On 28 February 2024, the President of the European Commission, Ursula von der Leyen, announced that ‘it is time to start a conversation about using the windfall profits of frozen Russian assets to jointly purchase military equipment for Ukraine’. This statement comes on the heels of a decision adopted by the Council of the European Union (EU) on 12 February 2024, which was hailed as the ‘first step to use Russia’s frozen assets for Ukraine’. According to this decision, Central Securities Depositories (CSDs) holding more than EUR 1 million in assets and reserves of the Central Bank of Russia (CBR) that are frozen (‘immobilised’) under EU sanctions are mandated to account for them separately and prohibited from using profits generated by these assets. This move paves the way for a future financial contribution to the EU budget from these profits, which – at least, until von der Leyen’s statement – was expected to be directed to assist Ukraine’s reconstruction through the newly established ‘Ukraine Facility’.
Whether intended to support Ukraine’s reconstruction or the purchase of weapons, the EU Council decision remains significant considering that the majority of CBR’s assets frozen by the G7 consists of securities held by Euroclear, a Brussels-based CSD. EU officials estimate that around EUR 15 billion in such profits could be allocated to Ukraine over the next four years. However, the ambivalent language used in reporting about this has led to confusion, implying that the EU may be poised to seize profits belonging to Russia. As of now, there is no concrete indication that such a measure may be forthcoming. The focus of the recent EU Council decision remains on earnings (‘net profits’) made by Euroclear and other CSDs holding CBR’s assets.
Still, the legality of measures taken pursuant to this decision is not guaranteed. Depending on the chosen course of action, various international law challenges could arise. This article delves into these challenges, starting with an overview of the CSDs’ profits targeted by the EU Council. Next, it addresses potential international legal issues stemming from a windfall tax on these profits. Finally, it outlines legal concerns regarding potential confiscatory measures extending beyond CSDs’ profits and involving interests generated by CBR’s assets, contextualizing them within the broader discussion on confiscation of Russia’s sovereign assets.
Extraordinary Revenues Generated by Frozen Russian Assets
Euroclear is one of two international CSDs located in the EU, alongside Clearstream, operating the infrastructure that enables the so-called securities settlement systems. As a consequence of the EU sanctions levied against Russia in response to its invasion of Ukraine, approximately EUR 191 billion worth of CBR’s reserves in the form of securities held by Euroclear were frozen. As these securities matured, they generated interests for the CBR in the form of coupon payments and bond redemptions. However, sanctions prevented Euroclear and other CSDs from distributing these interests to their owner, leading to an accumulation of extraordinary cash balances in their accounts. By the end of 2023, Euroclear reported a year-on-year increase in its cash balances of EUR 38 billion, reaching a total of EUR 162 billion (information regarding profits generated by Clearstream’s holdings of Russia-related securities is not readily available).
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