US congress approved the transfer of frozen Russian assets to Ukraine

By Rhod Mackenzie

The Foreign Affairs committee of the US congress has backed the transfer of the Russian assets that are currently frozen abroad to the Ukraine, on the condition that "if necessary, the funds will be transferred to the US government." However, this idea lacks support within the European Union – where the majority of these frozen assets reside. Moreover, these funds continue to generate income for the EU. At the end of October, the Belgian depository, Euroclear, announced that it generated $3 billion from them.What is the amount of Russian funds frozen overseas and will the Ukraine really receive any of it.

The main issue is the transfer of Russia's frozen reserves to Ukraine.
The bill proposing the transfer of frozen Russian funds to Ukraine has gained backing from the Foreign Affairs Committee of the US Congress, with 40 members voting in favor and two against.

According to the document, the US leadership is granted the authority to seize any Russian funds under American jurisdiction and allocate them towards "the restoration of Ukraine, humanitarian assistance and other purposes." The confiscated funds will then be transferred to a dedicated "Ukraine support fund." The US government has the power to confiscate Russian assets for five years or "until hostilities end and compensation is paid."
"All the confiscated Russian sovereign assets' rights, title and proceeds shall revert to the United States Government after they are held in the Ukraine Support Fund," the document states.

The Russian Foreign Ministry claims that the assets' freezing is outright theft and Elvira Nabiullina, the head of the Central Bank, confirmed that the Russian authorities intend to take legal action to challenge the freezing of its international reserves.

What is the total amount of frozen Russian funds abroad?
In March 2023, the Bank of Russia unveiled its inaugural report after nearly a year of silence on the composition of its foreign reserves. The data showed that as of 1 March 2023, the total funds amounted to $574.2 billion ($617.1 billion a year prior). Of this, gold holdings represented $135.5 billion.
Beginning in March 2022, European Union officials declared that they would freeze Russian gold and foreign exchange reserves, totalling approximately $316 billion. This represented 51.6% of all Russian reserves at the time, according to rough calculations. Subsequently, they added a further £19 billion in assets belonging to Russian businessmen on the sanctions list.

Most of the suspended Russian foreign exchange reserves, about $210 billion according to EU estimates, are situated in Europe. Approximately $190 billion is held in the Belgian clearing house Euroclear, with a small portion of the funds being held in the Luxembourg depository Clearstream. As Russian securities mature and get reinvested by financial intermediaries, thus income is generated.
In October 2023, Euroclear reported that it had gained $3 billion from Russian assets during the first nine months of the year. The company intends to maintain any profits linked to anti-Russian sanctions until the situation becomes more transparent.

In November 2023, Politico Europe raised concerns about the complications and hazards related to the confiscation of Russian assets in Ukraine's favor. This suggestion about the use of the funds does not have support in Belgium. Paris and Berlin stand in solidarity with Brussels over the issue of frozen gold and currency.

The Belgian Prime Minister Alexander De Croo, in his address to diplomats, noted that Belgium alone cannot find the legal basis required to withdraw funds from the Russian Federation. He said a decision would have a destabilising effect on the entire global financial system.

"If the US authorities decide to transfer Russia's frozen gold and foreign exchange reserves to Ukraine, then other countries may withdraw their reserves from American banks, which will result in a loss of trillions of dollars for Washington," warned Alexey Ispolino, a lawyer and an expert on international law, in an interview with Regnum news agency.  According to him, there are no ways within the framework of current international law that would permit this action. This is currently acknowledged in both Washington and Brussels.
According to the Americanist Pavel Sharikov, the transfer of Russian reserves to Ukraine cannot be completely ruled out, but there are no legal grounds whatsoever to support such actions.

"Following the appearance of publications citing high-ranking officials, this scenario cannot be dismissed entirely. However, it is unlikely that if the Americans agree to this, then the Europeans will follow suit," the analyst stated.

Why did Russia's gold and foreign exchange reserves end up overseas?
The Central Bank has clarified its policy of storing a portion of these reserves in the West.

Gold and foreign exchange reserves serve as a means through which the Central Bank can safeguard the economy from external crises. During challenging times, they facilitate the payment of foreign currency debt, enable the importation of critical goods, and stabilise the foreign exchange market, explained the Central Bank.

"Maintaining reserves within the country or spending them domestically equates to having no reserves at all, leaving the nation vulnerable to external crises," stated the regulator in its response.
The Central Bank clarified that it was not feasible to evade the freezing of a segment of its gold and foreign currency reserves in dollars and euros.

"There's simply no way. Electronic currency is invariably reflected in corresponding accounts held in foreign banks, and it's therefore susceptible to freezing," explained the regulator.

Following the freeze of Russian accounts in Euroclear and Clearstream, the Central Bank implemented restrictions. These prohibit foreigners from unfriendly nations (the UK, USA, Canada, and the European Union) from withdrawing funds from Russian assets. Income totalling 280 billion ruble ( around $3 billion)s, generated by these assets, is deposited in designated accounts that continue to grow.
Russia has drafted a bill aimed at repatriating frozen Russian assets, however, it necessitates collaboration with EU nations. Simultaneously, Russian financial institutions have instigated litigation proceedings against Euroclear and Clearstream, from which they've already retrieved hundreds of millions of euros.