The EU has discussed sending Ukraine the profits generated by billions of euros of Russian assets that are stuck inside the plumbing of global financial markets.
Officials from member states and the European Commission met on Wednesday to explore options for siphoning off the interest generated by Russian assets held at Euroclear, the world’s biggest settlement house, according to people familiar with the matter.
Such a move would stop short of expropriating the assets themselves but would still amount to an escalation in the west’s financial pressure on Russia, with the aim of helping Kyiv defend itself from Vladimir Putin’s war.
Sanctions have frozen €196.6bn in Russian assets at Euroclear, according to the Belgian government, of which €180bn are Russian central bank assets.
The assets are generating cash from coupons and redemptions, which have been stuck for up to a year.
That cash is reinvested by Euroclear and it is the profits generated by the reinvestment that EU officials are interested in diverting to Ukraine.
As a standard practice, Euroclear lends out its clients’ cash balances to minimise credit risk and retains the interest earned. The current environment of high interest rates, together with the unusual accumulation of payments due to the sanctions, have led to bumper profits for the settlement house. In the first quarter of this year, Euroclear reported €734mn of interest on cash balances from Russia-sanctioned assets.
“It’s not entirely clear who this interest belongs to,” one person familiar with the discussions said. Tapping into the interest for the benefit of Ukraine was “uncharted territory”, the person said, “but we believe that it could be done”.
Some officials believe this principle could be applied to a broader range of frozen Russian assets, including those stuck at Luxembourg settlement house Clearstream.
Another person familiar with the matter said that “financial institutions don’t know what to do with this money” and that the option of diverting profits to aid Ukraine seemed promising.
Several people cautioned that the legal implications still needed to be reviewed, and such a move would likely need broader international backing as it could affect financial markets. Euroclear held €35.6tn of securities in 2022.
The EU is also considering actively managing the profits to generate more money, the people said. This could be done through an asset management vehicle, or through Euroclear itself, which would invest the assets according to instructions.
However, that move could have legal implications for an institution that usually only acts as a custodian. One person said a balance needed to be found between “protecting the role of Euroclear” and “siphoning off money to Ukraine”.
Euroclear is facing lawsuits from counterparties in Russia to force the company to hand over the payments. The settlement house said in March it would not distribute “any profits related to the Russian sanctions until the situation becomes clearer”.
The Belgian government has said separately that it intends to use the tax income from the profits generated by the frozen assets at Euroclear to help Ukraine, spending the money on military and humanitarian assistance as well as to help refugees. According to a government official, Belgium expects to earn at least €625mn in tax from the interest this year.
EU officials aim to present more concrete proposals regarding the Russian assets at a meeting of EU leaders at the end of June.
The Commission said it “has been exploring ways of using Russian frozen and immobilised assets” to “ensure that Russia pays for the damages caused in Ukraine”. It said that discussions were ongoing with international partners but were “both legally and technically complex”.
Euroclear and Clearstream declined to comment.
Additional reporting by Philip Stafford in London