EU takes first step to use Russia's frozen assets for Ukraine

A Russian state flag flies over the Central Bank headquarters in Moscow, Russia, August 15, 2023. A sign reads: “Bank of Russia”. REUTERS/Shamil Zhumatov/File Photo

BRUSSELS (Reuters) – The EU adopted a law to set aside windfall profits made on frozen Russian central bank assets, it said on Monday, in a first concrete step towards the bloc’s aim of using the money to finance the reconstruction of Ukraine.

The EU and the Group of Seven nations (G7) froze some 300 billion euros ($323 billion) of Russian central bank assets following Moscow’s invasion of Ukraine. The EU and G7 have been debating if and how these funds can be used for over a year.

The United States has floated the idea of confiscating the assets outright but EU officials view this as legally too risky.

Two thirds of these funds are in the EU with the majority of that held by Belgium’s clearing house Euroclear. So far, only taxes on the assets in Belgium have been earmarked to a dedicated fund for Ukraine handled by the Belgian government.

The law passed on Monday means central securities depositaries (CSDs), such as Euroclear, will be prohibited from using net profits and must keep revenues from the Russian assets separate.

It applies to institutions holding more than 1 million euros ($1.1 million) of the Central Bank of Russia’s assets.

“Today’s decision, in line with the G7 position, clarifies … the legal status of the revenues generated by the CSDs in connection with holding of Russian immobilised assets and sets clear rules for the entities holding them,” said the Council of the EU, a legislative body that groups member states.

The EU estimates some 15 billion euros ($16.17 billion) in such profits could be carved out for Ukraine over the next 4 years. Separately, the EU has agreed to allocate 50 billion euros ($53.89 billion) in aid to Kyiv.

Ukrainian Foreign Minister Dmytro Kuleba welcomed the announcement on X.

“We encourage further steps to enable their practical use for Ukraine’s benefit. These steps must be ambitious and prompt,” he said.

The Kremlin did not immediately respond to a request for comment.

Moscow has said that any attempt to use frozen Russian assets as collateral to raise funds for Ukraine would be illegal and lead to years of litigation because Moscow would challenge it.

($1 = 0.9279 euros)

(Reporting by Charlotte Van Campenhout and Julia Payne; Editing by Hugh Lawson and Alison Williams)