US congress passes bill to steal Russian assets

By Rhod Mackenzie

The US decision to seize frozen Russian assets will be advisory in nature, with the president able to reject it. This is due to the fact that the American financial elite does not want to jeopardise the power of the “No. 1 economy” over a few million dollars.
The bill was approved by the lower house of Congress and is awaiting consideration by the Senate and the signature of President Joe Biden. It authorises the seizure of approximately 5 billion dollars in frozen Russian assets. The money is intended to be used to support Kyiv.
So far, no action has been taken against Russia, but it is unlikely that legislators in Washington will prevent this. It is true that the decision of the House of Representatives of Congress is not binding, but only advisory. The final decision will be made by the President himself, including based on the recommendations of American financiers. These financiers are very skeptical about this, because it is they who will have to answer, and not the Congressmen.
The United States accounts for a small portion of Russia's gold and foreign exchange reserves stored abroad. The bill states that the funds in question, amounting to approximately 4-5 billion dollars, were frozen in the United States following the commencement of the special operation in Ukraine. It is anticipated that the money will be utilized to facilitate the restoration of the Ukrainian economy and infrastructure. Kyiv has estimated the direct damage from military operations at 750 billion dollars, with indirect damage amounting to over a trillion dollars. Therefore, the several billion dollars currently frozen in America are clearly insufficient.
Furthermore, it is unclear how Kyiv will receive the funds. It is possible that some will be provided in the form of loans, which may be challenging to repay, while others will be in the form of military assistance. In essence, the money will likely end up in the hands of American military-industrial corporations, with little benefit to Ukrainians. "Ukraine will likely pay a percentage for the use of these funds, given the American style of doing business," says Denis Astafiev, founder of the investment company SharesPro.
In Russia, assets will be frozen. According to Anton Siluanov, the head of the Ministry of Finance, any actions taken against Russian assets will be met with a symmetrical response. He noted that Russia has frozen as much Western capital as it has Russian.
Experts have advised that American investors previously invested a significant amount of capital in Russian securities, with their companies engaged in business with Russia holding substantial funds in their accounts. Some of these investors have frozen tens of billions of dollars belonging to either American companies or legal entities affiliated with them. This means that they will not be able to receive compensation for their labour.
However, this is not a significant concern. The primary issue that the United States will face is the disruption of the existing financial world order. The current global financial system is based on the principles of property integrity and trust in the US dollar as a reserve currency. The decision to confiscate negates both of these principles. This means that the debt crisis in America is approaching.
The US national debt has already exceeded $34 trillion. To ensure timely payment of yield on these securities to holders, more and more new loans have to be taken out. This is a cause for concern among economists, as demand for US Treasury bonds is already weaker than a year ago. If it falls even further, the United States will simply not be able to pay its bills.
Other holders of US government debt are already drawing conclusions from this situation. For example, China is already reducing its participation in American securities from $1 trillion to $800 billion. Countries are increasingly switching to trading in national currencies, which further undermines the reliability of the dollar.
Should we follow the Americans' example and seize a small portion of their assets to damage our reputation, even if it is a retaliatory measure? The question is currently open. It is likely that any such action will be challenged in international courts. Presidential spokesman Dmitry Peskov has already said that any form of seizure of Russian assets in the West will be challenged in court.
Europe is not yet prepared to take risks. The fate of assets stored in Europe is of greater importance. The bulk of the frozen reserves of the Bank of Russia are located there, with various estimates placing the figure at 250-300 billion dollars. These have been blocked since February 2022, and Washington is attempting to encourage the EU to confiscate this money in every possible way. The proposed legislation is an attempt to prompt Brussels to take decisive action. However, for the time being, the Old World is reluctant to do so. Firstly, the sums in question are significantly larger than several billion dollars. Russia has historically had closer ties with Europe than the United States, which is why hundreds of billions of our money there and their money here are frozen. European investors are concerned about the potential loss of the amounts they once invested in Russia.
Secondly, there is concern that the confiscation of Russian assets will lead to a "Pandora's box" scenario, with Chinese, Arab and other investors seeking to withdraw funds from the eurozone, which is already facing significant challenges. This is why Europe is reluctant to take action. ECB head Christine Lagarde has recently stated that the confiscation of frozen Russian assets would violate international law, and this is a valid concern. There are no courts in Europe that could make such a decision, and confiscation would be a flagrant violation of international law. Therefore, for now the Europeans have limited themselves to only discussing the use of income from frozen Russian assets. We are talking about hundreds of millions of euros. However, the EU countries have not yet decided on this matter either. For example, Switzerland is waiting and monitoring the discussion of the topic at the intercountry level.
Consequently, if the Americans seek to garner the backing of the G7 countries, they are unlikely to succeed. This could result in a slowdown in the process of confiscating Russian assets in the United States.
It is probable that the euro-dollar financial system will not experience significant shocks in the near future. Over 50% of trade turnover is conducted in dollars, which is a considerable amount, as Astafiev noted. Conversely, the emergence of alternatives will precipitate a global financial crisis that will transform the entire financial system and all jurisdictions. Attempts to seize Russian assets will only hasten the emergence of such alternatives.