COLUMBUS, Ohio — U.S. House Speaker Mike Johnson has teed up series of high-pressure votes on foreign aid in support of Israel, Taiwan, and Ukraine. Within his caucus, aid for Ukraine has prompted so much opposition among far-right members it threatens his speakership. Alongside the aid measures, though, the speaker is advancing a new sanctions proposal that is stirring up controversy of its own.
The 21st Century Peace through Strength Act incorporates another wordy legislative aspiration known as the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act. That’s the REPO Act for short. The basic idea is Ukraine needs money to fund its defense against Russia and eventually rebuild; Russia meanwhile has a mountain of assets frozen in foreign countries because it attacked Ukraine. So why not use the latter to solve the former?
Back in January, U.S. Sens. Jim Risch, R-ID and Sheldon Whitehouse, D-RI, took a victory lap after the measure passed out of committee.
"Russia should pay to rebuild Ukraine, and U.S. leadership is essential to spur action," Risch argued. "When we help Ukraine rebuild after it beats back the Russian invasion," Whitehouse added, "seizing and repurposing the Putin regime's frozen funds is the right place to start."
European Union leaders last month agreed in principle to a plan redirecting the interest generated by Russia's frozen holdings to Ukraine. Once finalized, that could amount to a little more than $3 billion a year.
But Ohio Republican U.S. Sen. JD Vance warns that he thinks the proposal is much more fraught and complicated than it seems.
What's the problem?
Vance contends liquidating Russia's assets could boomerang back on the U.S. in a couple of ways. He circulated a memo earlier this week urging lawmakers to pump the brakes.
The U.S. Treasury auctions bonds, colloquially known as treasuries, to fund government functions. They're generally seen as one of the safest investments available. But if those holdings "could vanish at the snap of a finger," Vance argued, "it is likely that there will be a decline in parties willing to both attend Treasury's weekly auctions and purchase treasuries through dealers."
Just as the move undermines U.S. bonds' reputation, Vance added, it could make alternative financial systems more attractive. In response to sanctions, Russia and China have begun developing their own international banking and payment programs. Vance claims the popularity of those systems "has skyrocketed" in the wake of recent sanctions against Russia.
Confiscating Russia's assets could drive more countries to those alternatives and as a result make it harder for U.S. law enforcement to "track terrorists, drug cartels, and other international criminals."
Vance added there are a handful of U.S. banks still operating in Russia, and if the U.S. takes Russian assets, "one can anticipate that there would be some level of retaliation."
Vance also criticized provisions in the REPO Act meant to deter a future administration from eliminating sanctions or unfreezing assets without working with Congress. "Negotiating peace is a delicate matter," Vance insisted. "To be successful, the president requires leverage and flexibility." Without being able to offer an end to sanctions or frozen assets as a carrot in negotiations, he contends, it could be hard to reach a peace settlement.
What to make of it
Vance isn't alone in worrying about the potential repercussions of seizing Russian assets. For instance, while the EU appears ready to take the interest from Russia's holdings, they have no interest in seizing the underlying capital.
A Brookings Institute roundup noted one Belgian proposal would issue debt to Ukraine with the Russian assets as collateral, setting up a post war decision for Russia to make reparations or give up its holdings.
In an article for Carnegie Politka, Alexander Kolyandr notes that plan has some benefits. The former Credit Suisse Vice President and reporter with the Wall Street Journal and BBC noted simply selling off Russian assets "could cause a steep rise in the price of military equipment, as well as reduce demand for European debt." Using Russia's money as collateral could avoid those problems while also not technically seizing the assets. The problem Kolyandr said, is finding someone to buy the bonds.
Kolyandr, like Vance, warns seizure by a Western power would almost certainly result in Russian retaliation against the holdings of companies from it terms "unfriendly countries."
Foreign Policy columnist and European Council on Foreign Relations fellow, Agathe Demarais argued weaponizing the financial system does lead to "fragmentation" — that is to say, the alternative international payment systems Vance warned about. However, she contends handwringing over a widespread move to abandon western currencies is overblown.
"De-dollarization is a long-term, structural trend that predates sanctions on Russia," she wrote. "Data from both the European Central Bank and the U.S. Federal Reserve show that global de-dollarization efforts have not accelerated meaningfully since Russia's invasion of Ukraine."
Similarly, Kolyandr argued any flight from Western markets would've happened in early 2022 when Russia's assets were frozen. "Two years later, there is still no sign of panic dumping," he wrote.
As for Vance's argument that the proposal would tie the hands of a potential future Trump administration, U.S. Rep. French Hill, R-AR, argued the measure would give him more latitude, not less.
"We're not tying the president's hands," he said, "We're giving the president flexibility in using Russian sovereign assets that have already been frozen."
"I think it's in the interest of American taxpayers," Hill added, "and French taxpayers and German taxpayers, to use frozen assets by the perpetrator — the Russians."
Read more from the Ohio Capital Journal.