Opinion | One Way to Make Russia Pay for Ukraine? Take Its Money.

“To modern eyes, 19th-century wars protected commerce and finance to a degree that is almost unbelievably generous,” the Cornell historian Nicholas Mulder wrote in his 2022 book, “The Economic Weapon: The Rise of Sanctions as a Tool of Modern War.”

During the Crimean War (1853-56), the British and Russians dutifully paid interest to the other on old debts even as they slaughtered each other on the battlefields. For civilized nations, a British government minister said, it was simply obvious that “public debts should be paid to an enemy during war.”

Attitudes, practices and legal theories have clearly changed in the last 170 years. The question is, how much? How far will nations go today in using economic sanctions to punish their enemies? I’m interested in the case of, once again, Russia. It appears that the United States is willing to hit Russia over its invasion of Ukraine a lot harder than the Europeans are. That’s putting stress on Western alliances.

This week I interviewed Wally Adeyemo, the deputy Treasury secretary, who is the department’s point person on economic sanctions. Adeyemo, who immigrated from Nigeria as a child with his family, has a law degree from Yale and a broad remit that includes national security as well as economic inequality.

“Frankly, we’re trying to put sand in the gears” of Russia’s war machine, Adeyemo told me. “Early on, the president told us to focus on, what can we do to create the greatest cost for Russia and minimize the cost to others? I think we’ve done a fairly good job of doing both of those.”

He acknowledged that Russia has partly evaded the sanctions placed on it since the war began in February 2022. It is trading more with China, India and Turkey and much less with Europe than before. It has put together a shadow fleet of oil tankers to export crude oil at prices above the cap that Ukraine’s allies have attempted to impose. The International Monetary Fund predicts that Russia’s economy will grow 3.2 percent this year — strikingly strong considering how many working-age men have left the country, are in military service or have been killed or wounded.

Adeyemo said that Treasury Secretary Janet Yellen regularly meets with him and other top officials to dream up new ways to hinder Russia. Electronic devices have to be left outside the door of the secure conference room where the meetings are held, he said, “so our friends in Russia don’t know what we’re thinking.”

I asked him what should happen to about $200 billion worth of Russian assets that are frozen in Euroclear, a Belgium-based institution that processes financial transactions. Under Euroclear’s policies, Russia isn’t entitled to interest earned on the money while it’s trapped in its system. But what about the principal? Can that legally be seized to aid in the war effort?

In contrast to the gentlemanly practices followed during the Crimean War, it’s accepted today that combatants are entitled to grab assets belonging to the other side. The complication is that neither Euroclear nor Belgium nor any of the Group of 7 nations is at war with Russia. Only Ukraine is.

Grab the money anyway, some Americans say. Last year, Laurence Tribe, a Harvard professor emeritus of law, and four other scholars wrote that “any country that currently holds Russian assets should transfer them to Ukraine.” Their 199-page report contended that “repurposing Russia’s frozen reserves in that manner fully comports with existing legal authorities.”

The G7 has said the assets will remain frozen until Russia ends its invasion and pays reparations for the damage it has inflicted on Ukraine. But Ukraine is in a fight for its life and needs money now, not after the damage is done.

Leaving the money in Euroclear runs the risk that Russia will demand it back as a condition for ending the fight, and it would be politically difficult for the West to resist that demand, which would essentially pit money against lives, Lee C. Buchheit, an American lawyer, and Paul Stephan, a professor at the University of Virginia School of Law, have argued. “We believe that it would be more prudent to remove this piece from the chessboard now before the politicians are compelled to face that cruel choice,” they wrote last year.

I asked Stephan if the right to seize Russia’s assets was a gray area in international law. “International law has nothing but gray areas,” he said.

To the Europeans, the existence of legal gray areas is ample justification for taking things slowly. Veerle Colaert, a professor at Belgium’s KU Leuven University, told me that “there are a lot of divergent opinions” on the lawfulness of an asset seizure. “The fear is that it would mean an escalation” and undermine the confidence of other nations in the security of the funds they move through Euroclear, she said. “The European Union wants to be on the safe side, mainly for political reasons,” she said. “Euroclear have promoted themselves as being neutral.”

Adeyemo and Yellen realize that they can push their allies only so hard. In the G7 summit in Apulia, Italy, this month, a tentative compromise was struck: A group of allies would collectively lend $50 billion to Ukraine for the war effort, and the loan would be repaid with income from the Russian assets. That skates close to taking control of (some of) the assets without legally doing so.

“We’re now implementing” that agreement and have instructions from G7 leaders to lock it down before the end of the year, Adeyemo told me. “That may seem like a while, but there’s a lot of work that we need to do.”

To me it’s absurd that Russia and Britain paid interest to each other during the Crimean War, and only slightly less absurd today that Western nations are being so fastidious about respecting the property rights of Russia even as it pulverizes Ukraine.

I get that the Europeans want their institutions to be seen as reliable places to keep money, but the solution is for the G7 to present a united front. If all G7 members act together to seize Russian assets, Russia and other would-be evildoers won’t be able to play one nation off against another. This is no time for diffidence.

The Readers Write

Regarding your short item about “The Guarantee,” a book by Natalie Foster: After the Civil War, plantation owners feared that if freed slaves were provided their own land, they would not provide the owners with affordable labor. That is the same fear from the capital-controlling elite today. They fear that they would lose control of labor if there were a guaranteed bottom income.

Ronald Merckling
Pasadena, Calif.

Your line about deliberate ignorance being “contrary to simple economic theories that say more information is always better” sets up a straw man. Economists have long been aware of circumstances in which more information is not better. For instance, Jack Hirshleifer showed in 1971 that too much knowledge destroys insurance markets.

Susanto Basu
Chestnut Hill, Mass.
The writer is a professor of economics at Boston College.

The word nice derives from ne scire, Latin for not to know.

Peter Keese
Brentwood, Tenn.

Quote of the Day

“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”

— Joan Robinson, “Marx, Marshall And Keynes” (1955)