What’s next for Russian state assets after REPO Act

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QUICK FIX

After months of debate, Congress will hand President Joe Biden the legal authority to seize billions of dollars worth of Russian state assets to help Ukraine. The Senate voted overwhelmingly Tuesday night to pass the measure — known as the REPO Act — as part of a foreign aid package that included assistance for Ukraine, Israel and Taiwan.

The White House supports the idea of tapping Russian assets to strengthen Ukraine as the country seeks to defend itself against Russia’s invasion and looks toward reconstruction.

But getting the legal authority from Congress might have been the easy part. The tougher challenge will be the diplomatic work of convincing reluctant allies in Europe, where most Russian state assets are held, to join the effort.

A big question is how the Biden administration can leverage the new law in its negotiations with G7 countries and the European Union, where officials have expressed concern about the legality and geopolitical wisdom of pressing ahead with taking Russia’s sovereign assets.

Clay Lowery, executive vice president at the Institute of International Finance, said passage of the REPO Act would be an “accelerant” on negotiations between the U.S. and European allies to move forward. “It is unprecedented. It is difficult. That doesn’t mean it’s impossible,” said Lowery, a former top Treasury Department official, “We’re definitely past midfield, but we’re not necessarily in the red zone yet either, because the Europeans aren’t there yet. And that’s a big deal because they are just a much bigger player on this.”

One immediate consequence of the legislation will be new transparency into where about $5-8 billion of Russian state assets are held in the U.S. The law requires the administration within 90 days to begin determining the location of the assets and report to Congress within 180 days. The vast majority of the assets, roughly $200 billion, are held in Europe.

There’s little expectation that the U.S. will act unilaterally even though the new law gives that power to the president. The Biden administration has signaled its desire to take joint action with allies in the coming months.

Treasury Secretary Janet Yellen tried to rally support among fellow finance ministers on the sidelines of the IMF-World Bank meetings last week. And administration officials have been working through various options before the G7 leaders meeting in Italy in June where the issue is expected to come up.

“Congress took an important step in that effort with the passage of the REPO Act, and I will continue intensive discussions with our G7 partners in the weeks ahead on a collective path forward,” Yellen said in a statement Tuesday night, adding that it was “urgent” for the U.S. and allies to act.

Daleep Singh, deputy national security adviser for international economics, said in a speech in Kyiv earlier this month that tapping the value of frozen Russian assets was a “first step” toward helping rebuild Ukraine. “International law is clear on this point,” Singh said. “Russia must pay for the damage it has caused in Ukraine. And it is not for Russia to decide if or when that happens.”

In the U.S., the REPO Act passed with bipartisan support. But it had some prominent critics, including Sen. J.D. Vance (R-Ohio) and the conservative Heritage Foundation, which argued that seizing assets was too legally and financially risky.

Across the Atlantic, European leaders have also expressed concern about the legality of taking the assets as well as fears of Russian retaliation. European Central Bank President Christine Lagarde warned last week that confiscating Russian assets would “start breaking the international legal order that you want to protect.”

Sen. Sheldon Whitehouse (D-R.I.), one of the cosponsors of the legislation, says he expects the Biden administration will use the new powers in cooperation with allies. “There’ll be conversations, probably through the G7, about how best to do it,” he said. “And then we’ll be able to bring massive international economic pressure to bear on Russia to stop its murderous bullying of Ukrainians.”

Rep. French Hill, a senior member of the House Financial Services Committee and architect of the law, says the Biden administration should work with G7 countries and the EU on crafting a “mirror” process to go after Russian sovereign assets there.

But Hill (R-Ark.) wants Biden to flex the power of the new law right away. The administration should “proceed with taking those Russian Federation sovereign assets in the United States and using them to be the first contribution into this trust on behalf of Ukraine,” Hill told Zach Warmbrodt in an interview.

“In my view, using the trust is the best way to have the most flexibility in aiding Ukraine with Russian sovereign assets,” Hill said. “Once in the trust, they could be used as collateral for a sovereign loan to Ukraine or a Euro bond issue on behalf of Ukrainian reconstruction or general operations.” Another “more legally defensible” option, he said, would be to “use the income of that trust to benefit the Ukraine budget gap or economic reconstruction.

IT’S WEDNESDAY — Be sure to send any tips to MM host Zach Warmbrodt at [email protected].

Driving The Day

Trump gets richer — Former President Donald Trump is already the largest stockholder in his social media venture with more than 78 million shares. Now, the presumptive GOP nominee is set to receive another 36 million, boosting both the on-paper value of his overall stake in Trump Media & Technology Group and his net worth by more than $1 billion, our Declan Harty reports.

