Euroclear Will Help Us: Will Investment Income from Russian Assets in EU Become Compensation to Ukraine


Since the beginning of russia’s full-scale invasion of Ukraine, the USA, the United Kingdom, Canada, Japan, and the European Union have frozen more than 300 billion euros in the assets of the russian Central Bank.

In addition, another 30 billion dollars belonging to sanctioned russian oligarchs were also “immobilized.”

It is clear that these assets should be used to compensate for the damage caused to Ukraine. Various options are already being considered.

All these options, which can be divided into universalregional, and national by geographical criteria, are differently effective, although they pursue the same goal. However, the European Union has the most powerful tools for confiscation of russian assets and, at the same time, perhaps the greatest doubts about them.

Confiscation efficiency

Today, we can already see several examples of successful confiscation of the assets and their transfer to Ukraine.

Among them is the case of Konstiantyn Malofieiev, the US-sanctioned oligarch and owner of the Tsargrad TV channel.

However, the amount involved in this case is quite small – about 5 million US dollars. It is also worth mentioning Canada’s intention to confiscate the russian AN-124 aircraft.

Now the country has already initiated the legal process to transfer it to Ukraine.

The process of confiscation of sanctioned assets is also underway in Ukraine: according to the special platform “How to Confiscate russian Assets in Ukraine?” created by Transparency International Ukraine and Ukrainska Pravda, as of August 15, 2023, a total of 85 thousand US dollars and 77.2 million hryvnias of monetary assets had been confiscated from russian oligarchs.

The state budget received 25.8 billion hryvnias from the recovered property (including the assets of subsidiaries of two russian banks, except for confiscation in criminal cases). Numerous businesses and real estate were also confiscated.

Although this amount is not so significant compared to the damage caused by the aggression of the russian federation, it seems to prove that the confiscation of the RF assets is objectively the best way to ensure compensation to Ukraine. However, opinions differ significantly in the European Union.

Toolkit at the EU’s disposal

For the EU countries, investment income from sanctioned russian assets seems the most promising alternative to real confiscation, either full or partial.

It is known that most of the frozen russian funds are located in the European Union countries (223.7 billion euros as of July 2023). Most of them (196.6 billion) are allocated to Euroclear (Brussels, Belgium), the largest European depository.

They “work” and generate profits.

Thus, in the first half of 2023, investment income amounted to 1.74 billion euros, and in 2022 – 821 million euros.

Currently, real discussions are taking place in the European Union between the European Commission and the European Central Bank, as well as between the national governments of the largest countries managing frozen funds of the RF. In particular, regarding the possibility of using those funds to help Ukraine.

In fact, the main line of discussion is the possibility of using the income on frozen assets, which could reach 3.3 billion euros in 2023.

It should be noted that, before the summer break, the European Commission had intended to prepare a position paper on the possibility of using these funds, but the issue turned out to be more complicated than it initially seemed. Thus, according to Western media and analysts, the European Commission is currently considering a special tax on income received from frozen assets.

The proceeds from this tax are planned to be directed to help Ukraine. According to the European Commission’s lawyers, such a two-step approach may set a legally sound precedent for the use of confiscated frozen russian assets.

(Un)known risks

The main opponent of this approach is the European Central Bank. As the euro is currently the world’s second currency after the US dollar, in which sovereign assets are held.

Correspondingly, according to the European Central Bank’s experts, any interference in sovereign assets could undermine the role of the euro as an international reserve currency, provoke an outflow of sovereign investments, and, beyond that, question the legal stability and reliability of European financial and legal systems.

As a first response to the possible introduction of special measures against frozen assets, the possible withdrawal of Brazilian sovereign assets is also being considered amid concerns about the EU sanctions related to deforestation in the Amazon.

As a result of the exchange of these arguments, the European Commission and the European Central Bank promised to continue working on possible mechanisms for using income from sanctioned russian assets after the summer pause. Some experts suggest that the developed mechanism can find its implementation in the 12th package of the EU sanctions. It is expected to be approved in the autumn.

At the same time, the adoption of a legislative act at the EU level that would introduce such a tax is being discussed.

There is also no unanimity of opinion regarding the legal nature of such a tax. On the one hand, such a tax can be a so-called windfall tax. However, with such an approach, questions arise about the voluntary nature of declaring and its payment, as well as the determination of the object and tax base by the owner of such assets.

On the other hand, it is the introduction of the so-called tax levy that will determine the object, base, and rate of taxation, as well as the relevant mechanism for its collection, which is likely to be automatic, in a mandatory manner as provided by law.

In addition, the lawsuits against the Euroclear depository, which are filed by the owners of frozen assets, including oligarchs under sanctions, complicate the process of making a decision.

It is no coincidence that a lawsuit for almost 2 billion euros was filed by First AM, one of the largest and oldest investment funds in russia, in July 2023.

What should be done?

Obviously, the problem of using revenues on assets sanctioned in the European Union must be resolved in one way or another. There is a clear understanding that this is one of the most real sources that can be used to help Ukraine. However, there is another side to the issue: the legal mechanism of such a political decision and its possible consequences are of great concern to conservative politicians in the EU and representatives of financial circles.

It may become a difficult precedent that has no analogs in the modern history of international relations.

Instead, there are also many examples of appeasement of the aggressor that were unsuccessful and much more expensive in the long run.

However, the unprovoked war of nuclear-armed russia against peaceful Ukraine is the largest war since World War II, the lessons of which have not provided real legal mechanisms to prevent future wars. An asymmetric response in the form of the introduction of significant financial responsibility to the aggressor country for unprecedented violations of the international legal order should deprive russia of financial resources to continue hostilities and create preventive mechanisms to prevent future hostilities.

Considering the reality of the discussions in the European Union, Ukrainian diplomats, politicians, financial experts, and lawyers should not stand aside but take an active part in the work of the European Commission and the European Central Bank regarding the confiscation of income from frozen russian assets and find a solution together in the interests of Europe and Ukraine.

Publications in the Expert Opinion section are not editorial articles and solely reflect the authors’ points of view.

The study was conducted within the ANTS project “russian Assets as a Source of Recovery of the Ukrainian Economy”, implemented in cooperation with the National Democratic Institute (NDI) and funded by the National Endowment for Democracy (NED).




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