Russian funds, even if the West decides to completely confiscate them, will not be enough to compensate for all the losses and destruction inflicted on our country by Russia.
Immobilized Russian assets and income from them lie like dead weight in banks and depositories around the world. Russia cannot use them due to sanctions, and there is not enough political will to confiscate funds. Although in Europe they talk about the absence of an appropriate mechanism and note the risks for the international financial system that such confiscation could cause.
What to do with Russian money is a debate that has been going on since the beginning of a full-scale war in Ukraine. Now it is acquiring more specific features.
On May 8, ambassadors of the European Union countries reached a preliminary agreement regarding the use of income received from the use of Russia's frozen assets in the EU in favor of Ukraine. On May 14, the procedure should be finalized at the level of the Council of the European Union.
Back in April, the US House of Representatives approved a bill on the possibility of confiscation of sovereign assets of the Russian Federation in favor of Ukraine. That is, the United States is ready to transfer to Ukraine all frozen Russian assets that are on its territory. According to various estimates, we are talking about $6-8 billion.
However, most of the Russian Federation’s funds are stored in Europe, which is not ready for such a radical step. 192 billion euros or 70% of the assets that the West froze are concentrated in the Euroclear depository in Belgium. In the first quarter of 2024 alone, these assets generated €1.6 billion in interest.
It is this money that they plan to seize. Although at least 220 billion euros of Russian funds are stored in the financial system of the European Union.
Euroclear CEO Valerie Urbain opposes a complete confiscation of funds, because “such a decision would have a very negative impact not only on Euroclear, but also on the financial markets as a whole.”
“If our clients feel that the law is no longer being respected and that their assets may be seized, this will open a Pandora's box. This could cause large international investors to turn away from Europe,” she says.
The use of interest is a compromise option, because they are not sovereign assets of the Russian Federation.
“These incomes do not belong to Russia, since they are not sovereign assets. There is a difference between capital and income from it,” says Josep Borrell, Vice-President of the European Commission and High Representative of the EU for Foreign and Security Policy.
How much can Ukraine expect?
In general, the immobilized assets of the Russian Federation could bring in about $5 billion a year, Reuters previously wrote, citing officials from the G7 countries.
However, as Valerie Urbain explains, the European authorities plan to seize from 87% to 89% of the income from Russian assets, and the remaining funds “will serve as a buffer that we can use, if necessary, to pay the costs of ongoing legal proceedings.” More than 100 proceedings have been opened against Euroclear in Russian courts.
“A number of law firms are helping us defend ourselves. The likelihood that we will win these cases is quite low. But we continue to fight,” she notes.
The general director of the depository estimates the income from Russian assets frozen by them at 2-3 billion euros per year, depending on changes in interest rates.
In 2023, Euroclear earned more than 4 billion euros from Russian assets. However, on this money, firstly, you need to pay tax, the rate of which in Belgium is 25%. And, secondly, a 0.3% commission for asset management is withheld from the amount.
Now European experts agree on the figure of 3 billion euros per year - this is exactly what Ukraine can count on.
Income from Russian assets from the beginning of 2024 is recorded and stored in other accounts, separately from the sovereign assets of the Russian Federation, so that there is no confusion.
Where will the money go?
It is planned that 90% of the amount of confiscated proceeds will be used to purchase weapons for the Armed Forces of Ukraine through the European Peace Fund, while the remaining 10% will be directed to the EU budget and transferred to Ukraine for reconstruction, support of its defense industry or other, in particular humanitarian, needs.
“We agreed that this money could be used to purchase weapons not only in the EU, but throughout the world,” explains German Chancellor Olaf Scholz.
The issue of non-military assistance was agreed upon taking into account the position of neutral countries - Austria, Ireland, Malta and Cyprus. Hungary and Slovakia also support the refusal to purchase weapons. Their prime ministers, Viktor Orban and Robert Fico, have long been dubbed “Putin’s friends” in the press.
According to Deputy Head of the Office of the President Irina Mudra, “such an agreement is better than nothing.”
“But it would be better for Ukraine if such income could be transferred from Russian assets that are stored in all financial institutions of the European Union, and not just in Euroclear,” she emphasizes.
When will Ukraine receive the money?
The European Commission expects that EU member states will promptly agree on a proposal to allocate most of the proceeds from Russia’s frozen assets to the purchase of weapons for Ukraine.
“We hope for quick agreement between member states so that the first payments can be made by the summer,” says European Commission spokesman Christian Wiegand.
It was previously reported that the first tranche from the profits of blocked assets could arrive in July 2024. The most important thing is to coordinate all bureaucratic procedures.
In addition, in June, during the G7 summit in Italy, the G7 countries are expected to voice their position on Russia’s frozen assets. The discussion will last until the end of May, although it has already become known that the Group countries are no longer discussing the issue of complete confiscation of Russian assets. Priority is given to alternative ways of extracting benefits from frozen funds. Although the USA and Great Britain insist on complete confiscation.
Also during the summit, the issue of assistance to Ukraine worth $50 billion will be considered, some of which they want to return at the expense of excess profits from the frozen assets of the Russian Federation.
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At the end of 2023, the World Bank estimated the damage caused by Russian aggression at $500 billion, while the total amount of frozen assets of the Russian Federation is now estimated at $282 billion. Interestingly, the exact figure is not stated anywhere, only in the range from $260 billion to $300 billion.
But in any case, Russian funds, even if the West decides to completely confiscate them, will not be enough to compensate for all the losses and destruction inflicted on our country by Russia.
The 3 billion euros per year that Ukraine will receive from income from frozen Russian assets is a drop in the ocean. However, this is much better than these funds continuing to lie like a dead weight on European accounts.
