Repurposing Russian Assets to Rebuild Ukraine

Iain Duncan Smith Excerpts

Tuesday 27th June 2023 Commons Chamber

[Mr Lammy]

This is a debate about repurposing. The hon. Gentleman might remember that after the first Gulf war, oil revenues were used to rebuild much of Kuwait. That is the central point that this debate is about. There is a consensus globally on the issue, with the Canadians, the United Nations and US Senators making progress in this regard. The debate is about repurposing. We have to be very careful to get the balance right. It is clear that we cannot leave Ukraine to do this on its own, so the question is: do we have the will to make this happen?

[Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)]

I am grateful to the Opposition for selecting this subject for debate. I cannot be here to make a full contribution, but I just want to ask the right hon. Gentleman a simple question. During a recent debate in this place, we pretty much came to a consensus that the first stage is to look to repurpose the frozen assets: $300 billion-plus of national assets and maybe $50 billion of individual assets. They are sitting in our hands. They are not the same as reparations; they are funds that are in very clear existence. A lot of international lawyers think it can be done. I just wondered what the right hon. Gentleman thought.

[Mr Lammy]

The right hon. Gentleman is right. He is right about the football team we both support—it is not the only thing he is right about, but he is right about that—and he is right that more than $300 billion of Russian state assets have been frozen by our global partners, with £25 billion here in the UK. The central point is that those assets are frozen, so the question is, what are we going to do now?

--- Later in debate ---

[Mr Lammy]

That is, of course, central to the work my hon. Friend has been doing in his Seizure of Russian State Assets and Support for Ukraine Bill. I think the House could come together to amend the State Immunity Act. I do not want to comment on the Foreign Secretary, except to say that, in my experience, if he has had an overnight flight, he can be a little prickly, but we will not hold it against him.

Since the beginning of the invasion, more than £25 billion of Russian state assets have been frozen in the United Kingdom, and more than $350 billion of Russian state assets have been frozen by our global allies, and those vital assets could be used to help fund Ukraine’s recovery. Since February last year, my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) and I have been pushing the Government on this issue relentlessly, and I pay tribute to the great work of my hon. Friend the Member for Rhondda (Sir Chris Bryant), who tabled his ten-minute rule Bill specifically to speed up the Government’s efforts in this area.

Each time, the Government’s response to Members of this House has been that the Government support repurposing Russian state assets but that it is complex. We fully accept that, but we do not accept—and I do not think, given its mood, that the House accepts—that this issue is insurmountably complex or that we should not try to meet this challenge.

We accept the concern that, on the whole, it is not good for any Government to seize another state’s assets and that the right to property is fundamental to the rule of law, but there are exceptions to that rule. For example, the law reserves the right to fine people and deprive them of ill-gotten gains. In the same vein, we recognise concerns that repurposing Russia’s central bank reserves could violate Russia’s sovereign immunity but, again, there are exceptions to that rule. We believe that Russia’s continued refusal to comply with international human rights law or to follow the orders of the International Court of Justice are good grounds for such an exception.

Simply put, we believe that Putin’s full-scale invasion of Ukraine represents a wholly exceptional act, from which exceptional countermeasures can flow, and we are not alone in that belief. As the Minister will know, the Canadians have had legislation in place since December last year to repurpose frozen Russian assets, and it is a similar common law jurisdiction to ours. The European Union is working at pace to ensure that Russian central bank reserves can be repurposed by the summer. Last month, United States politicians laid a Bill that would allow for state assets to be repurposed. Finally, we must remember that the UN General Assembly has voted on this very issue, adopting a resolution that calls for Russia to pay war reparations to Ukraine and for states to transfer Russian state assets into a central bank account to be repurposed. This begs the question: why, then, are the Government lagging behind our international allies in this area? We believe we must rise to this challenge, and we must rise to it now.

[Sir Iain Duncan Smith]

I apologise for interrupting the right hon. Gentleman again.

Sovereign immunity applies in international law to foreign judicial processes. It is clear in international law that sovereign immunity does not apply to administrative or legislative processes, such as Bills. It is quite possible for us to pursue this by tabling legislation, as America has, to secure that process in the courts. Sovereign immunity applies only to judicial processes, so it would be wholly feasible in legislative terms.

[Mr Lammy]

The right hon. Gentleman is absolutely right. Very few countries now consider sovereign immunity to be an absolute immunity, and there have been many exceptions. Meeting damages, particularly those awarded by international courts and tribunals, is one such example. The State Immunity Act also expressly restricts sovereign immunity.

I agree with the right hon. Gentleman that Russia’s continued refusal to abide by international law provides us with exceptions, and we should now table legislation to make it clear that there are exceptions.

