Episode 13: Seizing Russian state assets to rebuild Ukraine: Will it end the war, or prolong it?

00:02.65
Henry
Hey, everyone it's Henry and mike of the decentraalists and welcome to our latest episode. Yes I'm sorry we haven't we've been away for about ah a month or 2 but um, it's been a bit challenging with all the scheduling and Mike being in a war zone but we are here and. This week we are excuse me this week's episode is is this week's episode is all about seizing russian state assets to rebuild Ukraine will it end the war or will it prolong. It. So international momentum is growing to seize russian state assets including central bank reserves to pay for the rebuilding of ukraine otherwise western taxpayers will end up footing the bill of course. Kda leads the world with Senator Ratna Ahadar's recent amendment to the special economic measures act allowing the seizure of russian state assets and private assets to rebuild Ukraine other countries are poised to follow suit. But there's a concern that. Seizing assets could lead to a loss of leverage with Russia in terms of pressuring putin to end the war so will seizing state assets discourage Russia from ending the war or is it a new tool for peacemaking on this episode of the centralists.

01:27.22
Henry
We speak with peace coalition member. Dr. John Unran and we speak with peace coalition member. Dr. John Unra from mcgill university and of course our very own Mike Cholid about their recent opinion piece in the conversation. For those who may not be aware since 17 the conversation is an independent source of news and views from academic and research community delivered directly to the public in the piece they explored the pros and cons of seizing russian assets. In fact, perhaps not seizing assets. May provide more leverage over Russia and the oligarchs to end the war Mike Let's start with you just a quick review. What is the peace coalition. How did you get involved into the discussion excuse me Mike Let's start with you. Can you review the peace coalition and how you got involved in the discussion around repurposing russian assets.

02:27.88
Mike
Well thank you Henry um, and and greeting from Keith um, you know it's it's been a kind of a ah, weird and rambling journey to get to where we are today. Um, as you know in August of last year John and and they're calling igor and I came to Kiev. Um, you know and at that time it was ah you know we were here to deliver. Um, what we called a concept note to the government of Ukraine advising them on their strategy. Um for compensating victims of. You know damages and destruction and war crimes and all this other stuff. Um, when caused by the russians as a result of the war. Ah what at the same time though I think it was about a month or so before we came here we had an initial call with senator omitar.

03:19.71
Henry
Who.

03:21.82
Mike
And we yeah so we talked with senator omavar who had just passed the original special economic measures act so senator omad var had been working with ah with a group called the world refugee and migration council. Ah that is was started by 2 former. Let's say esteemed legal experts from Canada lloyd axworthy and alan rock both I think I think they were both minister of justice and they were both ah canada's representative at the un and what they had done is they had suggested that Canada take.

03:40.90
Jon Unruh
Gone.

03:45.60
Henry
Oh yeah.

03:51.36
Henry
Who who.

03:58.85
Mike
Ah, leadership position in punishing Russia and going beyond magnitsky act sanctions. Okay, so you know what I mean so but just a quick little aside in this aside is the Magnitsky act was passed by the United States after

04:08.14
Henry
Um, ah yes.

04:17.89
Mike
Years and years and years almost a decade of lobbying by a gentleman named Bill Browder ah who um, was forced to leave Russia after his lawyer Sergei Magnitsky was murdered by the Moscow police while trying to defend browder on ah on a you know tres in charge or something like this. So um, he he left Russia and took it upon himself like a crusade kind of thing to um, make sure that the world knew that it was not a country Russia was basically a criminal organization. Okay, and the government was like the mob.

04:54.94
Henry
Exactly.

04:58.58
Mike
And so um, the you know the world most of the world's nations. The West let's say the west have adopted the Magnitsky act as kind of their sanctions regime regime its core to the sanctions regime and what it means is is if you do bad things.

05:10.59
Henry
Who.

05:16.20
Mike
You know un n says you do bad things you can enact you can enact a sanction you can identify an individual or a country. You can put a sanction on them and once you put that sanction on them. Yeah, freeze it. So so essentially that was great but it doesn't provide any money.

05:33.10
Henry
Who.

05:35.61
Mike
It's frozen. Okay, you have a billion dollars in the bank and the victims which are the people who are which is the reason why you're there. The victims are want to get paid need to get paid.

05:46.13
Henry
Um, yeah, yeah.

05:49.30
Mike
You know their houses have been destroyed. Their lives have been destroyed. Their families have been torn apart murdered things like this this is stuff that is not cool anymore and senator Omadvar was ah was a refugee herself. She fled Iran back in the days when the ayatollah took over. And so it was personal for her. She took on this case, she created the special economic measures act and bang canada has a leadership position in a legislation that says when we sanction you not only are we going to freeze your stuff we're going to take it. And we're going to turn it into cash and we're going to give it to those victims that are waiting to be paid. So what you know so the senator she had heard about heard about us through I think I think it was John actually that introduced us ah through some of the work that we had done on this concept. Note that had brought us to keep.

