Yellen: Not legal for U.S. to seize Russian official assets

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BONN — The United States does not have legal authority to seize Russian central bank assets frozen due to its invasion of Ukraine, Treasury Secretary Janet Yellen said on Wednesday, but talks with U.S. partners over ways to make Russia foot the bill for Ukraine’s post-war reconstruction are underway.

Yellen also said it is likely that the special license granted to allow Russia to make payments to its U.S. bondholders would not be extended when it expires next week, leaving Russian officials a fast-narrowing window to avoid its first external debt default since the Russian revolution.

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Russia’s Feb. 24 invasion of Ukraine is the central agenda item at this week’s gathering of Group of Seven finance ministers, and Yellen said officials are looking for ways to make Russia pay for repairing the catastrophic damage it has wrought on Ukraine and its economy over nearly three months of war.

“I think it’s very natural that given the enormous destruction in Ukraine, and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” Yellen told reporters here ahead of this week’s meetings.

One idea recently floated had been for the United States to seize hundreds of billions of assets held by the Russian central bank. The United States and its allies have blocked an estimated $300 billion of assets, but they remain in Russian ownership.

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“(W)hile we’re beginning to look at this, it would not be legal now in the United States for the government to seize those” assets, Yellen said. “It’s not something that is legally permissible in the United States.”

While officials explore ways to make Russia at least partly liable for an eventual rebuild, Yellen said conversations are continuing around providing other sources of immediate assistance for Ukraine, and she expects the U.S. Senate to vote soon on a $40 billion aid package. On Tuesday she pressed U.S. allies to step up their financial support.

DEBT PAYMENTS LOOM

Russia has some $40 billion of international bonds and has so far managed to keep current on its obligations and avoid the first default since 1917.

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Its ability so far to make the required dollar-denominated payments has come under a temporary general license issued by Treasury’s Office of Foreign Assets Control in March. That allowed an exception to a ban on transactions with Russia’s finance ministry for the purposes of “the receipt of interest, dividend, or maturity payments in connection with debt or equity.”

The next payment is due May 25, the day the license expires.

On Wednesday Yellen said Treasury is unlikely to extend the exemption, which could result in a technical default if Russia then resorts to trying to pay in roubles rather than dollars as required under the bonds’ covenants.

“There’s not been a final decision on that, but I think it’s unlikely that it would continue,” Yellen said, adding that a technical default would not alter the current situation regarding Russia’s access to capital.

“If Russia is unable to find a way to make these payments, and they technically default on their debt, I don’t think that really represents a significant change in Russia’s situation. They’re already cut off from global capital markets.” (Reporting by David Lawder in Bonn and Rami Ayyub in Washington; Writing by Dan Burns Editing by Chizu Nomiyama)