Canada is set to take its first steps toward expropriating assets held by the Russian government and sanctioned Russian citizens to help fund Ukraine’s war effort — measures that could test the limits of international law.
Ottawa is promising action soon, after years of leading an international push to use Moscow’s own financial holdings to help Ukraine respond to the full-scale invasion Russia launched in February 2022.
“Canada is really at the forefront of this,” said William Pellerin, an Ottawa-based trade lawyer with the firm McMillan LLP who has advised clients on navigating Ottawa’s sanctions on Russia.
Western countries have moved to isolate Russia by, among other things, sanctioning those accused of helping the war continue or profiting from it.
States tend to sanction individuals and freeze their accounts in order to change their behaviour. But a new idea has emerged in G7 capitals in recent years — using the cash in frozen accounts, or interest earned on those accounts, to help fund Ukraine’s defence.
Proponents of the idea say it offers a cheaper way to help Ukraine push back the Russians and rebuild its damaged infrastructure.
They also hope inflicting financial pain on Russia can convince it to stop or slow its deadly airstrikes, and deter other countries from launching similar wars.
But critics warn such a move could violate international law and give adversaries an excuse to steal private property.
Ottawa has been leading the push among allies to expropriate Russian cash for Ukraine, even though Russian holdings are rare in Canada.
The vast majority of the assets held by Russia’s sovereign fund and central bank are in European banks — the same likely holds for sanctioned Russian citizens. Tapping into these funds would require measures by both the European Union and individual countries and there’s no international consensus on how to proceed.
Pellerin said Ottawa wants to take funds from people who have been sanctioned but are not facing criminal charges.
“The EU has never been willing to go that far,” he said, adding that Canada’s allies are more inclined to redirect the interest earned by these accounts to Ukraine.
The World Refugee and Migration Council has called on countries to use expropriated Russian cash to fuel Ukraine’s war effort and has published analyses explaining how Ottawa could do it.
The group’s president, Carleton University professor Fen Osler Hampson, said former deputy prime minister Chrystia Freeland played a “critical role” in getting American and European officials to mobilize on the idea.
“She deserves a lot of credit for having worked hard on that file, and it was not easy,” he said.
Canada would have to follow a three-step process to put Russian assets to work for Ukraine: freezing, seizing and forfeiting to the Crown.
Freezing assets is fairly straightforward. Ottawa simply orders banks to halt transactions involving accounts owned by people listed for sanctions — especially Russian oligarchs — under federal powers that have existed for decades.
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The seizing and forfeiting powers are comparatively new — and untested.
“Canada has given itself a new tool where they can then seize, and then forfeit permanently to the Crown, assets of individuals simply because they were themselves sanctioned,” Pellerin said.
That process would see Ottawa issue a cabinet order to seize assets, then ask a provincial superior court to have the assets forfeited to the Crown. At that point, the federal government could send the funds to Ukraine.
Mark Kersten, an international law professor at the University of the Fraser Valley, said it’s “remarkable” that Canada still hasn’t initiated such court proceedings, and still hasn’t explained the delay.
“We have been … listening to the government say on a regular basis, including in Kyiv, that they’re going to do this, that they’re going to get these assets,” said Kersten, who has been researching the process for years.
“The government talks a big game and then apparently is moving at a glacial pace — and not being transparent with the public as to what it’s actually doing and where things stand. And I find that quite frustrating.”
In its latest update, the RCMP said it had frozen $140 million in assets under Canada’s Russia sanctions as of Jan. 15, and had blocked $317 million in transactions.
It’s not clear how much money Russia’s government and its sanctioned citizens hold in Canada.
Russia’s central bank holdings at the beginning of 2022 included roughly $24 billion denominated in Canadian dollars, including bonds, securities and bank deposits.
Pellerin said there’s a widespread belief that Russian officials anticipated sanctions — which would explain why the RCMP has seized such a modest amount.
“The conclusion that you can draw from this, and that I’ve had confirmed to me by different market participants, is that Russia was able to move its assets out of Canada before being sanctioned,” he said.
Most Russian holdings abroad sit in European banks. Canada helped to design a system, announced last summer, which allows Ottawa to use the revenues generated by these accounts in Europe to secure $5 billion in loans for Ukraine.
“That financing is effectively a loan, guaranteed by the interest that is accruing on all these frozen funds everywhere,” Pellerin said, adding that Ottawa could collect revenues from interest on these frozen accounts for years to come.
“If Ukraine cannot repay (the loan), we’re going to take that interest that those investments are earning to pay ourselves back,” he said.
Prime Minister Justin Trudeau announced last week in Kyiv that Ottawa would disburse half of the $5 billion in loans “in the coming days,” with the rest to follow later.
Kersten said Ottawa’s whole plan tests the limits of the international legal doctrine of countermeasures — the idea that non-violent reprisals that are normally illegal can become legal when they’re used in response to a wrong perpetrated by another state.
He said allied governments are much more comfortable with the idea of taking accrued interest from frozen accounts than with emptying the accounts.
“States have been really, really hesitant to try to take state assets and turn them over to the Ukrainians,” he said.
Russian Ambassador Oleg Stepanov said Ottawa is violating international norms and noted there are few Russian holdings in Canada.
“Statements claiming that Ottawa might derive revenue from frozen Russian assets amount to sheer disinformation,” he wrote in a media statement. He claimed that any cash sent to Ukraine “will either be burned or stolen outright.”
Kersten said there are “very significant” legal sanctions against seizing private assets held by a person or a corporation that don’t apply to government-owned assets.
On the tarmac at Pearson Airport near Toronto sits a massive Russian cargo plane that has been parked there since Moscow launched its full-scale invasion in February 2022.
In June 2023, Ottawa officially seized the aircraft from the company Volga-Dnepr.
In mid-February, the government reissued cabinet orders to clarify the plane’s ownership, pointing to foreign subsidiaries and affiliates of the Russian corporation thought to own the plane.
Pellerin said these steps bring Canada closer to taking full possession the plane and he believes this will happen “imminently.” The company has launched a formal dispute under the bilateral investment agreement signed by Moscow and Canada.
Meanwhile, Ottawa pledged in late 2022 to try to seize roughly $36 million that it believes is held by oligarch Roman Abramovich, an ally of Russian President Vladimir Putin.
Canada has never launched a court case to obtain those funds. Kersten noted media reports suggest the money actually belongs to an investment fund in the Cayman Islands.
The Liberals promised last spring to introduce legislation that would allow Ottawa to levy a charge against “windfall profits generated on frozen assets held in Canada,” similar to existing European laws.
But political gridlock and Parliament prorogation stalled those efforts and killed a Senate bill that sought to strengthen Ottawa’s powers to access cash held by sanctioned foreign states.
Meanwhile, reports — which The Canadian Press could not confirm — suggest that Moscow is open to using US$300 billion of its frozen assets in Europe to fund Ukraine’s reconstruction — if part of that money goes to Russian-occupied regions that Moscow wants to absorb.
Pellerin said that Canada’s restrictions on Russia writ large have implications for companies doing business around the world, given the intertwined nature of the global economy.
“It does have business effects and considerations for Canadian businesses,” he said. “That forces us to be particularly cautious, because at times, our sanctions regime is more aggressive than those of other jurisdictions.”