06:26.33
Henry
Right on.

06:40.45
Mike
And we got on the phone with the senator told her what we were working on and she said you know what we've passed this special economic measures act which allows us to take assets now. But how do we get them from Canada into Ukraine to pay the victims would you help us with that. And that started us down this long and winding road to where we are today. Um, where we are working. You know, kind of I want to say at the bleeding edge of this global discussion that is happening right now around the world on repurposing russian assets to pay for the war.

07:12.23
Henry
Her.

07:18.66
Mike
In Ukraine and the and the compensation of the victims of the war.

07:22.69
Henry
Nice, nice yeah you you did ah a good job actually conveying all the work in in a high level manner to ah to our listeners. So let's move over to you John First of all, ah, welcome back to the decentalists. We've had you on before. Um, now for those who may not recall ah briefly introduce yourself and maybe give our listeners a bit of background how you got involved in the peace. Coalition's work in Ukraine.

07:50.52
Jon Unruh
Certainly delighted to be back. Um, so so my work as a professor at mcgill university of montreal focuses on housing land and property restitution and problem in in war affected states. So in that context I've been working with various parts of the united nations over the years in different contexts of trying to get this to happen large scale dislocation forced dislocation of populations from their housing land and property. Means that at the end of the war. At some point they need to come back and reestablish their their residents. How to do that. Ah, you don't just kind of walk back from a war and pick up where the rubble is and get going because it's pretty much a mess. Ah. War and housing land and property actually intersect in pretty destabilizing ways. Both are about the where question the spatial aspects of war ah completely destroy the spatial aspects of housing land and property so that at the end of the game. It needs to be put back together. So. That's been my kind of primary endeavor in that regard I had hooked up with Michael on a preexisting kind of project with a colleague at University Of British Columbia and we were starting to work on that when Ukraine happened the February twenty two 22 invasions.

09:11.88
Henry
Who.

09:13.96
Jon Unruh
And right away things shifted to to your Ukraine because what we were working on before then was really really relevant to the issues that were really quickly emerging um in Ukraine and so we started to work on that and as Michael as Michael Described and the senator was involved. We got involved with. Ah, the I o which is the united nations international organization for migration and ah and ah a colleague there that invited us to Ukraine and in in August to to start working on a couple of issues there. Um, and so it's it's taken off from there as as ah as Michael has as very well described.

09:55.23
Henry
Ah, thank you? Um, so John let's let's face it Russia has called come Russia has caused untold damage to Ukraine over. It's not just been. You know 2 years but but over really 10 years since they. They invade crimea ah years ago, everything that's been destroyed needs to be rebuilt I'll start with you who should pay for it.

10:21.20
Jon Unruh
But the the quick answer is of course the aggressor state Russia um, that the aggressor state pays for rebuilding and and reconstruction and and and such is not new that that's that's something that's been an international law and and and in numerous cases have um. Ah, ah, dealt with that. And in fact, on the heels of world war two Russia itself was the recipient of this aggressor state pays scenario it it did receive significant reparations money. Um as a victim and at that point in time.

10:50.13
Henry
Um, oh yeah.

10:58.82
Jon Unruh
And so so that idea is not new. Um, what is new of course is ah how you get the aggressor state to pay when the Aggressor state is perhaps unwilling to to do that in this case of of Russia attacking Ukraine. Of course we have the opportunity where.

11:05.38
Henry
Um, yeah.

11:15.83
Jon Unruh
Russian Private assets Oligarchs and whatnot Russian State assets as well. Ah to a large degree degree are are located in Western institutions and they have been frozen so this money as as we know is is large. Um, and so there's there's considerable opportunity to.

11:24.37
Henry
The.

11:24.39
Mike
I Gee That's a big surprise and.

11:33.59
Jon Unruh
To have these funds dedicated to the rebuilding of Ukraine which as we know is a pretty big place. Lots of infrastructure. Um, and so the damage there of course as we could imagine is astronomical western taxpayer. Who are the folks frequently on the hook for reconstruction reparations in wars fought overseas as you could imagine in these time extremely reluctant to to do that even though they they can be well intentioned and and very much want want the best for for Ukraine.

12:05.45
Henry
Right.

12:07.64
Jon Unruh
So so in that scenario. Of course we're looking at what are the opportunities for russian assets both private and and state to to be dedicated to the to the reconstruction of Ukraine.

12:22.46
Henry
It only makes sense you know, um now here's the problem and you alluded to it John no no well let's first. But first of all I mean rebuilding has been estimated to cost between five hundred billion the world bank.

