The EU has discussed transferring to Ukraine the profits made by the billions of euros of Russian assets that are embedded in the global financial markets.
Officials from member states and the European Commission met on Wednesday to explore options for cracking down on interest-bearing Russian assets held at Euroclear, the world’s largest clearing house, according to people familiar with the matter.
Such a move would stop the seizure of the economy but would be an escalation of Western economic pressure on Russia, with the aim of helping Kyiv defend itself against Vladimir Putin’s war.
Sanctions froze €196.6bn in Russian assets at Euroclear, according to the Belgian government, while €180bn are assets of Russia’s central bank.
The property generates revenue from coupons and redemptions, which are held for one year.
The money is repatriated by Euroclear and it is the profit generated by the repatriation that the EU authorities want to turn to Ukraine.
As a standard practice, Euroclear lends money to its customers to reduce credit risk and retain the interest earned. The current environment of high interest rates, along with the unusual collection of payments due to penalties, has resulted in high profits for the permanent home. In the first quarter of this year, Euroclear reported €734mn of interest on bank deposits from Russian legal entities.
“It is not clear who this interest is,” a person familiar with the negotiations said. Entering into a profitable interest in Ukraine was “an optional part”, the person said, “but we believe it can be done”.
Some officials believe that this policy could be used for many frozen Russian assets, including those frozen in the Luxembourg facility Clearstream.
A person familiar with the matter said that “the financial institutions do not know what to do with this money” and that the option of diverting the profits to help Ukraine seems interesting.
Several people warned that the legal implications still need to be reviewed, and that such a move would require international support because it could affect financial markets. Euroclear will hold €35.6tn of securities in 2022.
The EU is also considering better management of profits to generate more revenue, the people said. This can be done through an asset management vehicle, or through Euroclear itself, which will liquidate the assets according to instructions.
However, this move may have legal consequences for the organization that usually acts as a regulator. One person said there should be a balance between “protecting the Euroclear sector” and “defunding Ukraine”.
Euroclear is facing lawsuits from other countries in Russia to force the company to make the payments. The House of Commons said in March it would not distribute “any profit related to the Russian sanctions until the situation is clear”.
The Belgian government has said separately that it wants to use the tax money from the profits generated by frozen goods in Euroclear to help Ukraine, to use the money for military and humanitarian aid and to help refugees. According to a government official, Belgium expects to earn at least €625mn in taxes from interest this year.
EU officials intend to present further proposals on the Russian economy at a meeting of EU leaders at the end of June.
The Commission said it has been “exploring ways to use Russia’s frozen and stagnant economy” to “ensure that Russia pays for the damage caused to Ukraine”. It said talks were continuing with international partners but were “legally and technically difficult”.
Euroclear and Clearstream declined to comment.
Additional reports by Philip Stafford in London