The European Union has passed a law to set aside profits made on frozen Russian central-bank assets in the first concrete step toward using the money to finance the reconstruction of Ukraine.
The decision adopted on February 12 by the Council of the European Union paves the way for the first possible contribution to the EU budget from the profits of the Russian assets.
The law applies to institutions holding more than 1 million euros ($1.1 million) of the Bank of Russia's assets. It requires central securities depositaries (CSDs) to separately account for extraordinary cash balances accumulated as a result of the EU restrictive measure. In addition, CSDs are prohibited from using net profits generated by the frozen assets.
The EU and the Group of Seven (G7) froze some $323 billion of Russian central-bank assets following Moscow's invasion of Ukraine.
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Two-thirds of these funds held are in the EU, largely by Belgium's Euroclear clearing house. So far, only taxes on the assets in Belgium have been earmarked to a dedicated fund for Ukraine handled by the Belgian government.
"Today’s decision, in line with the G7 position, clarifies...the legal status of the revenues generated by the CSDs in connection with [the] holding of Russian immobilized assets and sets clear rules for the entities holding them," said the EU Council, a legislative body that groups member states.
The EU and G7 have been debating how the funds could be used to help Ukraine. The United States floated the idea of confiscating the assets outright, but EU officials viewed this as legally too risky.
The EU estimates $16 billion in profits on Russian assets could be carved out for Ukraine over the next four years.
Ukrainian Foreign Minister Dmytro Kuleba welcomed the decision on X, formerly Twitter.
"We encourage further steps to enable their practical use for Ukraine's benefit. These steps must be ambitious and prompt," he said.
The Kremlin did not immediately respond to a request for comment, Reuters reported.
Moscow has said that any attempt to use frozen Russian assets as collateral to raise funds for Ukraine would be illegal and Moscow would challenge it.
After Russia launched a full-scale invasion of Ukraine in February 2022, the EU decided to ban any operations related to the management of reserves and assets of the Bank of Russia.
In connection with the growth of inflation and interest rates in the EU, these funds began to generate significantly higher profits than before. Euroclear said the frozen Russian assets it holds generated 3 billion euros in profits in just nine months of 2023.