12:22.48
Mike
All there's many problems there Henry.

12:39.61
Henry
And over a trillion by the um european investment investment bank. Well how are we going to raise this kind of money to rebuild ukraine especially considering let's face it I mean western countries are already tapped out after 3 years of covid. Michael ah, what happens next.

13:01.52
Mike
Um, what you're starting to touch on there. Henry is is is is the point right is the fact that um the money needs to be raised. This is something that I don't think is discussed a lot. Okay, right now.

13:16.10
Henry
But hold on hold on Mike you say the money has to be raised. Didn't we just say we're just going to take it from Russia.

13:18.22
Mike
Um.

13:22.41
Mike
Sure, but but the the most generous estimates of say Russian State assets is which is is mostly the central Bank reserves. Okay the money that's sitting in Piggy banks all over the world. Which I like I laughed a little bit when we talked about it. You know it's funny that all the money that all the Russians have including the Oligarchs and their own state stuff. They don't keep it in their own Banks. You know what? I mean it's like oh you know what? the hell am I going to do with a bunch of rubles. Okay.

13:49.95
Henry
Yeah, oh no, that's it goes out saying. Yeah, yeah.

13:58.67
Mike
Like seriously you're a russian what the hell are you supposed to do with roubles. They're like I'm not spending it in Russia you know so this is so so so it's it's it's kind of ironic that it's coming to bite them in their you know in their own wallets. But um, there's I've you know the biggest number that I've heard.

14:02.10
Henry
Right.

14:09.93
Henry
So how much is there.

14:16.65
Mike
For central bank reserves is say around 350000000000

14:19.21
Henry
350000000000 that's that's that's not even not even close.

14:23.84
Mike
Not it doesn't even doesn't even come close to the low end estimate. Okay and and you know I've been I've been kind of feeling like I'm preaching from the pulpit or whatever but you know. If you look at east german reunification. Okay, so taken down the wall and making East Germany and East Berlin just like West Germany and West Berlin cost two trillion euros

14:46.58
Henry
Oh yeah, yeah.

14:57.16
Henry
2000000000000

15:00.40
Mike
Two trillion Euros and took 30 years and there weren't any landmines and there weren't and and the places that they needed to rebuild like lezi and stuff like this weren't just piles of rubble like maryupul and bahmut.

15:18.41
Henry
Um, yeah.

15:18.42
Mike
There's there's no way you green cost in my estimates and I am you know from my financial acumen which is like I can't even make 1 plus 1 equal 2 still tells me. It's going to be 3 or $4000000000000 okay

15:33.14
Henry
Okay, so Mike so John to continue with what you were saying there is money that needs to be raised as opposed to taking it just from the pockets of taxpayers though. As you said John well-intentioned. Um, there is a limit to that. So.

15:35.84
Mike
So.

15:41.63
Mike
Deals.

15:50.45
Henry
You know who wants to take it. How do you raise it.

15:53.86
Jon Unruh
Yep, well, there's there's a couple of opportunities and it's that's those opportunities to to raise additional money has been one of one of those several focus of of the peace coalition. And and so there there's a couple of of options here. 1 is the three hundred plus billion that that that Michael mentioned um, then there's the oligarch assets probably not not that much but they know bits and pieces of that are floating around. There is another avenue this is separate money and and this would be modeled say all along the lines of what the international community too did ah with regard to Iraq's invasion of Kuwait. Ah.

16:32.59
Henry
Who Oh yeah.

16:35.56
Jon Unruh
In that case, Iraq invaded Kuwait was unwilling to pay for reparations. So the international community got itself organized and basically set up a a process by which if Iraq wanted to sell any oil at all internationally it had to go through this institution which. For every but barrel of oil at the outset of of this arrangement sliced off 30% of the sale price of that that barrel and put it into Kuwaiti ah reparations and so in this case, it doesn't matter if the aggressor state Iraq in this case wants to pay or not.

17:04.50
Henry
Um, oh yeah.

17:11.83
Jon Unruh
If it if it the only way to sell its its produce and so this this has to be an exportable product that goes through a choke point like a port right? That's right, it sells oil. It sells gas. It sells agricultural commodities, etc.

17:19.58
Henry
Well Russia sells a ton of oil.

17:28.94
Jon Unruh
And so if it wants to sell it at all on the international market one could imagine a very similar arrangement ah to what occurred in the iraqi case being set up here whereby air brief for every unit of of sold commodity a slice of that. Ah, gets cut off and and is sent to Ukraine all of which happens outside of Russia. Ah so that's a separate source of ah of money actually um, a third set of of a third source of money is is what what? Michael and colleagues have been very adroitly working on which is. Ways to bring in the investor community into the reconstruction of Ukraine and and in this case, exactly this is ah, really fascinating I um I don't understand of course as much as as Michael and our our colleague jeffrey do on on this mark. But it's really exciting because there's there's a number of different ways. You can go.

