Frozen Russian Assets: No Rose Without a Thorn

The experience of Russia, whose billions of dollars in assets have been frozen by the West, is of serious concern to many countries around the world. China, Saudi Arabia, and Indonesia have sent a collective letter to the European Union urging it “not to support the idea of confiscating frozen Russian assets.” The three countries “privately” asked Brussels to “continue to resist pressure from the USA and Britain to confiscate 210 billion euros (260 billion, according to Moscow – ed.) of state assets, including money and securities of Russia’s Central Bank. In their message, the three countries emphasized that “confiscation would set a dangerous precedent” that would “seriously damage the reputation of European financial institutions” and inevitably “cause an unprecedented flight of capital from European banks.”

The announcement by the Arab-Asian trio followed a March 2024 statement that the European Commission “intends to use the interest accumulated over two years on frozen Russian finances for the purchase and subsequent delivery of military equipment to Ukraine.” Depending on interest rates, fixed asset revenues are expected to be around €3 billion in 2024, benefiting Kiev.

Following a proposal put forward by EU High Representative Josep Borrell to “channel 90% of these revenues for the supply of military equipment through the European Peace Fund,” European Commission President Ursula von der Leyen also said that “an agreement has been reached between the leaders of the Union that will open up the possibility of using Russian money in favor of Ukraine as early as July 2024.”

While Brussels appeared to get to the bottom of its plan, labeled by the Kremlin as “theft and plunder,” China and its allies warned the West that “it risks retribution and loss of financial power for using Moscow’s frozen assets to come to the aid of the Kiev regime.” Especially after formally losing legitimacy, as president to Zelensky, who, unlike Vladimir Putin, did not want to take the risk and cancelled the presidential election in Ukraine, which was constitutionally scheduled for March 31.

European, British, and American sanctions laws provide “only for the freezing of assets, not their confiscation.” The only exception relates to assets deemed to be “profits derived from illegal activities,” but there are no specific rules on “profits derived from already frozen assets,” and the European strategy is based on this very weakness. In simple words, “not touching the fixed assets, but seizing their interest” would represent a kind of compromise found by the European Union to avoid legal problems as much as possible and to use part of Russia’s financial resources in favor of Ukraine.

The announcement of the agreement to seize Moscow’s assets has sent Old Continent banks into a state of fibrillation, as they fear being sued by Russia if they are forced to participate in the transfer of Russian money to Ukraine. But there are those who argue that Brussels’s “long arm” may even go so far as to “seize interests in assets held in the accounts of individuals or Russian companies subject to European sanctions.”

In the two years since the start of the conflict in Ukraine, Brussels has blacklisted and frozen the bank accounts of more than 2200 Russian citizens. At the same time, the Russian Tax Service said that at the end of last year, 539.1 thousand Russian citizens held about 70 billion euros in 1.82 million foreign bank accounts.

For its part, Russia has threatened “retaliation against all people who may be involved in the operation,” calling it a violation of international law, and has taken steps over the past two years to seize the assets of Western companies. Companies that, on the one hand, have been pushed against the wall by the West’s anti-Russian policy and therefore forced to leave Russia’s very rich markets, and on the other hand, have been forced by the Kremlin to sell off their assets at huge discounts.

Russian Finance Minister Anton Siluanov told the RIA Novosti press agency on February 26, 2024 that “about 70% of the 260 billion euros in securities and cash of Russia’s Central Bank are frozen in the accounts of the Belgian financial services company Euroclear and on which about 3 billion euros of interest has accrued in the first 9 months of 2023.” According to the cautious Siluanov, over the past two years Russia has also “frozen Western assets for the same amount.”

Actually, Western assets frozen by the Kremlin are several times larger than Russian assets. Vyacheslav Volodin, speaker of the State Duma (the lower house of the Russian parliament), estimated the frozen foreign investments at 500 billion dollars (about 464 billion euros). For its part, the Russian Central Bank itself wrote that “the total volume of foreign economic activity in the Russian economy was equal to $1180 billion,” and foreign direct investment (FDI) was estimated at $505 billion, of which FDI from the EU, G7, Australia, and Switzerland amounted to $288 billion (about €267 billion) at the time of the start of Russia’s special military operation in Ukraine.

“What really worries the Europeans, apart from the risk that European assets still present in Russia would be subjected to similar treatment, is that confiscation could jeopardize the attractiveness of the euro system abroad,” Francesco Lenzi wrote in the Italian newspaper Il Fatto Quotidiano. For many countries around the world, this would be a new illegal action by the West that could be compared to the unauthorized invasions of Afghanistan, Iraq, and Libya.