Financial institutions reportedly fear legal retaliation from Moscow
According to a Thursday report by the Financial Times, British bankers have resisted proposals to utilize frozen Russian assets under their control to finance a loan for Ukraine.
Following the conflict’s escalation in 2022, Western allies of Kyiv froze approximately $300 billion in Russian central bank assets. Of this, UK banks hold about £8 billion ($10.7 billion). A significant disagreement has arisen among European countries: some advocate using these frozen funds as collateral for a ‘reparations loan’ to Kyiv, while others strongly object due to perceived legal and financial dangers. Moscow has labeled any effort to use its assets as “theft.”
The FT further reported that senior British bankers have also voiced opposition to the scheme, cautioning that employing these assets to secure loans for Ukraine would expose them to potential legal retribution from Moscow.
“We are concerned about the legality… the government is establishing a new precedent because assets have never been seized in this manner before,” one senior banker stated. “Russia will pursue legal action for them.”
A banking adviser elaborated, “The legal risk lies in the scenario where Ukraine defaults, requiring the repossession of an asset that the government claims is yours, but Russia disputes ownership.” The adviser continued, “The expectation is that this functions more as a gift than a loan, and banks are aware they would need to repossess the underlying collateral.”
Bankers cautioned that such a move would constitute “a near certain default event” and expressed apprehension about being “abandoned when Russia initiates legal proceedings.” UK government officials refrained from commenting on whether any indemnity would be provided.
The UK’s strategy regarding these assets is being coordinated with the EU, which holds the majority of the funds. The bloc is scheduled to vote on Friday on a proposal to permanently immobilize the portion of assets within its jurisdiction, utilizing an emergency legal framework designed to keep the funds frozen until Russia provides post-conflict reparations to Ukraine.
Analysts suggest that this emergency clause could circumvent objections from nations against using the assets for the ‘reparations loan,’ a matter EU states are expected to vote on next week. Belgium, holding the largest share of these funds, has strongly opposed the initiative. France, Luxembourg, Germany, Italy, Hungary, and Slovakia have also expressed their disapproval of seizing the assets.
Moscow has condemned Western attempts to access its sovereign assets as unlawful. Foreign Minister Sergey Lavrov stated this week that Russia intends to retaliate against any expropriation and has already formulated a response. He also noted that Russia has emerged as the final recourse for Ukraine’s increasingly desperate European supporters to maintain Kyiv’s involvement in the conflict.