18:05.48
Henry
Like private investors.

18:23.70
Jon Unruh
To raise investor funding and 1 of the advantages there is that it it does what what Michael calls time shifts forward the amount of money going to the beneficiary the the victim on the ground. So the investor can pay that person to reconstruct today. The investor then takes ownership of the claim and monetizes that and that claim multiplied by the number of number of claims you have which can be in the millions. Ah so so that's ah, interesting that that looks quite promising and we've got a couple of of really um.

18:49.82
Henry
Who.

18:58.66
Jon Unruh
Ah, highly adept colleagues working on on this issue and and and we seem to be moving forward pretty well on the legalities and and the the financial constructs that can that can make that happen. So Michael's right that three hundred and fifty plus billion is there we can utilize that in a number of ways one of the ways is that you know that that doesn't just sit there that money it is earning money as we speak. So so there's you know is it just the 350 initially seized money or is it 350 plus because of what it's been earning between. When it was frozen and now and and could you use that use that going forward. So so there's a couple of revenue streams essentially that could that could go on that would leave the western taxpayer preserved from from largely funding. There. The recover recovery effort.

19:37.92
Henry
Ah.

19:52.35
Mike
And right and and and so just to pile in there because I love piling in on this one. Um, is you know? So so the first thing that the first thing that everybody you know who's listening should understand Russia will pay now.

19:53.60
Henry
Um, makes sense.

20:08.90
Mike
Whether they do it willingly or whether they do it a month a year or a decade from now is indeter undetermined. Um, and so you know what? what we have to what what we're looking at is now what you've what you're seeing is the easy money.

20:10.89
Henry
Ah.

20:27.74
Mike
The reason why everybody is focusing on Russian State assets is because it's easy money. It's um, it's It's subject to things like countermeasures right? International Legal countermeasures.

20:37.60
Henry
Um, yeah.

20:44.36
Mike
Ah, which are essentially kind of the next step of sanctions international law basically compels nations to act on behalf of other nations. Okay, so if if if 1 nation Russia.

20:55.47
Henry
Ah.

21:02.80
Mike
Is committing gross violations of international law right? like the number 1 is you can't go into somebody else's um, if you can't go into somebody else's backyard and take them over with military might you just you can't yeah you can't do that. Okay, that's that's like law number 1 and they violated law number 1 and I think I looked at the.

21:15.38
Henry
Um, yeah.

21:22.10
Mike
Twenty nine top international legal stand legal like points and they violated all 29 of them like 10 times already. So the idea is is they violated all these law so they're gonna pay right because it's just it. It makes no sense I think I remember in a conversation with John once he said. Reparations have been around since a freaking Roman Empire okay so the idea is if you get in somebody's grill and you'll lose especially you got to pay okay and so um, the you know and the idea I guess is is that if you win you got to rebuild it anyway.

21:42.65
Henry
Um, yeah.

21:58.30
Mike
So you know it's it's going to get paid. So the idea is is that you need to pay to rebuild the the damage to rebuild the damaged stuff and compensate victims now. What? you what you where the problem is is how do you Best do that and this was so this was the point of the article that we wrote in the conversation about leverage. Okay, and first like I just want to call out our colleague Jeffrey Goodell who could not be on the recording today. Sorry Jeffrey.

22:19.18
Henry
Ah.

22:29.11
Henry
Well he he he co-authored that article didn't he.

22:33.34
Mike
He coauthored he coauthored the piece. Jeffrey's been an immense financial kind of brainy act on this whole thing because he understands all this stuff but bt cut like the major internet cable across the country this afternoon by mistake or something and there's no internet service in in London at his university.

22:49.55
Henry
Oh oh dear.

22:51.71
Mike
Like it's yeah, no no problem a no no no worries um and so so Jeffrey couldn't be here but essentially the idea is is that all right? So let's say Russia's made to pay okay and then let's say that like Kuwait there's ah, there's a basically a um.

22:52.12
Jon Unruh
H.

23:11.69
Mike
Ah I don't know a choke point they're shipping their oil and gas out and for every hundred dollar barrel of oil they sell they take twenty bucks off the top and they give it to a fund that rebuilts ukraine. Well first thing is is the war's got to be over because they're not lifting the sanctions.

23:20.40
Henry
Right.

23:29.42
Mike
And letting them ship their oil like realistically like not you know under the shadow of night and dark with ships that don't have transponers but like just shipping it and selling it. They're not allowed. They can't tax it if it's not legally actually supposed to be sold. Okay.

23:36.88
Henry
Right.

