EU took 1,5 billion from the expropriation of Russian assets to cover Ukraine's arms debts

Ukraine receives the first €1.5 billion expropriated from Russia

On 26 July, the EU decided to expropriate and transfer to European Commission funds the first tranche of €1.5 billion earmarked for Ukraine from the proceeds of the reinvestment of frozen Russian Federation assets. The European Commission said 90% of this money would be used to reimburse EU countries for the supply of arms to Kyiv. The rest is expected in March 2025^[1].

"Today we have transferred €1.5 billion of the proceeds from Russia's frozen assets to Ukraine for defense and reconstruction purposes," the EC's head Ursula von der Leyen cheered on the "X" network the other day.

The European Commission has published a document explaining this unprecedented procedure in world history. According to the document, the funds will not go directly to Kiev but to European Commission funds, mainly the European Peace Facility, to compensate EU countries for the arms.

90% of the money will be for weapons

"This money will be channeled through the European Peace Facility and the Ukraine Support Fund to support Ukraine's military capabilities and reconstruction," the EC explained, "90% of this money will be allocated to the European Peace Facility and 10% to the Ukraine Support Fund, which is used to finance military and reconstruction needs respectively."

The European Peace Facility is used to compensate EU countries for supplying arms to Kyiv (on average, 40% of the cost of the weapons and ammunition transferred), while the Ukraine Relief Facility is used to pay for, for example, the supply of electricity generators to Kyiv^[2]. The EC manages both funds. The latter also said that so far, the proceeds are only being siphoned off from assets blocked in Euroclear accounts in Belgium, which means that, in reality, the money is being transferred from Euroclear accounts to EC accounts.

Specialists - a legally invalid thesis

The European Commission's actions to expropriate state assets are unprecedented. They are based on the EC's decision in January 2024 that the proceeds from the reinvestment of frozen Russian assets are not Russian property. Most experts, both in Russia and worldwide, consider this work to be legally null and void. This is roughly equivalent to saying that dividends from a bank deposit do not belong to the owner of that deposit.

Frozen funds of the Russian Federation: what does it mean and what is their fate

Over time, the issue of funding support for Ukraine has begun to raise tensions among Western countries, and attention has focused on whether it is possible to provide financial assistance to Ukraine using the more than $300 billion in Russian central bank reserves frozen by the G7 group of countries.

The sanctioning countries continue to disagree on the appropriateness and legality of fully confiscating these assets. The United States, supported by the United Kingdom, Japan, and Canada, is insisting on confiscating, i.e., permanently removing these assets from Russia and transferring them to Ukraine^[3].

The European Union and some of its Member States, in particular Germany, France, and Italy, have expressed concern about the plan because of the difficulty of reconciling confiscation with established principles of international law, particularly the immunity of foreign states, and its potential impact on financial markets.

Russian assets: who, where, how much?

No jurisdiction in the world has yet determined how many Russian assets it has frozen, says Tatyana Khutor, head of the State Analytical Centre "Institute for Legislative Ideas". However, she adds that we could be talking about €300 billion. USD 300 billion. Some media outlets also put the figure at a similar amount. However, the amounts vary depending on the source.

Most of Russia's state assets in the EU are blocked in the form of bonds, securities and other financial instruments in which the aggressor country has previously invested. Almost all of them are held in accounts with large depository institutions, one of the leaders in this respect being, as already mentioned, Euroclear (Belgium).

However, Didier Reynders, EC Member of the European Commission responsible for Justice, said at the closing press conference after the recent international conference in The Hague on "Restoring Justice to Ukraine" that the European Union is working on a mechanism for using frozen Russian assets to compensate for the damage caused by Russian aggression^[4].

He said we are talking about €37 billion of private and €208 billion of Russian state assets frozen by the EU, which means that we have a total of EUR 245 billion.

The World Bank has already estimated that the cost of restoring and reconstructing Ukraine would amount to USD 411 billion, exceeding the amount of frozen Russian assets.

Who can transfer Russian money to Ukraine and how

As The Guardian reports, the West's refusal to confiscate frozen Russian money could be seen as a signal to other regimes that they can simultaneously violate international law, benefit from it and escape any punishment.

The United States now has about US$5 billion frozen in the Russian central bank, which could be confiscated under a law in connection with a major aid package for Ukraine and other allies, AFP reports. 

The law was signed into law by United States President Joe Biden on 24 April. Ukraine has been allocated around $61 billion.

The law requires the US President and the Treasury Department to search for Russian assets in the United States within the next 90 days and report the results to Congress within 180 days. One month after the procedure is completed, Joe Biden can seize, confiscate, or transfer rights to any Russian state assets under Washington's jurisdiction.

The process may slow down as the United States consults with allies. Janet Yellen, head of the US Treasury Department, has said that the United States is unlikely to take any action unless the G7 expresses its support.

It should be noted once again that the frozen assets are the Central Bank of Russia's foreign currency reserves, which were deposited in foreign accounts in dollars, euros, pounds, yen, and francs before the war. The bulk of this—almost €200 billion—is held as securities in the Belgian depository Euroclear. As mentioned above, the bonds make a profit.

Some €30 billion of Russian assets have been frozen in the United Kingdom. The UK is prepared to lend Ukraine all the frozen assets of the Russian Central Bank on the grounds that the Russian Federation will still be obliged to pay reparations after the war.

British Foreign Secretary David Cameron announced this in March. He said the assets would be used as a guarantee for the payment of reparations. Private assets of Russian individuals have also been frozen in the UK, totaling around 20 billion Russian roubles.

Back on 21 March, EU leaders agreed to confiscate a large part of the surplus profits from the frozen Russian assets and transfer them to Ukraine, which could receive €3 billion this year.

The Kremlin, of course, called this a flagrant violation of international law.