possible by a court judgment in criminal proceedings or a civil forfeiture case. However, Kateryna Gupalo, Senior Vice-Chair of the IBA Business Crime Committee and a partner at Arzinger in Kyiv, says efforts by Ukraine alone won’t cover the scale of the damage. ‘Even considering these efforts, the number of damages is so high that it is impossible to compensate for these damages and rebuild destroyed houses, hospitals, bridges, etc, with the internal resources of Ukraine only,’ she says. Gupalo says her country has no illusions that Russia will be willing to pay any compensation, at least with its current government in place. ‘The only feasible solution as of now is the usage of frozen Russian assets or proceeds from these assets,’ she adds.

Legal mechanisms to appropriate frozen Russian assets for rebuilding Ukraine are gaining traction elsewhere. Last year the UK introduced a route for frozen Russian assets to be donated specifically for reconstruction in Ukraine, not in return for sanctions relief. In 2023, the International Register of Damage was set up as the first step towards establishing an international reparations mechanism to compensate Ukraine’s war victims.

Iryna Mudra, Deputy Minister of Justice of Ukraine, discusses the International Register of Damage in further detail in her article ‘Compensating Ukraine,’ which appears in Global Insight, February-March 2024.

Image credit: Dilok/AdobeStock.com