23:48.39
Henry
Um.

23:49.39
Mike
And I doubt the chinese in and India and places like this are going to allow customs inspectors at their borders from other countries. Okay, so so what you've got to do is you've got the war's got to be over. There's got to be some kind of peace agreement and Russia presumably has to agree to that tax. Well none that's happening anytime soon.

23:56.85
Henry
Ah.

24:08.66
Mike
So so what you've got is is is you've got right now. The increasing need for um, ah, how do you compensate victims How do you start? The rebuilding process. How do you kind of you know, start correcting some of the wrongs that have already been done and how do you do that now. So where we are is. You've got this now that the the world community has spent you know all and all the in most incredible legal minds and international law out there Lawrence Tribe Philip Zellico and our colleagues Jamison Tetiana and Yulia um have been working on have been working on trying to basically.

24:39.25
Henry
Yeah.

24:45.81
Mike
Walk everybody away from the from the ledge and tell them It's okay to take the money. it's completely okay It's completely legal it's a countermeasure take the money you have to to compensate victims and do all this well there's still a bunch of people that are dithering overdoing it right. So you could take three hundred and fifty billion dollars there's 2 there's $200000000000 in russian cash sitting in a europe in ah in a in Belgium in a financial clearing um technology thing like swi it's called euro clear and it's Russia took. All of their cash from all over the world. Their cash reserves and they moved it into Belgium right before they invaded right before they invaded on the thirty first of December of what was it 2021 Canada.

25:30.94
Henry
Um, Wow Oh my.

25:41.60
Mike
At $16000000000 in russian cash right by the by the time by January Fifth or something like this right before they invaded they had less than a thousand bucks

25:47.41
Henry
Ah.

25:57.26
Henry
You mean because they transferred it.

25:59.56
Mike
They transferred it out. Okay, so you know there's this There's there's people are outraged okay and they're saying that's it. We need money we need money to buy more more air defense. We need money to you know support the war effort we need money to support the budget deficit in Ukraine we need money to to pay victims and start the reconstruction process and we know there's $200000000000 sitting in Belgium right now. Give it to us. Let's take it. It's easy. And let's use it. But then what happens so the question is if if you went out there right now like the oligarch assets we haven't talked a lot about and their main reason is they're harder to take because you got to find them first right. It's not like a bramovic just walks around with his ah emerald freaking Amx card buys his yachts and his mansions and all this other stuff and there's a convenient statement that says Roman up bramovvi owns yacht number blah blah blah there they're hidden in bank accounts with numbered accounts with different companies and different people owning it. Um bla blah blah and.

26:56.79
Jon Unruh
Is.

26:57.63
Henry
Ah.

27:04.71
Henry
Right.

27:08.89
Mike
They're subject to due process they're individuals they have their day in court and that day in court becomes years in courts here in courts or decades in court. But the easy money The central bank stuff is sitting there so they can take it.

27:23.15
Henry
Okay.

27:26.21
Mike
And so the people are arguing take it take it take it and I kind of agree with them. But if you take all of the central bank reserves and let's say you could use them some magic wand like from Harry Potter or something and you could find all the oligarch stuff and you could take it too. And now you had let's let's make a number half a trillion dollars okay it's still not enough right to rebuild the country but it's a great place to start. But what do you do when you take it all right? You physically take it so now Putin.

27:50.97
Henry
Um, cheese. Yeah.

28:01.75
Mike
And the and the russian federation. You know the government and all of the oligarchs know they have nothing left outside the borders of Russia what does it make them do does it make them super peace immediately and say we're sorry we're sorry.

28:12.80
Henry
Ah.

28:19.61
Mike
Or does it make them double down on on saw this crazy war and potentially another couple of Crazy Wars because they got nothing left to lose.

28:26.31
Henry
Okay, so right right? That's that's an incredible question now John what about how how do you react to that. What have you seen in the in history or in the past regarding this type of situation or and how it relates to leverage.

28:42.70
Jon Unruh
Yeah, exactly. so so so what Michael described there is was a primary question that that of course the senator some senator oud var and and ourselves. Ah, have been hearing for from those who are ah sort of ah critiquing the the different approaches to to take the the money if you take it Russia will say there is no leverage to come to to the negotiating table. There is no. There is no sort of encouragement to to engage in peace because our money's gone. So so so the way the the argument there is that okay, don't take it keep it frozen and you're going to then create a ah reward leverage for Russia for stopping the war. In other words.

29:14.88
Henry
Yeah.

29:28.84
Jon Unruh
Russia stop the war. You'll get your money back. That's a reward right? and so that's the current logic behind what's going on now the freezing of it the sanctioning etc and and those that are that are supporting that are saying if you take it, you take that leverage away that reward leverage.

