US judiciary is serious: First Russian oligarch expropriated

The US has transferred money from a confiscated state-owned account of a Russian citizen for the first time. The money should go to Ukraine.

US Attorney General Merrick Garland shakes hands with Ukraine’s Attorney General Andriy Kostin April 17 at the Justice Department in Washington. AFP

The US government has for the first time transferred assets from a confiscated US state-owned account owned by a Russian oligarch. Attorney General Merrick Garland has arranged for $5.4 million to be transferred from the Russian’s account to a State Department account, the Financial Times (FT) reports. The money previously belonged to Konstantin Malofeev, a Russian investor and founder of a pro-government media empire. He is accused of violating sanctions following the annexation of Crimea in 2014.

In February, after a meeting with Ukrainian Attorney General Andriy Kostin, Justice Minister Garland approved the use of the funds “in Ukraine to repair the damage caused by Russia’s unjust war.” Garland said the money had been transferred to the State Department and would be “used for this purpose.” The State Department said it received a $5.4 million referral from the Justice Department through the Kleptocapture Task Force. The State Department is now authorized to use the money to support Ukraine. According to the FT, it is still unclear how exactly the money will be transferred to Ukraine from a budgetary point of view. It is also being considered how corruption could be prevented. Garland said more moves of this nature were forthcoming. “While this is the first transfer of confiscated Russian funds for Ukraine’s reconstruction by the United States, it will not be the last,” he said in a statement.

With this measure, the American government is taking the first steps to expropriate Russian citizens and companies if they have violated sanctions. However, the expropriation of private individuals is only a small part of what the US government, the EU and Canada are planning. Canada has just changed its legislation to allow for the confiscation of Russian state assets and their transfer to Ukraine. In Europe, the preparations are even more concrete: back in February, the heads of state and government of all EU countries announced that the EU would “support the reconstruction of Ukraine through efforts to recover frozen and immobilized Russian assets in accordance with EU and to use international law”. They also decided on new measures to get hold of the Russian funds.

In the coming week, the G7 states want to discuss how expropriation of Russian assets can be carried out quickly.

Former US Treasury Secretary and Harvard economist Lawrence Summers and former World Bank President Robert Zoellick wrote in a recent joint article in the Washington Post that the most attractive part is Russia’s foreign exchange reserves, which currently stand at about $300 billion. Private funds seized in the EU, on the other hand, amount to just $24 billion, according to the FT. According to Summers and Zoellick, there are certain legal concerns about private expropriations, while the case regarding the realization of Russian state assets is clear under international law: Due to the UN resolution of November 2022, Russia must pay for the damage caused by the war. Because a state has no individual rights, the confiscated money can be used directly without further procedures. That’s what happened to Iraq after it invaded Kuwait, where $50 billion was distributed to neighboring countries.

The western states are still hesitating with the first expropriation of Russian state assets. According to EU Council President Charles Michel, there are concerns in some member states that Russian retaliation could lead to financial instability. Russia has already announced that it intends to take action against Western funds and assets in Russia. According to Summers and Zoellick, it is particularly important that Japan and the EU pull together with the United States – so as not to offer Russia the option of switching from the dollar to yen or euros. Because it is to be expected that many states, individuals and companies will flee the dollar if they face expropriation without legal process.