The long battle over Russia's frozen assets heats up

A man and his child pass an army recruitment poster in Moscow
A man and his child pass an army recruitment poster in Moscow Copyright AP Photo/Dmitri Lovetsky
Copyright AP Photo/Dmitri Lovetsky
By Aleksandar Djokic
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The EU is edging closer to a decision about using the interest made on the frozen foreign reserves of Russia's Central Bank to aid Ukraine.


In the wake of Russia's full-scale invasion of Ukraine in 2022, one of the key measures taken by the international community was the freezing of Russian assets abroad.

The decision to freeze Russian assets was seen as part of the broader sanctions package aimed at stopping Russian aggression from its onset.

The move was aimed at imposing economic sanctions on Russia and its elites, targeting their financial resources as a way of exerting pressure and condemning the aggression.

Yet, with no end to the war in sight and the rudimentary resources-based structure of the Russian economy not toppled in one single strike, the question of how to utilise the said assets continues to loom over the West and especially Brussels, as most of the frozen funds are located in the EU.

Elina Ribakova, director of the International Affairs Programme and vice president for foreign policy at the Kyiv School of Economics explains that the freezing of assets was justified as: "Russia doesn't abide by the rules of the global financial system and, as such, it shouldn't receive the benefits".

But this measure was hardly an ineffective one, Ribakova explained. "It substantially curtailed Russia's policymakers' room for manoeuvre. As a direct result of the measure, the day after it was announced, the governor of the Bank of Russia stopped intervening in Russia's market to support the rouble and was forced to hike rates and impose severe capital controls," she told Euronews.

The assets frozen after February 2022 encompass a wide array of financial instruments and holdings. These include bank accounts, real estate properties, stocks, bonds, luxury assets, and various investments held by Russian entities and oligarchs.

The funds in question also involve around €275 billion in central bank assets across the EU, US, Japan and Canada.

However, the complexities surrounding frozen assets, their structure, taxation, and obstacles to permanent seizure, present a multifaceted challenge in the realm of international finance and diplomacy.

This question is further aggravated as Russian funds are now being used as an instrument in the in-fighting of opposing political options in democratic political systems.

For one, there are ongoing debates in the US House of Representatives, where the Republican Party majority speaker Mike Johnson, suggested on 8 March that the frozen Russian funds should be used as collateral for loaning Ukraine the necessary weapons to fend off Russian aggression, instead of receiving the armaments as foreign aid. The total amount of Russia's frozen assets in the US is around €67bn.

UK Foreign Secretary David Cameron similarly approached the topic on 6 March, stating that his country would be willing to loan Ukraine funds matching the amount of Russia's frozen assets in the UK, or around €32bn. Cameron also suggested that the frozen funds could be considered collateral and part of the loan process.

Meanwhile, the EU has its own plans regarding what to do with the frozen assets. As the biggest chunk of these frozen assets is in Europe, with Belgium as the country where the Russian Central Bank stored most of its funds abroad, the leading EU institutions may feel uncomfortable seizing the assets themselves or using them as collateral.

Consequently, the EU is close to making a decision to seize the interest earned on the frozen foreign reserves. In February, EU leaders agreed that these proceeds could be held in a separate account, creating the ability to use these funds in the future to aid Ukraine.

This move is legal and less risky for Brussels than seizing assets themselves. As Zach Meyers, assistant director of the Centre for European Reform, explained: "This interest legally belongs not to Russia, but rather the Belgian securities depository Euroclear."

The idea of the leading EU institutions is to bypass the legal risks the precedent of seizing the underlying capital could potentially cause and to appropriate only the Euroclear windfall profits from the frozen reserves through a special tax. "Euroclear earned approximately €4.4bn on the €19bn of frozen assets in 2023," Meyers added.

The Russian side has not stood idly by as the assets question has been discussed in many Western capitals. Instead, it has utilised its own counterweight to seizing the assets - the so-called "symmetrical measures", which boil down to the nationalisation of Western private investment capital left in Russia.

Western companies whose assets have already been nationalised by the Russian state include Finland's Fortum, German Uniper, and Danish Carlsberg. "We have no fewer frozen assets than what the West has.", Russian Minister of Finance Anton Siluanov told Russian state-owned media.


While one of the main counterarguments to seizing the frozen assets - not to be confused with seizing the interests the frozen funds generate over time - was the fear of breaching the immunity of countries' sovereign assets under international law, the captured Western private capital being held for ransom in Russia is proving to be a very potent deterrent in practice.

This might be yet another indicator that the Russian leadership has gone all in, as the invasion of Ukraine has effectively cut most ties with the West, both politically and economically. Most experts agree that the Kremlin is instrumentalising the weak spots of the Western laws-based democratic system without any regard for international law or any other legal obligation.

On the other hand, the West is still trying to contain Russia with one hand tied behind its back, wary of crossing red lines drawn by stable laws and global financial institutions. As Mrs Ribakova effectively concluded: "The risk of Russia's countermeasures is way past us. It is too late to talk about the risk of fire when the house has largely burned down."

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