29:32.67
Henry
Ah.

29:48.66
Jon Unruh
Get subtracted from the equation that in someday would see Russia come to to to ah some sort of peace accords ideally, after Ukrainian Victory and and and and so you you'd put Russia in the position as Michael said of just doubling down. Okay.

30:05.45
Henry
Um, yeah.

30:06.35
Jon Unruh
But so that's an interesting critique but it but it doesn't really embrace the notion of of leverage itself and the fact that there's there's more than 1 kind of leverage. So so so this reward leverage which is basically we have your stuff. It's frozen. We're not gonna do anything with it. We'll give it back as a reward. If you comply with with international obligations to to end the war. That's one type of of leverage. It's reward leverage a different type of leverage is called threat leverage okay threat leverage goes like this. Ah, we have your assets. They're frozen. We're going to. We're going to progressively take them confiscate them. You'll never get them back unless you comply with international requests to do certain things so that is a different type of leverage. So so what you see often on the critique.

30:49.42
Henry
Da.

30:57.64
Jon Unruh
Against actually confiscating russian assets is a thinking that there's only 1 kind of leverage. It's reward leverage. That's it and if it's gone. You're you're in a difficult spot in reality. No, there's other kinds of leverage. So so you may lose reward leverage but what you do gain is threat leverage. Okay. You you are in a position now of communicating not just to Russia. But but the next Aggressor state in the next war that if if you continue belligerent actions you are going to progressively lose more and more of your assets and you will never get them back.

31:32.90
Henry
Um, ah.

31:36.24
Jon Unruh
So It's a different kind of leverage right? it it is leverage. It. It can work pretty ah pretty robustly particularly when you've already got the assets and they're frozen and ah and you could even start to think about how this could use to to maybe influence the actual conduct of the war. By attaching specific belligerent actions. For example, like failing to de-escalate targeting your residential areas refusing to give back abducted children those are specific belligerent actions if you connect those things specifically to specific confiscations.

32:04.81
Henry
Right? right.

32:12.94
Jon Unruh
Now you're sort of reworking the game and and and and having the aggressor say okay that that next belligerent action that I take that that that transgresses human rights law is a war crime etc that will see that will be respond responded by a specific confiscation ah of assets right. So so so you're you're actually creating a new tool right? in addition to sanctions which as we know are pretty clumsy things they they can kind of work. They can mostly not work which is where we are in Rushhi today. They're kind of not working. Ah so so it's it's worthwhile to explore new tools.

32:40.58
Henry
Um, yeah.

32:50.70
Jon Unruh
Develop new tools and to basically speak to the Aggressor state as the war is going on here's what's going to happen to your frozen Russian Russian Your frozen assets If You do not comply with what the international community has in mind as a way forward in terms of of Peace. So. So So it's you know it's a bit nuanced but but it's you know it's certainly there. You know.

33:10.15
Henry
Yeah, but that's cool John because because I had never even thought that before there's 2 types of leverage reward and threat and you made them clear and it seems like we have there could be much more to it just seems that one could do more with. The threat leverage to me.

33:28.30
Jon Unruh
Exactly. So. So so that's there I mean the you know there's like there's a good deal of academic literature that ah that is looked at that and and how how workable it is that and not and you're correct. It. It is it does look very promising. Particularly in a scenario like the one we have here in Russia Ukraine where the west holds and freezes an enormous amount of of of state assets and can be poised to easily do a repeat of the Iraq Kuwait scenario and and simply. Ah, manage the export of of certain commodities in the foreseeable future. So there is a lot there. It's open for development sanctions are are not kind of the the done deal. There's other tools to to explore.

34:20.75
Henry
Wow! Thank you Mike what are your thoughts on that.

34:22.66
Mike
Um, right? Um yes, sir. Okay, so I'm gonna add a third leverage. Okay, so and I think it it. It's it's something that um, it's what it's financial. Leverage right? So this is another form of leverage. So when we talk about um you know, kind of reward and threat leverage. That's the carrot and the stick right? Um, whereas whereas when we talk about financial leverage.

34:40.59
Jon Unruh
Probably but um.

34:53.47
Henry
Ah.

34:59.32
Mike
Right now? What you're what you're basically talking about is is it a bigger carrot or a bigger stick and so the the idea is is that um, a lot of the the kind of the arguments and the dithering that's going on in the back halls and bank vaults and places like this in Belgium. Where the euroclear stuff is for example is there's a um, let's say a a lack of political will um in many nations that that hold large amounts of russian assets and that that will is.

35:31.58
Henry
Her.

