BRUSSELS — Ukraine is pushing for another €5 billion from the proceeds generated by frozen Russian assets that the EU has decided to withhold from the war-ravaged nation.
Euroclear, the body holding the vast majority of Russia's central bank assets in Europe — immobilized by sanctions when Moscow invaded Ukraine over two years ago — has been allowed to retain the profits accrued from investing them in 2022 and 2023 rather than use the cash to support Ukraine's war effort.
The €5 billion in profits from these two years “amount to one year of an IMF program, so it’s a lot of money,” said Olena Halushka from the International Centre for Ukrainian Victory, a pro-Kyiv lobby group.
With Ukraine desperately in need of cash for ammunition, the European Commission this month finally proposed to use 90 percent of the proceeds of frozen Russian assets held in Europe to buy weapons for Kyiv. This is worth between €2.5 billion and €3 billion a year, according to the EU executive.
But the bloc is restricting itself to revenues accrued after Feb. 15, 2024, the date when the first part of the legislation was approved by EU capitals. The profits generated before then will remain with Euroclear, the Brussels-based securities depositary.
The clearinghouse acts as a custodian for assets totaling €37.6 trillion in value that generate profits. Out of this amount, €192 billion are Russian state assets that have been frozen since shortly after the war began in February 2022.
According to the Commission, the €5 billion retained by Euroclear is a buffer allowing payment for ongoing and potential lawsuits in Russia and elsewhere.
“The 2022-23 earnings related to Russian immobilized assets are separated from the ‘business as usual’ earnings,” said Euroclear in a written reply to POLITICO. “We do not distribute these profits to shareholders and retain them until further guidance is provided.”
The funds are earmarked for “the expenses, risks and losses incurred by central securities depositories … due to the war in Ukraine,” according to the EU's proposal, seen by POLITICO but not yet made public.
As of February Russian entities have filed 94 lawsuits in Russia demanding payback to Euroclear, which operates under Belgian law, after their investments and profits in Europe were frozen, according to a Belgian official with knowledge of the proceedings who spoke on condition of anonymity because of the sensitivity of the issue.
Ukraine doesn't buy this argument, with Justice Minister Denys Maliuska calling it “a mistake” during a panel in Brussels last week.
“I never heard that €5 billion is a buffer for Euroclear,” said Maliuska, answering a question from POLITICO. “It’s too big [an] amount of money to be a buffer” for any potential lawsuit. Ukrainian officials said the sum also doesn't square with the fact that Euroclear only suffered a €34 million loss in income as a direct consequences of the war, according to the company’s CEO Lieve Mostrey.
But legal experts noted that backdating the profit seizure would have been a legal minefield — which explains why the Commission's proposal doesn't cover the proceeds generated in 2022 and 2023.
“There are very limited circumstances under which regulations are allowed to apply retroactively,” said Maliuska, himself a former lawyer.
The legal text includes several other concessions for Euroclear. The financial institution can indefinitely keep 3 percent of the proceeds “to ensure the efficiency of their work,” according to the document.
On top of the €5 billion cash pot, Euroclear can tap into a safety net worth 10 percent of profits generated after Feb. 15, 2024 as a further safeguard. The financial institution can ask the EU to supplement this amount as a last resort.
If the legal risks do not materialize by 2027, Euroclear must hand over to the EU the 10 percent safety net — but not the €5 billion profits generated in 2022 and 2023, according to an EU official.
The debate is separate from wider pressure from the U.S. to confiscate the assets themselves, which would generate a much larger sum to send to Ukraine. The EU is currently limiting itself to using the proceeds from their investments for fear of legal and financial risks.