The new shares are part of an “earnout” intended to award Trump and other insiders with additional stock in the company if the share price hits certain benchmarks as it did Tuesday. The stock closed at $32.57 — the 20th trading day in a 30-day period where it exceeded $17.50.

But Trump still can’t cash out — at least not yet. Unless the board gives him a waiver, his shares are tied up under a lock-up agreement preventing him from selling until September.

Housing

Todman talks homelessness — Acting HUD Secretary Adrianne Todman blamed the recent rise in homelessness — it increased 12 percent in 2022, to the highest level on record — on the expiration of pandemic-era relief programs, our Katy O’Donnell reports.

“The social safety net that really enveloped the country during the pandemic — whether it was the Child Tax Credit, or … some of the checks that folks had from Treasury — we saw that folks were able to sustain themselves, so we know what works,” Todman said at a Bipartisan Policy Center event Tuesday.

“We were able to stem a homelessness crisis during the pandemic,” she said. “And when those began to sort of peel away and their end dates came is when we began to see this increase.”

Todman also cautioned that the latest count was conducted in January 2023 — “and since that time, the administration has done a lot to sort of help localities” on the issue, she said.

… and AI: Todman said HUD is looking at artificial intelligence in housing “in a very serious way — not just as a threat but as an opportunity to really create efficiencies in our work.”

Labor

FTC targets non-competes — The Federal Trade Commission on Tuesday finalized sweeping regulations that would ban most non-compete clauses in employment agreements, adopting a key pillar of the Biden administration’s competition agenda, our Josh Sisco and Nick Niedzwiadek report. The rule, which is expected to face lawsuits from business groups, immediately nullifies the vast majority of existing non-compete agreements. The FTC estimates that the rule will lead to $488 billion in increased wages over the next decade as roughly 20 percent of American workers are freed to pursue higher-paying jobs.

Flurry of Labor Dept. regs — The Labor Department finalized two major rules on Tuesday that will extend eligibility of overtime pay and bolster protections for retirement savers.

Nick Niedzwiadek reports that millions of additional workers will get extra money in their wallets for working overtime under a final regulation announced Tuesday. Starting in July, workers making just under $44,000 will be entitled to time-and-a-half pay when they work more than 40 hours in a given week before increasing to $58,656 at the beginning of 2025. That’s up from the $35,568 overtime threshold the Labor Department set in 2019 under former President Donald Trump.

DOL also announced a final rule Tuesday aimed at bolstering protections for retirement savers by extending fiduciary obligations on annuity brokers and other investment products, Nick reports. The Biden administration embraced the policy shift, initially proposed at the end of October, as part of its broader crackdown on what it calls “junk fees” that nickel-and-time customers and weigh on Americans’ quality of life.

House Financial Services ranking member Maxine Waters (D-Calif.) lauded the retirement savings protections rule, writing in a statement that the DOL must now “prioritize the enforcement of this rule so that its benefits can be quickly felt by retirement savers.”

China

Sanctions to target Chinese banks — The WSJ reports that the U.S. is drafting sanctions that could cut some Chinese banks off from the global financial system in an effort to stop Beijing’s support of Russia’s military production. The news comes as Secretary of State Antony Blinken is set to go to Beijing on Tuesday.

Crypto

Coinbase launches new ad campaign — Coinbase, the largest U.S. crypto exchange, is set to launch a $15 million ad campaign today aimed at demonstrating how digital assets can eliminate payment fees. The firm is also set to announce today that it has begun paying its vendors in crypto. The announcements come as part of the firm’s effort to demonstrate to policymakers crypto’s use cases. “Unlike litigation, using USDC is cheap and fast – no middlemen, no legalese, and no waiting,” Coinbase Chief Legal Officer Paul Grewal told MM in a statement.

Wall Street

Traders bet against rate cuts — Traders have started to wager that the Fed won’t cut interest rates this year, Bloomberg reports: “Ahead of the May 1 Fed decision, traders have built positions in options linked to the Secured Overnight Financing Rate — which closely tracks the central bank’s benchmark — targeting a scenario where officials keep rates steady past December’s policy meeting. Some of the more aggressive bets have also hedged the possibility that the central bank will even deliver another hike in 2024.”

Jobs Report

Carlos Monje has joined JPMorgan Chase’s corporate responsibility team as the head of the PolicyCenter, our Daniel Lippman has learned. He most recently was under secretary of transportation for policy.