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Yellen says legal obstacles remain on seizure of Russian assets to aid Ukraine

FILE PHOTO: US Treasury Secretary Yellen speaks during her roundtable with India's technology leaders on outskirts of Bengaluru

By David Lawder

(Reuters) -U.S. Treasury Secretary Janet Yellen said on Monday that Russia should bear the costs of damage caused by its invasion of Ukraine, but there are "significant legal obstacles" to confiscating major frozen Russian assets.

Yellen, speaking to reporters by phone during a surprise trip to Kyiv, said the the United States would study Ukraine's calls to impose sanctions on Russia's nuclear energy sector, but needed to be "mindful" of potential consequences of such an action on Western allies.

Yellen said the United States and its allies were discussing strategies to ensure that Russia pays for the devastation that its war, now in its second year, with estimates in the hundreds of billions of dollars and growing every day.

Washington has confiscated assets used in criminal activity but central bank and other large pools of assets frozen by sanctions are another matter.

"We have on this small scale, seized assets, but there are certainly legal challenges in doing more than that," she said.

The United States and Western allies have seized more than $300 billion in Russian central bank foreign currency assets frozen by sanctions. The assets are held abroad, with a significant portion at the Federal Reserve Bank of New York, but remain under Russian ownership.

Some European officials have called for their full seizure and Ukrainian Prime Minister Denys Shmyhal said he and Yellen had discussed the issue earlier on Monday.

RUSSIAN URANIUM

Russia's nuclear energy sector has thus far escaped several rounds of sanctions, partly because a number of countries, including France, rely on Russia's Rosatom for uranium supplies.

"We want to deprive Russia of revenue. We also need to look at potential consequences of the sanctions for ourselves and our partners," Yellen told reporters.

She also repeated that the United States has warned China of "really severe consequences" should the Beijing government, Chinese firms or financial institutions provide material support to Russia's war effort or help Moscow evade U.S. sanctions.

"It's something we wouldn't tolerate," she added.

Asked about what assurances she received that Ukraine is responsibly using over $14 billion of direct U.S. economic and budget aid, Yellen said there were strong controls over funds distributed via the World Bank, but it was important for Ukraine to continue its anti-corruption and governance efforts.

"(Ukrainian) President (Volodymyr) Zelenskiy is committed to addressing it and is in the process of putting in place for example, independently appointed directors in some of the largest state-owned firms," she said.

(Reporting by David Lawder, additional reporting by Rod Nickel; Editing by Mike Collett-White)