Russian assets that can be used for Ukraine's needs. Where are they, and how much are there?

In general, there is information that about $280 billion of Russian assets have been arrested in various countries. We don't really know how many assets are frozen yet.

Russia must pay for the destruction in Ukraine during its brutal invasion. The World Bank has estimated the direct costs of the war at $152 billion and the need for reconstruction at $486 billion.

Many people in Kyiv and other capitals are working on how to make the aggressor cover these costs. Everyone understands that the seized Russian assets should become one of the sources for these payments.

There are three levels of discussion on this topic:

1. Can Russian assets be confiscated? International and local lawyers have different positions, and Western politicians try to avoid or postpone such decisions. Some believe that the seizure of Russian state assets or revenues as reparations for Ukraine remains a "long-term" goal, but there is "no deadline or fixed conditions" for this. Other Western policymakers are bolder, with pressure from Ukraine on this issue forcing them to move closer to such decisions. Many different tracks could play out in the weeks and months ahead.

2. If such assets can be confiscated, what is the best way to do it? Again, many options and proposals exist, from direct confiscation to issuing bonds secured by Russian assets.

3. How can this money be used later, and how can it be directed to Ukraine? There are various options: send it directly to Ukraine, use it only for reconstruction, send it to some new or existing funds abroad, include it in the EU budget, and use it to finance Ukraine (as part of the Ukraine facility or on top of it), or use it in Europe, for example, to cover humanitarian expenses for refugees.

4. But there is a fourth issue. A few days ago, I met in Warsaw with NV journalist Olga Dukhnich, and Olga asked me to explain how much money Ukraine could eventually get from these assets if the issues described above were resolved.

What do we have? In general, there is information that about $280 billion of Russian assets have been arrested in different countries. We have yet to determine how many assets are frozen.

There is no special coordination on this issue worldwide - we tried to get the Donor Coordination Platform to take this issue into coordination. Still, our partners were not very enthusiastic about this idea. There is a group called Russian Elites, Proxies, and Oligarchs (REPO), which was doing asset mapping at the request of the G7 leadership. In September 2023, they wrote that they had counted $280 billion. There were also estimates of $370 billion. These estimates included both the sovereign assets of the Central Bank of the Russian Federation and the frozen money of Russian companies and oligarchs under Western sanctions.

As for the details of this amount, there is no single table (we do not even know what part of these assets belongs to Russia as a sovereign, what part belongs to Russian state-owned enterprises, and what part belongs to private companies or individuals). However, we do know that most of the assets were in the European Union.

How much was in the EU? We do not know. In the 10th package of sanctions, the European Council imposed reporting obligations on EU member states regarding Russian assets. Each country had to provide data on these assets to the European Commission. I have not personally seen any public analysis. There was some data, but not for the EU: 8.8 billion euros were frozen in Switzerland, 22.7 billion pounds in the UK, $8.7 billion in the Cayman Islands, and the US amount was somewhere around $8 billion.

In February 2024, the European Council went further, effectively obliging Central Securities Depositories (CSDs) that hold the frozen assets and reserves of the Central Bank of Russia to separately account for extraordinary cash balances accumulated due to EU restrictive measures and separately keep the corresponding income. In addition, CSDs are prohibited from disposing of the net income they receive. What does this have to do with CSDs?

Belgium's Euroclear is the largest CSD in Europe. It is the CSD where the most significant amount of Russian assets is immobilized - about 190 billion euros - and this amount was mentioned in most articles in financial publications. We would like Euroclear to transfer this money to us, but they have yet to make plans to do so.

These frozen assets (securities) in Euroclear generate some income for the Russian owners (the Russian National Settlement Depository (NSD) or the Central Bank of the Russian Federation). We do not know what kind of income this is - it is not published, but it is clear that Euroclear also immobilizes these amounts, meaning that they are constantly increasing the amount of seized funds. But we can try to do the math. If the Russian assets were at the level of 190 billion euros, and these securities generated an income of, for example, 5% per year, then the value of these revenues could be around 15-20 billion euros. I call this amount the "first derivative" of Russian assets. Russian lawyers consider this money to be the property of Russian clients. European politicians and lawyers are cautious in their comments.

However, investments in securities have different maturities, and over the past two years, most of these securities have become cached in Euroclear accounts. Euroclear reports on these amounts - as of the end of the first quarter of 2022, this amount was 52 billion euros. At the end of 2022, it was 124 billion euros. At the end of 2023, it will be 162 billion euros. This money is already in Euroclear's accounts - they publish these figures quarterly.

Per risk management standards, Euroclear is already investing these funds on its own and earning income. Every quarter, the depository publishes all figures related to sanctions on Russian assets separately from its "core business." It is clear that, although 162 billion euros is a grain of sand in the depository's 37 trillion assets, the income from the "sanctions" is disproportionately high. Instead of the commission income that the depository usually receives, they now receive income from interest. In 2022, Euroclear received €814 million in operating income from this cash on hand. In 2023, this income has already reached more than €4.4 billion. That is, in total, over two years, Euroclear has earned about 5.2 billion euros on this freed-up cash. This is a kind of "second derivative" from Russian assets. We would very much like to get this money for Ukraine and hope to generate income in future periods, especially considering that Euroclear is quite cautious with this money and does not distribute it to shareholders in the form of dividends.

However, Euroclear also paid corporate tax on this amount - they show it separately in their reporting. Over two years, this tax amounted to just over €1.28 billion. This is not a separate windfall tax discussed by the G-7 leaders and the European Commission. It is a regular income tax, and the amount has already been paid to the Belgian budget. The Belgian authorities said that despite the budget deficit, these funds would be used "exclusively for Ukraine." As for the additional windfall tax, EU officials have said they expect to receive a further 15-17 billion euros over the next four years, which could be transferred to Ukraine. I call these taxes the "third derivative" of Russian assets.

So what do we have in the end?

We have at least $280 billion in immobilized assets. 75% of this amount (about 191 billion euros) is in the Belgian depository Euroclear. We definitely believe that this money should be used to support Ukraine. These assets have generated some income for two years that we cannot estimate precisely. Due to the maturity of about 160 billion euros of investments in securities, they have already become just cash in Euroclear accounts. Over time, this amount will grow to more than €191 billion (including income).

Euroclear has invested these balances in other securities and earned interest income of €5.4 billion in two years (we would very much like to have this money and future income as well). Out of this amount, they paid a tax to the Belgian budget of 1.28 billion euros (which was promised to us), and the European authorities are also working with us to introduce an additional tax on Euroclear's income (windfall tax). We don't know the tax rate yet, but EU officials have stated that they expect to receive an additional 15-17 billion euros over the next four years, which could be transferred to Ukraine.

Let's see what Western politicians have the courage to do and what lawyers can secure. The Ukrainian government is working on all fronts in this matter. We have many supporters. We wish them success.

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