EU Commission tables first step on tapping into frozen Russian funds for Ukraine

The European Commission proposed on Tuesday (12 December) blocking all profits from the sanctioned Russian sovereign assets in the EU into separate accounts, in the first step towards making use of them to finance Ukraine’s reconstruction. 

The Commission is putting forward a “proposal on the immobilisation of extraordinary revenues, so-called ‘windfall revenues’, of the Russian Central Bank’s assets”, announced Vera Jourova, the vice-president of the EU executive.

The Commission recommends that financial institutions put all profits stemming from the Russian Central Bank’s assets on separate accounts once the decision is adopted.

This would mean to “immobilise the net profits and secure them so it can be used in the future”, one EU official said speaking on condition of anonymity.

The step comes after EU countries urged the Commission to look into legal ways of using the stream of revenues from the Russian central bank’s money immobilised in the bloc to help rebuild Ukraine following Russia’s attack on the country.

The European Commission estimates there is around €200 billion of the Russian Central Bank reserves frozen in the EU.

The draft proposal, which is not public and has been sent directly to national capitals, however, falls short of proposing ways to do so. The member states will later take a decision in this regard, based on a future proposal by the executive.

“Because it is unprecedented, each step needs to be carefully assessed and discussed. We think it is appropriate to step of separate registration assets, and it paves the way for the next steps,” the EU official said.

As this has never been done before, EU experts, lawyers, and economists, including the European Central Bank, have called for caution in doing so.

More hawkish Eastern and Central European member states have pushed for the move, while some countries such as Belgium, Estonia, and the Czech Republic have already started looking into how to use freezes within a national context.

The EU’s proposal “will focus prudently on the windfall profits from the immobilised assets of the Russian Central Bank,” European Commission President Ursula von der Leyen had said after the meeting of leaders in July, but expressed caution. 

EU leaders are expected to review the Commission’s proposal at a summit on Thursday (14 December).

They should “reiterate call for decisive progress, […] on how extraordinary revenues held by private entities stemming directly from Russia’s immobilised assets could be directed to support Ukraine and its recovery and reconstruction”, according to draft conclusions seen by Euractiv.

More than €100 billion of frozen Russian assets are stuck in the Belgium-based Euroclear and have generated around €3 billion according to the clearing house’s data since the beginning of Russia’s war on Ukraine.

“There is good reason to consider that these revenues should be used to help the reconstruction and recovery of Ukraine, that is the long-term objective,” the EU official said.

“The short-term objective is to make sure this is possible,” the official added, presenting two strands of work.

“First, forcing the central security deposits (CSDs) to manage and register separately those revenues so they can be identified in the accounting system, and secondly, these net profits from today would be prohibited to redistribution to shareholders and third parties, so they have to stay in CSDs.”  

That way, the Russian Central Bank’s money will not be touched by the future steps, only the profits.

Those can be used for Ukraine since they are “exceptional” and “only exist because of the immobilisation. It is a direct consequence [of the sanctions],” the official said.

The European Commission did not give any estimation as to how much cash could be generated from the move, which is also supported by the world’s biggest economies.

The G7 will explore how “extraordinary revenues held by private entities stemming directly from immobilised Russian sovereign assets” could be used to support Ukraine’s reconstruction, the group said in a statement in October.

The proposal also comes at a point in time as the EU leaders meet in Brussels later this week to discuss how to fund the next years in the EU’s future budget.

Using revenues from Russian frozen assets has been raised as an idea, and is included in the latest framework proposal for the EU summit sent by the European Council President Charles Michel on Tuesday (12 December), and seen by Euractiv, even though it has now been criticised by a majority of member states.

[Edited by Alexandra Brzozowski/Zoran Radosavljevic]

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