Russian Money to Support Ukraine: What EU Plans to Do with Proceeds of Russian Assets

Ahead of the European Council meeting on 14-15 December, Foreign Minister Dmytro Kuleba spoke about four key decisions to be made by the European Union on Ukraine: opening negotiations, approving the Ukraine Facility macro-financial stability plan, continuing funding for the European Peace Facility, and approving the 12th package of sanctions.

However, no less important and expected, as well as discussed publicly and behind the scenes, was the approval of the EU's plan to transfer to Ukraine the profits from the frozen assets of the Central Bank of the Russian Federation.

This idea, voiced by Ursula von der Leyen back on November 30, 2022, has been given a chance to be put into practice for the first time.

Oddly enough, the problems with the allocation of financial support to Ukraine only increase the likelihood of a positive decision by the EU on this issue. And this will be a huge victory, even though the EU decision will not concern the confiscation of these assets. 

The keys are in Brussels"

"Forget about the United States! It is the EU that controls more than 200 billion of Russia's sovereign assets and several dozen more private assets. Think about Brussels!". This was how Patrick Pearsall, Director of the International Claims and Reparations Project at Columbia University and one of the developers of the concept of an international compensation mechanism for Ukraine, addressed the participants of the International Law Summit on December 9 in Lviv several times.

The fate of the frozen billions of the Russian Central Bank, as well as the profits accumulated from their use, is one of the most discussed and difficult topics for Brussels.

There is no consensus on this issue even among the key EU bodies: the European Parliament calls for their confiscation and use in the interests of Ukraine, the European Commission advocates their use or taxation and transfer of the proceeds to Ukraine, and the European Central Bank is strongly opposed to any of these options.

Although the European Commission has allegedly developed a plan to use the profits from Russian assets for Ukraine's benefit, even before the EU summit, officials in Brussels expressed doubts that the plan would ultimately be adopted in December. "I don't see that happening anytime soon," a senior EU diplomat told Reuters.

At the same time, there were several opponents of this decision. In addition to the old ones, such as the European Central Bank, and the obvious ones, such as Hungary, there are also doubters of this idea in Berlin and Paris.

The exact positions of the parties are unknown, but in the end, as with the 50-billion-dollar plan, the decision was postponed.

Between the lines

In the afternoon of December 15, the European Council released the conclusions of its meeting, probably one of the most dramatic in history. 

In clause 6, the EU's most influential body calls for active action to use the excess profits from Russian assets to help Ukraine "in accordance with international law and EU law."

No specifics on the content of the action plan. However, information speculating on the eve of the meeting suggests that the European Union will not make a direct decision on the fate of these profits.

Instead, a legal framework will be developed that will allow institutions that control frozen Russian assets (e.g., Euroclear Bank) to decide on the fate of the accumulated profits from these assets.

The second important point is the purpose of using these profits.

The European Council's statement refers to "support for Ukraine, its recovery and reconstruction."

And even more important here is the clause contained in the so-called "Negotiating Box" on a multi-year financial program to support Ukraine for 2021-2027. It says that €17 billion of the €50 billion in aid to Ukraine for 2024-2027 should be filled, among other things, by using the proceeds of frozen Russian assets.

Both provisions are currently only hypotheses, which may not be reflected at all in the final decision that may be adopted at the extraordinary summit of the European Council.

However, these proposals, as well as the fact that the decision has been postponed, leave many questions unanswered and make the overall political context of compensation for Ukraine complex.

Hidden details

On December 15, Deputy Head of the Office of the President, Rostyslav Shurma said that the proceeds from frozen Russian assets "at the current level of interest rates in the world could reach $15 billion annually," noting that they would be a support for the state budget, financing of the economy and citizens as long as the fight against Russian aggression continued.

This estimate is probably too hasty: according to the Financial Times data, it could be as much as €3 billion a year or €15 billion over four years.

However, regardless of the amount, it should be borne in mind that the funds that were supposed to be used to compensate for the damage caused by the aggression would be used to finance current needs.

Moreover, these funds will be used not as additional support but as part of the overall financial support from our allies.

This turnaround was not surprising, given the slowdown in US aid, Hungary's blocking of the €50 billion plan, and the German budget crisis.

However, the same funds could just as easily have been allocated to the future Compensation Fund for Ukraine, becoming the first basis for future compensation for damages from the aggression.

While the framework decision is less risky for the EU as a whole, as it shifts the decision on the fate of these revenues to the institutions where they are deposited, it does not automatically guarantee that they or the governments of the member states will take appropriate decisions.

Therefore, it is impossible to predict how much of these revenues will be transferred to Ukraine and when.

And lastly, no matter how large these revenues are and no matter how painful it is for Russia,

this is not a step that clearly brings us closer to our main goal – the confiscation of the assets of the Central Bank of the Russian Federation.

Both the creation of an international compensation mechanism and the decision to use the profits from the assets of the Central Bank of the Russian Federation are intended to strengthen Ukraine's position and increase pressure on Russia in this matter.

And although it seems that our allies will postpone real decisions on compensation for the aggression, including confiscation, until a political settlement is reached, this does not mean that Ukraine should give up now.

We understand that Russia will not pay compensation voluntarily, and therefore the confiscation of hundreds of billions of Russian assets remains a strategic goal. Although a practical decision may be made much later, its content and implementation plan should be developed now, and pressure for this should only increase.

Ukrainians have proven that they have the moral right to demand the confiscation of these assets to compensate for losses. Our allies have a corresponding obligation to ensure this confiscation.

Author: Ivan Horodyskyy,

Ph.D., Director of the Dnistrianskyi Center

The material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase III: Advocacy for steps to ensure a sustainable compensation strategy."