On 6 September, US President Joe Biden said that Russia should not be recognised as a state sponsor of terrorism.

Source: Ukrainska Pravda

Immediately afterwards, at a press conference, the White House also stated that the decision not to include Russia in the list of state sponsors of terrorism was final.

According to the White House, such a decision would not be effective enough to bring Russia to justice and could have serious negative consequences for both Ukraine and the world.

White House spokesperson Karin Jean-Pierre said that, according to experts, this would have complicated the delivery of humanitarian aid to certain regions of Ukraine and jeopardised the grain deal designed to prevent a global food crisis.

It was also noted that Russia has already been subjected to enough measures to isolate it from the global economy and block supplies needed for its armed forces.

The issue of recognising Russia as a sponsor of terrorism has long been on the international political agenda. After the Verkhovna Rada of Ukraine passed the law recognising Russia as a ‘terrorist state’, President of Ukraine Volodymyr Zelenskyy made several requests to the US State Department to designate Russia as a state sponsor of terrorism.

In July, the Senate passed a non-binding resolution calling on the US Secretary of State to designate Russia a state sponsor of terrorism. While Anthony Blinken was still weighing the pros and cons of his position, the Latvian parliament had already issued a statement.

Recognising Russia as a state sponsor of terrorism could have a tremendous economic impact. In particular, the United States applies appropriate restrictions to states with this status:

• deprivation of foreign aid from the United States;
• prohibition of exports of defence products;
• control over the export of dual-use goods;
• enhanced financial monitoring of counterparties, etc.

In addition, companies trading with Russia could be at risk of sanctions under a number of US laws. However, the most significant effect would be the risks to reputation, which most companies would not want to sacrifice for the sake of contracts with a state sponsor of terrorism, given the long-term problems in the future. Therefore, in a broader context, the recognition of Russia as a state sponsor of terrorism could be extremely important for Ukraine, as it would financially weaken our enemy and accelerate Ukraine's victory.

What were the risks for Ukraine in making such a decision?

The matter is the frozen assets of Russia in the United States, which could potentially be used to restore Ukraine.

These are assets that belong directly to Russia as a state, not to its individual citizens. For example, the amount of assets of the Central Bank of Russia frozen on accounts in the United States is approximately USD 38 billion out of approximately USD 330 billion frozen abroad in total. Thus, the US accounts for about 1/10 of the frozen sovereign assets of the Russian Federation.

Of course, this amount looks like a tasty morsel, but as of now, it is the designation of Russia as a state sponsor of terrorism that would create problems.

According to US law, if Russia is declared a state sponsor of terrorism, Ukrainian citizens, as well as citizens of countries other than the US, will not have the right to seek compensation from Russia in court.

According to US law, only Americans will be able to claim Russian assets . Moreover, President Biden may issue a decree to freeze some of Russia's assets so that these funds are used exclusively to compensate American citizens who have suffered from Russia's actions in accordance with court decisions. This is exactly what he did, for example, with the funds of the Afghanistan State Bank.

In addition, the United States is actually a role model for other Western countries. And other states can start using this mechanism in the same way, putting the interests of their own citizens affected by Russia's actions first. Since countries such as France, Japan and Germany hold much more frozen Russian assets than the United States (approximately $71 billion, $58 billion and $55 billion, respectively), this trend could have serious consequences for Ukraine's interests.

Thus, only Americans can file lawsuits against Russia.

This principle is unlikely to be changed, at least no such draft laws have been registered so far. Successful enforcement of such decisions in favour of American plaintiffs could significantly reduce Ukraine's share of frozen Russian assets (approximately $38 billion).

Since Ukrainians will not benefit from this procedure, the benefits of recognising Russia as a state sponsor of terrorism in the context of asset confiscation are more than doubtful for Ukraine.

For a more detailed legal analysis on the specifics of recognising Russia as a state sponsor of terrorism, please read here.

What is the lesson for Ukraine?

We must understand that the further we go, the more claimants there will be for Russian sovereign assets and, as a result, the risk of reducing the amount we will be able to receive for reconstruction in the event of their confiscation.

Ukraine should move forward as soon as possible with the creation of an international mechanism for the confiscation and transfer of frozen Russian assets to us. We are convinced that this can be done through the conclusion of an international multilateral treaty, the adoption of national legislation by individual countries, and bilateral agreements. Of course, this list is not exhaustive. However, these options will be implemented primarily in the interests of Ukraine. Therefore, the creation of an international mechanism for the confiscation and transfer of frozen Russian assets to Ukraine should be a priority for us.