35:36.30
Mike
There there do you hear this? you'll hear this if you read a lot of the recent press around the seizing of and repurposing of russian assets. Um, you'll see this this kind of underlying background radiation where you'll see somebody talk to somebody at and Belgium and euroclear and they they go no no, no, no, we can't. We can't seize the russian assets because that will basically send a signal to other nations that are storing their money with us right? as reserves and euro clear in other places that their stuff can be taken to right. And that will damage our reputation as a reserve currency and a place where criminals and oligarchs and mass murderers can actually store their money freely and safely. It makes me sick but it's actually real.

36:13.94
Henry
Um, yeah, but is is is that realistic I mean.

36:31.10
Henry
Um, yeah.

36:31.88
Mike
Like it literally is so you've seen over the last couple days there's been in the financial times New York Times are New York Times all these other places. There's been this headline about the eu sending 15000000000 from you know from of russian's money to to rebuild Ukraine gotda yada that's the. Interest that the freaking euroclear guys have made on the $199000000000 or euros that they have in their account. It's the interest they're not talking about sending the one ninety nine no no. no

36:56.90
Henry
Um, ah yeah, yeah, yeah, yeah, not the principal.

37:08.47
Mike
Because that will that will make people afraid of using the Euro as a reserve currency I you out of your mind. You know it it literally it. It's just it's it's it's fantasy to me. But.

37:16.59
Henry
Ah.

37:21.23
Mike
Um, where where where financial leverage starts to come in is and we had an interesting discussion jeffrey and John and I and a former US ambassador for at large for war crimes named David Shefer

37:33.91
Henry
Right.

37:36.38
Mike
And David Shefer was instrumental in setting up the international criminal court and the trust fund for victims which was a fund that was there to compensate victims of these international criminal court decisions and what he proposed was this idea of.

37:47.70
Henry
Who.

37:53.60
Mike
He he knew that the amount of money floating out there from donors right? from taxpayers to pay for humanitarian things was limited and so what he suggested is why don't you? Um, why don't we create a category of financial instruments humanitarian based financial instruments called social bonds. And we sell them to private capital investors in order to raise money for you know humanitarian like the compensation of victims and rebuilding and all these other kind of programs exactly what ukraine needs at that point he was looking at it at ah he was looking at it as a little bit of a different. Um, ah animal. But it was basically the idea you would issue a bond for $1000000000 that would earn say a hundred million a year in interest the investors would invest in the bond. They would agree to take like say zero interest and that interest every year would be piled into. Funding the trust fund for victims and the international criminal court much smaller numbers. Okay, so they were it was just the interest ukraine needs a trillion minimum. So what? What we we came up with with is this idea of using the russian assets as financial leverage.

38:53.15
Henry
Sure.

39:08.66
Mike
So you eurolear guys are all wiggedty and scared about liquidating and giving that money over well don't do it. Don't do it then just take the the one ninety nine and give custody of it to a new.

39:15.20
Henry
Um, okay, okay.

39:28.60
Mike
International institution. Let's say a Ukraine bank for reconstruction development or a Ukraine reconstruction fund or something and now take all of these russian assets oligarch state private doesn't matter and put them in 1 place where that place has custody.

39:46.65
Henry
I See what you mean.

39:46.70
Mike
And you don't touch them. They're just there. Okay, and so now what you do is you create a social bond. Okay, you say here I'm I would like to apply for a trillion dollar loan please right? And what's the bank tell you. Bank says. What do you have? do you have any collateral for that and you go well I actually do I have three hundred four hundred five hundred billion dollars worth of russian assets cash Mona Lisas yachts bank accounts sitting in these 10 places and they've told me.

40:19.52
Henry
Yeah.

40:23.13
Mike
That they that that they're mind to do with as I like okay so I would like to borrow five hundred billion on top of like I borrow a trillion and I'll give you the basically a the claim like ah my down payment is the russian assets you haven't touched them. You haven't liquidated them. You've basically just used them to now to not generate interest Henry but to be collateral for a bond that is issued a peace bond that is where you go out and you could say here.

40:43.57
Henry
To generate interest.

40:59.45
Mike
Private equity investors sovereign wealth think of the qatais the saudis big endowments pension funds. All these people and you say look you can if you want to earn your 10% return you can do that by investing in t bills and things like this or you can do that by.

41:02.25
Henry
Oh yeah.

41:18.81
Mike
Investing in the reconstruction of Ukraine and I'll give you maybe 12% that it's 10 and now you're like wait a second really and you say yes, okay, well, how do I get paid back? Well, it's a ten year bond.

41:26.70
Henry
Um, who.

41:34.84
Mike
Right? Which is common. It's a 10 year coupon like a 25 year mortgage and over and at the end of that 10 years over the ten years you're going to get your 12 % and at the end of that 10 years you're going to get your principle back and it's going to be in the form of a claim against the russians. And they and their um commodity based reparations payments. So it's 10 years from now rushes the war's been over for god help us 9 years hopefully right? It's 10 years from now. The war's been over for 9 years and.

