EU discusses plan to send profits from €196.6 billion in frozen Russian assets to Ukraine

The EU has been negotiating to send to Ukraine billions of euros in profits from Russian assets that have been stuck in the plumbing of global financial markets.

Officials from member states and the European Commission met on Wednesday to look into siphoning interest from Russian assets held at Euroclear, the world’s largest clearinghouse, according to people familiar with the matter.

Such a move would not rule out expropriation of the assets themselves, but would continue to increase Western financial pressure on Russia to help Kiev defend itself against Vladimir Putin’s war.

According to the Belgian government, the sanctions have frozen 196.6 billion euros of Russian assets at Euroclear, of which 180 billion euros are Russian central bank assets.

The devices generate cash from coupons and redemptions that have been stuck for up to a year.

This cash is reinvested by Euroclear, and the profits from the reinvestment are of interest to EU officials to be diverted to Ukraine.

According to standard practice, Euroclear lends its customers’ cash balances in order to minimize credit risk and retain the interest earned. The current high interest rate environment, along with the unusual backlog of payments due to sanctions, has led to bumper profits for the settlement house. In the first quarter of this year, Euroclear reported 734 million euros in interest on cash from assets sanctioned by Russia.

“It’s not entirely clear who owns that interest,” said a person familiar with the discussions. Leveraging Ukrainian interests is “uncharted territory,” the person said, “but we believe it can be done.”

Some officials believe the principle could be applied to a wider range of frozen Russian assets, including those stuck at the Clearstream settlement house in Luxembourg.

According to another person familiar with the matter, “the financial institutions don’t know what to do with this money,” and the possibility of using the profits to help Ukraine looks promising.

Several pointed out that the legal implications have yet to be reviewed and that such a move would likely require wider international support as it could affect financial markets. Euroclear held EUR 35.6 billion in securities in 2022.

The EU is also considering actively managing profits to generate more money, the people said. This can be done through a trust vehicle or through Euroclear itself, which invests the assets as instructed.

However, this move may have legal implications for an institution that normally acts only as a custodian. According to one person, a balance must be found between “protecting Euroclear’s role” and “getting money to Ukraine”.

Euroclear faces lawsuits against partners in Russia to force the company to hand over payments. The company said in March that it would not distribute profits related to Russian sanctions until the situation is resolved.

Separately, the Belgian government said it intends to use tax revenue from profits from assets frozen at Euroclear to help Ukraine, using the money for military and humanitarian aid as well as helping refugees. According to a government official, Belgium expects to receive at least 625 million euros in tax revenue this year from interest.

EU officials intend to present more specific proposals regarding Russian assets at the meeting of EU leaders at the end of June.

The Commission said it was “examining ways to use Russian frozen and immobilized assets” to “ensure that Russia pays for the damage caused in Ukraine.” He said discussions were ongoing with international partners but were “both legally and technically complex”.

Euroclear and Clearstream declined to comment.

Further reporting by Philip Stafford in London