--- Later in debate ---

[Dave Doogan (Angus) (SNP)]

Where will we find half a billion dollars to rebuild Ukraine? The international community, certainly; the World Bank, almost certainly; the EU and/or the US, definitely—but we should certainly shine a very bright searchlight on the ill-gotten gains of the Russian elites who stood by and watched Putin, who relies on the co-dependency they create, systematically destroy the natural and built capital of Ukraine for reasons so spurious that they would be comic if they were not so egregious and deadly for the innocent people of Ukraine.

Let us not forget where the playgrounds of those Russian elites were. They were in Paris, in Manhattan and in Mayfair, and elsewhere in London, where their inexplicable wealth sloshed around the property markets, casinos and car dealerships of this city. The Londongrad laundromat was a clear and present threat to national security, but in the tension between national security and the Tories’ access to wealthy Russians, national security came off second best.

London is the most notorious safe haven for looted funds in the world, with much of the money hidden via London in offshore trusts in British overseas territories. Even after years of campaigning by SNP Members and other stakeholders, it took Putin’s barbarism against the people of Ukraine for the Conservatives finally to stop accepting Kremlin-linked donations and to impose sanctions on Putin and his cronies. It is clear now what lies behind this Government’s pedestrian approach to pivoting from freezing assets to seizing them: the sheer value of Russian assets held within the UK. In this instance, as in many others, when I say the UK, I of course mean London.

Contrast that with Estonia, whose Government have declared they will present a blueprint for how Russian frozen assets can be legally seized. Their goal is to use the funds to pay for Ukraine’s reconstruction. The Estonian Prime Minister, Kaja Kallas, said last month that her country plans to offer a legal rationale for the expropriation of the €20 million in Russian assets that it has frozen. What it is to be a small EU nation that can act nimbly and remain in touch with its populace.

However, a country does not have to be a small EU nation to do the right thing. In Canada, the Frozen Assets Repurposing Act aims to allow Canadian courts to take the frozen assets of foreign officials whose misrule creates forced displacement and humanitarian needs. It essentially foresees new powers to seize and sell assets of sanctioned Russian oligarchs while repurposing the proceeds to help with the rebuilding of Ukraine. In Switzerland, should an oligarch fail to demonstrate the lawfulness of their wealth, the law on asset recovery would allow for the confiscation of frozen assets without the need to commence a separate civil proceeding. The European Commission has also followed suit, presenting in May a new directive on asset recovery and confiscation. The proposal seeks to modernise EU rules on asset recovery through a series of measures, including an asset recovery and management office with the power to trace and identify criminal assets, ensure that frozen property does not lose value, and enable its sale for the purposes of rebuilding Ukraine.

[Sir Iain Duncan Smith]

To clarify, there is a difference between the seizure of private assets and the seizure of state assets. Sovereign immunity simply does not stand in the way of the seizure of private assets, which requires only that legislation be passed, therefore negating the sovereign immunity. I accept that the Government could do that quite quickly—they have been talking about it—but state assets are a bigger issue because of state immunity. Again, legislative action could be taken, but it should be done in co-operation with other states so that there is no flight of capital.

[Dave Doogan]

I thank the right hon. Gentleman for his intervention, particularly because he highlights, as he did in his earlier intervention, the issues to do with state immunity. At the heart of this debate is an appeal for urgency on legislation that tests the very boundaries to which he refers. I take no issue with that intervention.

In contrast with what is happening in other jurisdictions, the UK has yet to transform its words about hoping that the proceeds of sanctions pay for reconstruction into a more informed policy and legislation-focused debate with action to follow. The UK cannot afford to be the weakest link in the western alliance’s struggle against Russian illicit finance. We recommend, as a minimum, that the UK Government review the designation criteria underpinning the global anti-corruption sanctions regime to consider whether an abuse of function would provide greater flexibility for FCDO officials to impose designations. Any new legislation must be properly funded, of course. New laws are useful only if they are properly implemented with the correct resource. Economic crime has been the poor relation in UK policing for too long. Economic crime enforcement in the UK is woefully under-resourced, particularly given the scale of the challenge posed by dirty money in the UK economy.

The UK has taken some steps—if belatedly—to freeze assets, but it must now legislate at the earliest opportunity to seize Russian assets, in accordance with international ambition and international law, with adequate funding and in co-ordination with allies who have done the same. While other countries are taking strides to legislate for how frozen Russian assets can be lawfully seized, the UK Government are, thus far, yet to make the transition from warm words to legislative effect. We need a step change on that immediately.