World War II History Haunts Attempts to Seize Russian Assets

BERLIN—The specter of World War II is haunting Western attempts to seize Russian assets and funnel them to Ukraine’s defense against Moscow.

Berlin has emerged as one of the fiercest opponents of the U.S.-led push to commandeer some of the nearly $300 billion of Russian central-bank assets that were frozen at the start of Russia’s war on Ukraine. Germany fears that seizing, rather than freezing, the funds could create a precedent and inspire new claims against them for WWII-era crimes.

The misgivings risk the fate of the initiative. The U.S. and U.K. say its success is crucial for a Ukrainian victory, but there is little chance of progress without wider European support. The funds, several times the size of the recently approved $61 billion U.S. aid package for Ukraine, would bolster Ukraine’s ailing armed forces and help rebuild the country.

Two-thirds of the Russian money at play sits in Europe’s clearinghouses and, two years into the war, Germany has only just backed using the windfall profits to fund Ukrainian arms . Paris, Rome and the European Central Bank also are hesitant, in case taking hold of the reserves hits international confidence in the euro and single-currency assets.

The Group of Seven is divided on whether to confiscate Russia’s assets, with Japan, which faces reparation claims of its own from South Korea and other neighbors, opposing the move. The Japanese Foreign Ministry said it would continue to discuss the issue with its G-7 partners.

Demands for further WWII reparations have dogged Germany for decades, at times souring relations with its neighbors. After WWII, Berlin paid the Allied powers and the then Soviet Union compensation for Germany’s war of aggression. Since 1952, Germany has also given more than $90 billion to Holocaust survivors and their families, according to Jewish organizations.

Recently, calls for further reparations have re-emerged. Poland, which Nazi Germany invaded and occupied throughout the war, has sought $1.3 trillion in compensation from Berlin since 2022, while Greece since 2019 has asked for more than $300 billion.

Destruction from the war in Ukraine is widespread. PHOTO: SERHII KOROVAYNY FOR THE WALL STREET JOURNAL

A Ukrainian volunteer rescuer walks among damaged buildings in Chasiv Yar, Ukraine. PHOTO: MANU BRABO FOR THE WALL STREET JOURNAL

Germany says its initial postwar payments, and a 1990 treaty that anchored the country’s borders following its reunification, settled the issue. The then Soviet Union and the U.S. were signatories to the treaty; Poland, Greece and Italy weren’t involved.

In 2004, when Poland joined the European Union, Berlin agreed not to support claims against Warsaw from millions of Germans expelled and expropriated. Poland in turn dropped its compensation claims. But the issue has remained an irritant.

“When we talk about executioners, victims, punishment, suffering…we demand not only memory, not only the truth. We demand compensation,” then Polish Prime Minister Mateusz Morawiecki said in September, on the 84th anniversary of Germany’s invasion.

Courts in Italy—which the Nazis invaded after the fascist regime of Benito Mussolini collapsed in 1943—have in recent years awarded restitution payments to families of victims of the occupation. Some Italian courts then attempted to seize German state assets, including real estate in Italy belonging to German schools and cultural, historical and archaeological institutions.

Germany took Italy to the International Court of Justice, or ICJ, where a ruling on the matter is pending. Italian authorities have refused to stop the cases, saying that would infringe on the independence of the courts.

Berlin argues international law prohibits individuals from making claims against states in foreign courts and that state assets are immune from seizure. Violating this principle in Russia’s case would undermine Germany’s longstanding legal position, Berlin officials said.

Russia’s Foreign Ministry has said that confiscating Russian assets would be “21st-century piracy.” Some Russian officials have warned they would retaliate.

The Polish state received little compensation after WWII. During the Cold War, its then Soviet rulers transferred looted German machinery and ships in lieu of compensation. Germany later paid $270 million to individual claimants in Poland, after causing the country’s widespread destruction and leaving between five million and six million people dead, roughly three million of whom were Jewish.

The Communist Polish government dropped its compensation claims against its East German Warsaw Pact ally in 1953. But the issue returned to prominence after the fall of the Berlin Wall in 1989. Helmut Kohl , Germany’s then-chancellor, sought to link a denial of Poland’s reparations claims to the recognition of Poland’s postwar borders, which included swaths of prewar Germany. Kohl eventually backed down under international and domestic pressure.

Andreas Rödder , professor of contemporary history at the Johannes Gutenberg University Mainz in Germany, said the Italian and Polish claims against Germany are valid—as is Berlin’s refusal to honor them in full. Yet successive German governments made a mistake by taking a legalistic approach and refusing to consider a compromise, he added, leading the problem to fester.

“Germany was comfortable in its erroneous assumption that the problem had been resolved and deliberately avoided the issue for decades, so it shouldn’t be surprised that Poland and Greece now say they have unfinished business,” Rödder said.

Germany also argues that Russian assets should be left intact to use as leverage in any talks to end the war and induce Russia to cede some of the Ukrainian territory it occupies.

Slawomir Debski , head of Pism, a think tank, said another motivation for Berlin’s refusal to seize Russian assets could be that it shields German companies still operating there from retaliation. The Leave Russia group, which campaigns for Western companies to exit from the Russian market, says 272 German companies still operate there.

Within the G-7, a complicated compromise may be starting to emerge. The U.S. has proposed that the group front-load 10 years of profits—essentially interest payments on matured assets—from the frozen funds. That money would act as collateral for a bond issued by a special-purpose vehicle set up by the G-7 to raise money for Ukraine. G-7 countries would guarantee the debt.

Europeans have their own plan to use the interest generated by frozen Russian assets to pay for weapons and reconstruction for Ukraine. That is likely to go ahead soon, although EU officials say Europe could join the U.S. plan in 2025. Discussions are still at an early stage.

President Biden this week signed into law legislation that authorizes his administration to seize Russian sovereign assets under U.S. jurisdiction. The U.S. holds $5 billion-to-$6 billion of Russian assets, congressional officials say.

“We’re looking at a series of possibilities ranging from actually seizing the assets to using them as collateral,” Treasury Secretary Janet Yellen said last week.

The U.S. argues that under international law, countries can take otherwise unlawful countermeasures against a country violating its international obligations. While lawyers and policymakers say Russia’s invasion of Ukraine appears to fit the principle, there are disagreements over whether any country other than Ukraine is entitled to apply countermeasures.

Initially, U.S. officials also worried that confiscating Russian assets could backfire against Washington and allies such as Israel. The U.S. has since argued that only directly affected countries, such as Ukraine’s main backers, whose security is threatened and who are paying for some of Kyiv’s defense, would be entitled to confiscate assets.

Bart Szewczyk , an associate at U.S. law firm Covington who previously advised the European Commission and worked at the ICJ, said that Berlin’s concerns about setting a precedent for reparations cases were unwarranted.

“The logic behind countermeasures clearly applies only to current and ongoing violations of international law, rather than those that occurred 80 years ago,” he said.

German Chancellor Olaf Scholz , a jurist who once managed his own legal firm, is unwilling to take the risk, according to German officials. One of the officials said the move could open other European capitals to claims over slavery and colonialism.

Write to Bojan Pancevski at bojan.pancevski@wsj.com and Laurence Norman at laurence.norman@wsj.com