How the West could use Russia’s frozen funds to support Ukraine

There is a risk that Russia, through court action, may attempt to seize Euroclear cash.

Western officials are moving toward seizing some of the $300-350 billion worth of frozen Russian financial assets to support Ukraine, but how this would be done remains highly complex because of a disputed precedent. Will maintain.

Here are some tips that have been suggested:


Some international policy makers and lawyers say that frozen Russian reserves could be easily seized under a principle of international law known as “counter measures”. The properties would then be sold or mortgaged and the proceeds handed over to Ukraine or a dedicated reconstruction fund.

However, others worry that it would go against international norms and open a legal Pandora’s box, noting that it would set a precedent and that Russia would challenge the move in the courts.

Previous examples of such confiscation, such as Iraqi assets after Iraq’s invasion of Kuwait in 1990, and German assets after World War II, occurred after those wars ended, rather than while they were still raging – as That happened with Russia’s invasion of Ukraine.

Even in the United States, leading sovereign debt experts have highlighted that the International Emergency Economic Powers Act (IEEPA) allows frozen Russian assets to be fully recovered in the absence of actual armed conflict between the US and Russia. Does not give right to confiscate.

Siphon of Records

The bulk of Russian reserves, about 210 billion euros ($230 billion) locked in the EU – essentially bonds and other types of securities in which the Russian central bank has invested – are held in a Brussels-based depository called Euroclear.

When those assets reach their final payment days – or “mature”, in banker’s parlance – they are converted into cash, a transaction which is taxed in Belgium at a rate of 25%.

EU officials, as well as those in the US and UK, where much smaller amounts of money have been pooled, are proposing ringfencing that type of revenue for Ukraine, estimating it at £15–20 billion by 2027. Will rise to Euro.

EU leaders could approve such a move later this month. However, some in the group are still cautious, and the European Central Bank has warned that claims on stranded Russian assets should only be made in conjunction with the G7 powers. They want to make sure the euro isn’t the only one affected if other countries like China start sending back their reserves as a precaution against being pushed below the line.

Some lawyers also point out that legally, there is little difference between grabbing the maturity proceeds and grabbing the entire $300-350 billion.

There is a risk that Russia, through court action, could attempt to seize Euroclear cash held in securities depositories in Hong Kong, Dubai and elsewhere. The concern is that this could drain Euroclear’s capital and would require a large bailout.

So there is a plan to keep some of the withdrawn money aside as a safety net.

indemnity bond

“Indemnity bonds” have also been suggested as a way to overcome some legal problems. Ukraine would sell those securities to be repaid if – and only if – it received compensation from Russia for war damages.

Interest payments could also increase and would be payable only if Kiev receives compensation.

Bondholders will have no contractual claim on the Kremlin’s frozen reserves. But given that Russia is unlikely to pay voluntarily, these assets would be the most likely source of cash to pay for damages.

As interest is accruing on reserves, they can be used to pay both the bond’s principal and more regular coupon payments. This would be different from confiscation, as assets would only be transferred if a legitimate compensation mechanism first ruled that the damage was caused by Ukraine.

Ukraine would have a plausible way to recoup any losses given up to the value of reserves. Therefore it can issue compensation bonds worth up to $300-350 billion. But it will get anything equal to this amount only if the United States, European Union governments and other allies are willing to buy the securities.

syndicated loan

The bond idea has been advanced by Lee Buchhet, a veteran legal expert on sovereign debt, and Dalip Singh, who recently returned to the White House as deputy national security adviser for international economics.

His idea is that Ukraine could hand over a compensation claim against Russia to a syndicate of its allies in exchange for the loan. If Moscow refused to pay reparations, the allies could use Russia’s frozen assets to repay the debt. The justification for doing so is the widely recognized legal principle that, if a creditor controls the debtor’s assets, he can set those assets against the unpaid debt.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)