Funds for reconstruction or war? What Ukraine must do to successfully confiscate Russian assets

"Can we take the $300 billion that is rightfully ours? Can we decide what weapons we need? Can we decide what to do with this money? Can no European country block this money?"

Volodymyr Zelenskyy made this statement at a press conference following the conclusion of the European Political Community meeting on November 8, 2024. The remark was one of the most emotional moments of the event, as the president raised the critical issue of confiscating the frozen reserves of the Central Bank of the Russian Federation, which are held in the jurisdictions of Ukraine's allies.

This statement served as a catalyst for a renewed and intensified discussion about the fate of frozen Russian assets. By early 2025, these discussions began taking unexpected and complex turns.

New hope

A few days after Zelenskyy's speech, Kaia Kallas, the former Prime Minister of Estonia and current High Representative of the European Union for Foreign Affairs and Security Policy, made a bold statement during hearings in the European Parliament.

In her address, Kallas affirmed Ukraine's legitimate grounds for demanding compensation from Russia and emphasized the need for EU member states to overcome their hesitations regarding the fate of frozen Russian assets.

"I will not use the word confiscation, because it’s really using the assets in a legal way," Kallas remarked.

This statement by a high-ranking EU official marked one of the most significant public developments in recent months regarding the debate over the fate of the Russian Central Bank reserves frozen in European bank accounts. Until now, the issue of confiscating these assets had been largely avoided at the official level.

The European Union and the Group of Seven have consistently reiterated their position: the assets would remain frozen until some abstract future moment when Russia voluntarily agrees to compensate Ukraine for the damages caused by its aggression.

Although no additional official statements have been made in Brussels, numerous insider reports in the media suggest that discussions on the (non-)confiscation of Russian assets are actively ongoing.

These discussions encompass both legal and political challenges, such as risks to the euro's stability as a reserve currency, the necessity of a court ruling as a legal foundation for asset recovery, and the absence of consensus among EU member states.

Among the EU countries opposing confiscation, Germany, Belgium, and Luxembourg are most frequently mentioned.

Notably, approximately $210 billion of the Central Bank of the Russian Federation's reserves are held in accounts at the Belgian bank Euroclear and the Luxembourg-based Clearstream.

Hungary and Slovakia also stand out for demonstrating the most Russia-friendly positions in Europe.

However, this opposition may be mitigated by one significant factor: Donald Trump. While he has not yet commented on the fate of Russian assets, his stated desire to reduce U.S. spending on supporting Ukraine could potentially prompt the EU to take more decisive steps toward confiscation.

If the future U.S. president were to back this idea, he might also influence his key ally in the EU, Viktor Orbán, potentially motivating Hungary to support such a move.

In this context, the greatest uncertainty lies with the possible position of official Bratislava, which remains unclear and enigmatic.

An offer for Fico

On Christmas Eve, Politico revealed details of closed-door talks between Slovak Prime Minister Robert Fico and Ukrainian President Volodymyr Zelensky. One of the key topics discussed was the fate of frozen Russian assets.

According to the publication, Fico claimed that the Ukrainian leader allegedly attempted to "bribe" him by offering compensation of 500 million euros for losses that Slovakia might incur if Russian gas transit through Ukraine were to cease.

Fico stated that this compensation was to come from frozen Russian assets, and in return, Ukraine expected Slovakia to support its bid for NATO membership.

Later, Zelenskyy confirmed this on the "X" platform:

"We gave him (Fico – Ed.) an offer regarding possible compensation for Slovaks – specifically for Slovaks – for losses from Russian transit... Fico did not want compensation for Slovaks."

Whatever the real content of the negotiations, the word "bribe" is clearly inappropriate to describe a standard negotiating proposal. Otherwise, any diplomatic negotiations–where "bargaining" is an integral component–would lose their meaning entirely.

That said, such an offer does carry certain risks.

If other countries, following Slovakia's lead, begin to present their own "accounts for losses from Russia," it could establish a dangerous precedent. Among these states could be those that currently provide strong support to Ukraine, potentially complicating its diplomatic position in the long term.

However, Fico's stance and his subsequent visit to Moscow represent a worrying strategic signal for Ukraine, particularly regarding the confiscation of Russian assets.

In contrast to Viktor Orbán, who remains a frequent and welcome guest at Donald Trump's Mar-a-Lago residence, Robert Fico could emerge as the Kremlin's "reserve joker" within the EU.

Fico has the potential to obstruct the EU's unified stance on issues that contradict Moscow's interests, even if Orbán shifts his position under pressure from a new U.S. administration.

At the same time, alongside these external challenges, there is a crucial internal question that the current Ukrainian government must address: what is the specific plan for utilizing Russian assets after their confiscation?

At a crossroad

Zelensky's proposal to Fico may serve as indirect confirmation of the feasibility of confiscating the reserves of the Central Bank of the Russian Federation in the medium term. At the same time, it introduces another idea for their use, which does not align with the primary goal–compensating for losses caused by Russian aggression.

Since May 2022, Ukraine has consistently promoted the idea of establishing an international compensation mechanism to facilitate payments to victims of the war. Within this framework, a Compensation Fund could operate, into which confiscated Russian assets might theoretically be transferred.

However, over the past month and a half, Zelensky has proposed at least two additional potential uses for these assets: defense spending and compensation for losses incurred by other countries.

These differing statements create a "strategic dilemma" for Ukraine.

The immediate task for the Ukrainian government is to clearly define the priority purpose for the reserves of the Central Bank of the Russian Federation in the event of their confiscation.

This represents the third key element of the "confiscation formula": legal grounds – already established; political will – as evidenced by Kaia Kallas' statements, which reflect growing support; an a specific goal – still to be clearly determined.

It appears that compensating for losses should remain the primary and priority goal. If it becomes necessary to use these assets for Ukraine’s current needs, alternative mechanisms for replenishing the future Compensation Fund should be explored – such as duties on the purchase of Russian energy resources, as was previously done in Iraq.

Without a clear plan, the confiscation and use of Russian assets will remain a distant prospect and could become the subject of extensive speculation.

Ivan Horodysky,

director of the Dnistryanskyi 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 IV: Addressing Specific Issues to Ensure Compensation.