Democracy Dies in Darkness

E.U. sets precedent with plan to use profits from frozen Russian assets

Since the earliest weeks of Russia’s war in Ukraine, Western allies have debated how to make the Kremlin pay without exposing themselves to legal challenges.

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Updated May 21, 2024 at 11:43 a.m. EDT|Published May 21, 2024 at 8:23 a.m. EDT
The council room in the European Council in Brussels on Tuesday. (Olivier Matthys/EPA-EFE/Shutterstock)
3 min

BRUSSELS — Since the earliest weeks of Russia’s war in Ukraine, Western allies have debated how to make the Kremlin pay. On Tuesday, the European Union made a precedent-setting move, formally agreeing to use windfall profits from frozen Russian assets to buy arms for Kyiv.

That would amount to about $3 billion in the first year. In the context of the roughly $300 billion in frozen Russian assets — or the money Ukraine says it needs — it’s a tiny amount. But it represents an innovative first step as allies try to figure out how they might use frozen assets without inviting legal challenges or undermining trust in their financial systems.

U.S. Treasury Secretary Janet L. Yellen this week will try to rally finance ministers from the Group of Seven wealthiest democracies around proposals to potentially squeeze out even more.

“It’s vital and urgent that we collectively find a way forward to unlock the value of Russian sovereign assets immobilized in our jurisdictions for the benefit of Ukraine,” Yellen said Tuesday in a speech in Germany.

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One idea U.S. officials have floated is for G-7 countries to lend Ukraine tens of billions of dollars against future profits from frozen assets. Though there are still technical questions about the plan, the idea is being pitched as a way to secure medium-term funding more quickly.

“We’re at a point in which we should explore every possible avenue to maximize the value of the immobilized reserves for Ukraine,” Daleep Singh, the U.S. deputy national security adviser for international economics, said in Kyiv last month. “We can’t wait forever. We know that.”

In the aftermath of Russia’s 2022 invasion, allies quickly seized billions in Russian central bank assets held outside the country, including more than $200 billion in the European Union. But they were just as quickly split on what to do with the money.

Some countries, including the United States, have argued from the start that allies should confiscate the assets and use them to support Ukraine.

Others, notably France and Germany, strongly opposed the idea, citing concerns about the legality and potential long-term impact of allies seizing assets from governments they oppose.

Critics questioned, for instance, whether seizing assets would stop central banks or sovereign wealth funds from investing. The European Central Bank warned that seizing assets could imperil the euro. Others are nervous about the potential for retaliatory measures.

Given these concerns, the European Union decided to start with using windfall profits from immobilized assets rather than seizing assets outright.

Under the E.U. plan, countries agreed to use 90 percent of the profits generated by frozen assets to buy weapons and ammunition for Ukraine. The remaining 10 percent of the profits would be used for nonlethal aid — a nod to countries such as Ireland that decline to fund military aid.