How do you solve a problem like frozen Russian assets? Specifically, how do you construct a $50 billion loan off frozen Russian central bank assets, while complying with your own laws?

That's the question US and European leaders are grappling with as they attempt to send a new aid package to Ukraine. And no solution has been found yet, leaving Ukraine potentially without the full slate of resources it needs to continue it's defense against Russia.

According to the New York Times, about 190 billion euros of Russian central bank assets are being held at Euroclear, the securities depository in Brussels, Belgium. And those assets are generating some 3 billion euros in interest each year. “Showing that we do have the means of translating earnings on the frozen assets into a stream of support for Ukraine, I think, is an important way to demonstrate that we’re not about to fold — we’re going to be able to help Ukraine," said Janet Yellen, the US Treasury Secretary, earlier this year.

Yet, structuring a loan between the United States and 27 member states of the EU (where much of the assets are held) is proving to be very challenging because of the varying legal codes. For example, the New York Times notes that EU law requires sanctions to be renewed on the frozen assets every 6 months.

Moreover, as interest rates begin to fall, the return on the frozen assets will shrink and jeopardize the loans.

In August, Ukrainian President Volodymyr Zelenskyy expressed his frustrations that, in spite of statements by the EU and US that a solution to the assets and loan would be found, progress was slow. "It is necessary that the funds from the aggressor's assets work for real assistance in defense against the aggressor," Zelenskyy said, notes Radio Free Europe. "Relevant discussions have been going on for too long, and finally solutions are needed."

Now, three options are being presented to solve the Russian asset question. As Reuters reports: "The renewal options were presented to ambassadors on Friday. The first option is a five-year freeze on the assets with a review every 12 months and a qualified majority of EU countries needed to unfreeze the assets….The second option is a renewal of the asset freeze every 36 months with a unanimous vote, they said. The third option would be to extend the renewal period for all sanctions related to Russia to 36 months from the current six months."

While these options "would reduce the costs that the United States would incur in backing the loan," the Times adds, "Congress would still most likely need to approve new money or redirect existing funds because of the risk that the sanctions might not be extended."

To shore up some financing, the IMF announced this week that it would help secure over $1 billion for a loan to Ukraine. “Ukraine’s four-year Extended Fund Facility Arrangement with the IMF continues to provide a strong anchor for the authorities’ economic program in times of exceptionally high uncertainty," the agency said in a statement. "Performance under the program has remained strong despite the war, with all quantitative performance criteria for end-June met, as well as the structural benchmark due for this review."

Ballooning Billionaires

While sanctions remain on Russia and the assets of its central bank remain frozen, the country's oligopoly seems to be doing just fine. Citing a report by Forbes, Reuters says that Russia added 15 billionaires this year, bringing the total to 125. Meanwhile, their collective wealth grew by $72 billion to a total of $577 billion.

As Reuters continues: "Putin has repeatedly touted the failure of Western sanctions to destroy the Russian economy and played up the fact that Russia's economy expanded faster last year - with GDP growth of 3.6% - than any of the Group of Seven nations largely responsible for sanctions."

Verdict

The mismatch of laws by individual states has become a hindrance to a collective benefit (the support of Ukraine). This might be an opportune moment to negotiate international law (or laws for the EU and US) that supercede national laws for sanctions and government loans.