Repurposing Russian Assets to Rebuild Ukraine

Jonathan Djanogly Excerpts

Tuesday 27th June 2023 Commons Chamber

[Mr Jonathan Djanogly (Huntingdon) (Con)]

The sanctions regimes, and measures taken under them against named individuals and Russian state assets, have played a vital role in the Ukrainian resistance, albeit one of a more slow-burning nature than military help. They are a slow-paced, grinding remedy against what has turned into a slow, grinding war in which bravery, defiance and the spirit and determination of enlisted men will ultimately allow Ukraine to prevail. We must play our part. As of May, records show that 1,604 individuals and 228 entities under the Russian regime are subject to the UK’s freezing sanctions to a value of approximately £18 billion. In addition, an estimated £26 billion of Russian state assets are frozen here in the UK. Russia is the most sanctioned country in the world, and while innocent Ukrainians continue to be killed for Russian imperialist ambitions, that must remain the case. More broadly, it is estimated that some £275 billion-worth of Russian assets have been frozen worldwide.

The Government are actively freezing assets. Freezing is good, but reallocating frozen assets to Ukraine’s benefit will be better, not least because of the monumental sums that are estimated to be needed to fund reconstruction—that is, reconstruction of homes, businesses, infrastructure and lives. I was therefore interested and pleased to read the detail of the statutory instrument—the Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023—laid by the Minister of State, Foreign, Commonwealth and Development Office, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), last Monday. Its introduction enables freezing order sanctions to be maintained until Moscow pays compensation to Ukraine for the destruction that Russians have caused and will continue to cause until the war ends. It is a positive step towards the calls that I and many other Members of this House have been making for assets forfeiture, although we are certainly not there yet.

As part of the joint Foreign, Commonwealth and Development Office, Treasury and Home Office press release last week detailing these new legislative measures, I read with interest that the Government’s

“proposal to force sanctioned individuals to disclose UK assets will bring in greater transparency and leaves less room to hide.”

This proposal is long overdue, and I encourage the Government to make it a legal reality as soon as possible. Could the Minister explain the planned legislative process to enable that?

Questions over the specifics of the proposal remain. When brought forward, it is crucial that if sanctioned individuals are found to be in breach of the legislation, the proposal should open all their frozen assets to seizure and reallocation. I ask the Minister: would a breach of this provision cover an individual’s entire sanctioned asset base—at least that in the UK, and not just that which may have been found to have been hidden? That would have the dual effect of equipping the Government with a large motivational stick when it comes to greater transparency and allowing the effective forfeiture of a potentially significant amount of assets if breaches are identified. Both effects are desirable, and I would be interested to hear whether the Minister agrees.

Ultimately, the strength of the UK’s response to Russia’s attack on the post-1945 world order rests on being in lockstep with our international allies. The US, the EU and Canada are all proactively working on or have already implemented means of asset seizure and reallocation, even if only in a limited way. The move to allow frozen assets in the UK to be allocated towards Ukraine’s reconstruction complements similar moves in the US and Canada last year and EU proposals made earlier this month. All of this is very welcome.

[Sir Julian Lewis (New Forest East) (Con)]

I am grateful to my hon. Friend for giving way, and I apologise for missing the opening of the debate. Has any consideration been given to what should happen to the interest or other income generated by those assets during the period that they are frozen? Surely, even if the assets are not seized in the end, their owners should not benefit from anything that the assets earn during that frozen period.

[Mr Djanogly]

My right hon. Friend makes a different but important point. That aspect has been pursued by the European Union; in fact, I believe that it set up a committee a month or two ago to look at that very point. I think it is a very good idea, and we should certainly be pursuing it. Obviously, all these sanctioned assets cost money to keep—flats have to be maintained; boats have to be maintained—and we should be using income from these assets at least to pay for the maintenance of them, if not to get income that we can then give to Ukraine. He makes a very good point.

The Minister said earlier that the use of frozen assets towards reconstruction would not be allowed as a means of circumvention. It would, however, seem rather unlikely that a Russian sanctioned person would permit their frozen assets to be donated to Ukraine unless there was some benefit to them, such as sanctions cancellation. Perhaps the Minister could explain why else the sanctioned individual would want to do so. Why would they want to give their assets to Ukraine if there was not a deal to be had? The Ukrainians, it has to be said, have expressed concern at the prospect of deals being done with oligarchs in individual countries—they think that might breach the wall, so to speak. As such, could the Minister confirm that if deals are done at all, they would only be done on a multilateral basis?

To make one final point if I may, the original purpose of our adopting the Magnitsky sanctions was to protect those whose human rights are ignored by foreign regimes. As the Russian Federation staggers on, we must remain vigilant towards those of its citizens who support democracy. At this very moment, Open Russia’s vice-chairman Vladimir Kara-Murza—twice poisoned, and now sentenced to 25 years—languishes in a Russian prison, even though his lawyers and family are unsure of his exact whereabouts. Mr Kara-Murza, whose brave wife I had the honour of meeting in Parliament last week, is a valiant spokesman for democracy and human rights. The Government have sanctioned only five of his dozens of tormentors; even Lithuania has sanctioned 15 of them. As a British citizen, should Mr Kara-Murza not expect us to be leading the way on this issue? I hope that Ministers will now respond with appropriate resolution.

--- Later in debate ---

[Leo Docherty]

I am grateful to the hon. Member for Cardiff South and Penarth for laying out the various options. He asked what consideration we have given, give and will continue to give to them. First and foremost, we are working at pace. Our officials were in Brussels earlier this week, liaising with EU officials and looking at various models, so the work is continuing at pace. Clearly, if that were easy we would have done it already, but that does not mean that significant institutional effort and energy is not being put into the matter.

[Mr Djanogly]

The Minister is speaking about the EU. Is the issue not that at the start of the conflict the UK was leading the pace, particularly in financial services and other areas, but as the war has progressed, we seem to have been waiting for the EU, as he mentioned, and the US to lead the way? Is it not now time for the UK to regain the initiative once again?

[Leo Docherty]

I respectfully disagree with my hon. Friend’s characterisation. We are all looking at these issues. Clearly, the EU has some ideas about the potential use of interest payments on seized assets. That is an idea, not a legally tested, viable route. As the EU is considering that, so are we, which is why our officials were in Brussels earlier this week.

[Mr Djanogly]

To follow that theme, let us take the question of interest as an issue. That idea has not come out of the EU in the past two months; it has been spoken about for at least six months, but the EU has decided to look at it in the past two months. Has my right hon. Friend not considered that that is something we should have done by now?

[Leo Docherty]

It is certainly under consideration, but it will depend upon legality. If there is no legality, there is no utility.