42:08.47
Henry
Um, yeah.

42:12.47
Mike
The russians have finally sat down at the table and said we would like to travel again. Please we would like to sell our oil on world markets again. Please we would like to do all this stuff and you say okay you want to come back in, you got to pay the bill. And so now they use they in order for them to get out. They have to agree to the twenty bucks a barrel or ten bucks a ton. Okay, and so they they go sure they sign the piece of paper. Okay.

42:30.50
Henry
Oh yeah, of course. Yeah.

42:40.58
Mike
Preparationarations now start getting paid so Russia starts pumping. You know they open those pipelines. They blew up back up and they start shipping cheap gas back to Germany and all this stuff and for every hundred bucks that the germans give the russians for gas. They actually only give them eighty and they give 20 to Ukraine but it doesn't go to Ukraine.

42:55.73
Henry
Um, yeah.

42:59.77
Mike
It goes to the investors who ten years ago put up the money up front to rebuild the country. So for the last ten years Ukraine hasn't had to wait ten years with nothing rebuilt.

43:05.46
Henry
Who.

43:15.84
Mike
Having to have to wait for 10 years with nothing rebuilt while Russia got their pardon me crap together to um to end the war and agree to reparations. They've been rebuilding all along because the saudis and qatais and pension funds and private investors have put the money up.

43:19.00
Henry
Yeah, yeah.

43:33.64
Mike
Now the private investors get their money back from the first trillion dollars that the russians pay to rebuild Ukraine that's using the assets as financial leverage. So so the idea is in this article in the conversation. It's it's a bit nuanced right? I mean it it is. It's about threat.

43:42.41
Henry
Wow.

43:53.18
Mike
Versus reward for sure. But if you start to loop in this financial leverage it you know to me it kind of solves all the problems right? because you can go to the guys in Belgium and say look guys. You either need to just you know. Buck up say become a real human and give the money to Ukraine right? or you can stay behind your vault doors right? and um and you. Did not actually do anything with those those assets you just kind of gave custody to somebody else. They're not going anywhere anyway, they're frozen right? So why not give the belgians ah an option to basically do what's right by just saying.

44:35.10
Henry
Yeah, that's true. That's true.

44:46.65
Mike
We're going to let somebody use this as collateral for their mortgage for the future. The mortgage on the rebuilding of Ukraine right? to me, it just solves a lot of problems and so when John and and Jeffrey and I wrote this thing we're kind of like you know, everybody's.

44:51.46
Henry
Bright right? yeah.

45:02.97
Mike
Dancing around all these but but like overthinking things right? you know.

45:04.92
Henry
Yeah, yeah, John would you agree with that financial leverage concept.

45:09.71
Jon Unruh
I would it's it's so and I think there's you know as Michael has has really well described there. There's a number of opportunities largely unexplored by by monetizing the claims and doing time shifting and then exploring what what different ways. That interested parties investment funds the qatari state etc different ways that that such moneyed investors can can weigh in on this and both you know engage in in a ah much quicker reconstruction ah of Ukraine that than would normally happen and at the same time. Make the aggressor pay and at the same time earn money as an investor. So so it's an exciting field. It's pretty new in in terms of what we usually see for you know large scale war affected restitution reparations claims that run in the millions and millions of dollars

45:54.31
Henry
Yeah.

46:07.72
Jon Unruh
Usually it's up to the Western donors right? and someone may has a claim. It's paid and it it's shots it dies there. The claims are over Um, now this is this is new. This is a new way to actually get money into a a war affected country to to repair it.

46:14.76
Henry
Right.

46:26.67
Jon Unruh
Quickly even as Michael says while the war's underway. So so there's a lot going on a really exciting, really exciting stuff lot of options.

46:35.12
Henry
Wow! Well John Mike thank you so much you know threat um, ah, leverage reward leverage and financial leverage honestly and I had never really.

46:43.70
Jon Unruh
Um.

46:49.94
Henry
It's it's almost beyond the normal scope of thinking for a guy like me to consider this but you've laid it out. So sensibly man it makes sense and I certainly hope we can move this in this direction.

46:59.72
Mike
Absolutely I sure hope so too. Henry.

47:04.15
Henry
John thanks again for for joining us every time you do? It's I mean we we hear about it from our listeners because it's it's such a fresh and and and exciting way that you convey the ah the ideas and Mike as usual. Ah, thanks for making this happen I know you've been busy so gentlemen. The Centralists Thank you again.

47:21.77
Mike
Thank you! Thanks John! Thanks Henry.

47:23.86
Jon Unruh
Delighted. Thank you! Thanks guys.