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Brussels will propose on Tuesday to ringfence profits generated from Russia’s frozen assets in the EU, aiming to eventually skim off up to €15bn for Ukraine’s benefit.
The European Commission plan had been delayed since the summer after several EU member states and the European Central Bank raised legal and financial concerns.
But the faltering US and EU efforts to agree additional financial support for Ukraine has given fresh impetus to the proposals to tap profits from Moscow’s immobilised cash, said people familiar with the discussion.
“It’s important to look at how we can use Russian immobilised assets and proceeds from those immobilised assets to support Ukraine,” commission vice-president Valdis Dombrovskis told the Financial Times.
Noting the G7 had agreed to freeze the assets until Moscow had paid damages to Ukraine, Dombrovskis argued it was time to look at ways to best use the proceeds generated in the interim.
To win over sceptics, the commission will initially require central securities depositories holding Russian central bank assets to place the profits generated from them in separate accounts, according to people briefed on the proposal. Securities depositories generate profits by reinvesting cash from matured securities such as government bonds, as payments to Moscow are banned due to the sanctions.
EU member states would need to unanimously back the plan, as well as further implementing steps, before the money could be disbursed to Kyiv. Hungary has separately blocked further EU funding for Ukraine ahead of a leaders’ summit on Thursday.
In the second stage of the plan, the profits would be moved to the EU’s common budget to help support Ukraine, the people said.
Only proceeds from Russia’s central bank assets would be targeted under the proposal. The commission estimates this would generate up to €3bn a year, or €15bn between 2023 and 2027, though officials warned that the amount would depend on interest rates through the period.
The measures would principally affect Euroclear, a Belgium-based depository that holds about €191bn in Russian sovereign assets, the largest share immobilised in the west.
Euroclear is already separating profits voluntarily, and earned €3bn in income on all Russian assets in the first nine months of this year alone. Not all those profits were generated from Russian central bank assets.
Euroclear declined to comment on the upcoming proposals, which could still change before being put forward by the commission.
Despite the limited scope of the proposal, which only targets profits rather than the frozen assets themselves, experts have warned of legal and financial risks.
Given Euroclear’s systemic importance — it held €35.6tn worth of assets under custody in 2022 — “this could of course trigger uncertainty and fears with immediate effect on financial markets”, said Armin Steinbach, professor of law and economics at HEC Paris.
The ECB has also long maintained there may be risks to the euro’s role as a reserve currency and called for concerted action with international partners. The US and other G7 members have backed the move.
Another clear risk is retaliation from Russia by seizing western companies’ assets, something Russian finance minister Anton Siluanov has already threatened.
The IMF also issued warnings on Friday that such a move “could impact financial stability and the functioning of financial markets globally”.
The commission acknowledged those risks by suggesting a certain amount is kept aside to manage risks, according to people familiar with the proposal.
Euroclear is already facing dozens of lawsuits over blocked assets, said people briefed on the matter. “It is not obvious how a court would look at this. There is no clear international law standard,” said Steinbach.
