(Bloomberg) -- A few weeks after Russia invaded Ukraine in February 2022, then-UK Transport Minister Grant Shapps used TikTok to show off a 192-foot blue superyacht, the Phi, owned by a wealthy Russian businessman that the British government had just impounded at a London dock. It was a vivid display of Western sanctions designed to squeeze Russia’s economy, and Russians’ wealth. One thing Shapps couldn’t do was step on board. That’s because, by law, the UK hadn’t seized the vessel, just frozen its ownership status to ensure the owner couldn’t use it either. The same situation applies to hundreds of billions of dollars worth of sanctioned Russian property, which, if seized and sold by Western governments, could help pay for the reconstruction of Ukraine.  

1. What’s the difference between freezing and seizing?

Freezing an asset means it can’t be used, moved or sold, but its legal ownership doesn’t change. Seizing an asset — be it a vehicle tied to drug-dealing or a superyacht enjoyed by a sanctioned oligarch — transfers ownership to the seizing authority, which can use or sell the asset.  

2. What Russian assets have been frozen?

Soon after Russia invaded Ukraine, the US and its allies froze an estimated $300 billion in Russian central bank assets that were being held in non-Russian financial institutions. Sanctions imposed on prominent Russian individuals have frozen an additional estimated $58 billion in assets, including homes, yachts and private aircraft.  

3. How much of that has been seized?

Relatively little. Yachts tied to Russian billionaires Suleiman Kerimov and Viktor Vekselberg were seized in Fiji and Spain, respectively, in 2022 by local law enforcement acting on requests from US authorities. The US Office of Foreign Assets Control designated Kerimov as part of a group of oligarchs who profited from Russian government corruption. Velsekberg’s $99 million yacht, called Tango, was linked to suspected bank fraud, money laundering and sanctions violations. The US has also seized homes belonging to Kerimov, Vekselberg and another Russian billionaire, Oleg Deripaska, bringing the total value seized to an estimated $635 million, according to Forbes. The amounts represent only a fraction of their estimated wealth. Vekselberg, for example, was worth $7.1 billion as of May 26, according to the Bloomberg Billionaires Index. 

4. Why haven’t more sanctioned Russian assets been seized?  

Respect for private property is a pillar of the laws that govern modern societies and international relations. Many countries allow for the seizure of assets that are shown to be the proceeds of crime, with a high bar for proving that in court. Investigators tasked with building a case often get lost in a maze of shell companies and offshore trusts that oligarchs use to obscure their control of trophy assets. What’s more, using sanctions as cover for asset seizures is problematic because they are designed to be a temporary measure to force a desired outcome. Even governments that simply freeze assets can face legal complications: The owner of the Russian yacht featured in the UK onetime transport minister’s TikTok video sued the UK’s Department of Transport to lift the freeze and sought damages.  

5. Why isn’t freezing enough?

For one thing, it doesn’t always put the assets beyond the reach of their owners. Britain’s government highlighted 230 sanctions breaches involving the continued use or movement of frozen assets, and it’s yet to announce a single charge against anyone — let alone a financial penalty. Also, governments can end up on the financial hook for the upkeep of frozen assets, particularly yachts. British taxpayers have been footing the bill for maintenance of the yacht docked in London, for instance. And only by taking ownership of assets could Ukraine’s allies sell them to help rebuild Ukraine’s shattered infrastructure — an effort expected to cost hundreds of billions of dollars. 

6. What’s the status of efforts to sell seized assets to help Ukraine? 

• In mid-2022, Canada’s government gave itself the power to seize assets of people or entities that are under sanction. In the first attempted use of the law, the government in December said it would seek $26 million from Granite Capital Holdings Ltd., a firm owned by sanctioned Putin ally Roman Abramovich, and that the money would be used “for the reconstruction of Ukraine and compensation to victims of the Putin regime’s illegal and unjustifiable invasion.” Legal proceedings in that matter have yet to begin.
• The US Congress late in 2022 approved a measure allowing the seizure of Russian-held assets to benefit Ukraine, though only in certain prescribed cases. Attorney General Merrick Garland, in February, authorized the first such seizure, involving $5.4 million taken from a Denver-based bank account of sanctioned Russian oligarch Konstantin Malofeev.
• The EU has discussed adding evasion of sanctions to the list of crimes, such as money-laundering and corruption, that can trigger the seizure of assets of sanctioned people or entities.
• The UK has sought legal advice on seizing assets without breaching international rules. One suggestion from a think tank is to use ideas from other jurisdictions where there’s a lower standard of proof. Italy’s anti-mafia code, for instance, allows authorities to designate an owner as a “danger to society” to help them seize assets belonging to mafia members.
• German Chancellor Olaf Scholz has emerged as a skeptic, saying seizing assets is legally problematic and wouldn’t raise much money anyway.

7. Is there precedent for seizing frozen assets? 

After the 2003 invasion of Iraq and the ousting of leader Saddam Hussein, US President George W. Bush ordered the seizure of $1.7 billion of Iraqi funds held in American banks, some of which went to pay the salaries of Iraqi government employees. In 1996, the US seized Cuban funds and used them later to help compensate to the families of three Americans killed when their planes were shot down by Cuba’s armed forces. 

• A 2022 Bloomberg story on how taxpayers are on the hook for maintaining Russian superyachts.
• Another story on the abandoned superyacht that’s costing the government of Antigua $100,000 a month.
• A paper from the UK-based Royal United Services Institute looks at how Britain could leverage other jurisdictions to gain cover for assets seizures.
• A Forbes article on how sanctioned Russians are trying to get their superyachts back.

--With assistance from Daniel Flatley and Brian Platt.

©2023 Bloomberg L.P.