EU agrees to tap Russian assets to arm Ukraine

The European Union has agreed on the expropriation of profits from frozen Russian assets to continue funding and arming Kiev, Brussels announced on Wednesday. The bloc’s ambassadors agreed on the course of action “in principle,” but the legal text is still to be ratified by the EU Council.

The proposal targets proceeds from some €191 billion ($205 billion) in Russian funds currently held immobilized in the Belgian clearing house Euroclear. In total, Western states froze an estimated $300 billion of Moscow’s sovereign capital abroad soon after the escalation of the conflict in Ukraine in February 2022.

“EU ambassadors agreed in principle on measures concerning extraordinary revenues stemming from Russia’s immobilized assets,” the Belgian Presidency announced on X (formerly Twitter) on Wednesday.

Euroclear generates somewhere between €2 billion and €3 billion ($2.15 billion to $3.22 billion) in profits annually from the Russian money, depending on the interest rates, according to CEO Valerie Urbain.

Under the proposal, the EU hopes to send 90% of those profits towards purchasing armaments for Ukraine, and 10% towards non-military aid, with the first tranche expected in July.

In the meantime, Belgium will continue levying a 25% corporate tax on the revenue, while Euroclear would keep 10% before the money is sent to the EU, to provide the clearing house a buffer against ongoing and future litigation by Russia. Euroclear would also keep 0.3% of future profits as an incentive fee.

The move follows months of deliberation among Ukraine’s Western backers on how best to utilize Russia’s frozen funds. The US – Kiev’s biggest war sponsor – had proposed seizing the assets entirely, but had faced pushback from the EU thus far.

Euroclear’s CEO likened the confiscation of frozen Russian funds to “opening Pandora’s box.” Speaking to L’Echo on Tuesday, she warned it could cause “major international investors to turn away from Europe,” as they could no longer trust that their own assets could not be confiscated.

Russia stressed that seizure of its sovereign capital or any similar action would not only amount to theft and violate international law, but undermine trust in both Western currencies and the global financial system, shaking the world economy.

If the frozen Russian capital is seized, Moscow will retaliate in kind, Finance Minister Anton Siluanov warned in February. Total foreign direct investments in the Russian economy by the EU, G7, Australia, and Switzerland were estimated to be around $288 billion at the end of 2022.