Belgium has taken a major step by seizing profits generated from Russian Central Bank’s (“CBR”) frozen reserves of EUR€1.7 billion, which is the first of its kind in Europe. The Belgium government will create a EUR€1.7 billion fund from the taxes collected from these profits, with a significant portion designated to assist Ukraine.
In response to the ongoing Russia-Ukraine conflict, the EU has expanded its sanctions package on Russia.
Among the most significant and controversial of these measures is the blocking of almost €300 billion of CBR’s reserves held by the EU and other G7 partners. Following this action, in October 2022, the European Council requested the Commission to present options for utilising frozen Russian assets for the reconstruction of Ukraine. The European Commission has noted that in order to “make the most out of this funds and start rebuilding Ukraine”, it has proposed to set up a structure to manage the frozen public funds, which involves investing them to use the proceeds for Ukraine’s benefit.
The move to seize Russian assets has since been gaining traction beyond the EU circles. In September, U.S. Treasury Secretary Janet Yellen and British Finance Minister Jeremy Hunt have expressed support for a European Union plan to implement a windfall tax on profits generated by frozen Russian sovereign assets, which will be used to help finance the reconstruction of Ukraine.
Belgium’s move to seize €1.7 billion from the taxes charged on profits generated from frozen Russian assets will have far reaching legal and political repercussions. It has been recently reported that the European Central Bank, in a draft internal EU note, has warned against requisitioning CBR’s assets, which could potentially damage the Euro’s position as Europe’s common currency. This move also comes following reporting of an unpublished document in which EU authorities concluded that European authorities cannot legally seize CBR’s assets to fund efforts to help Ukraine.
This move from Belgium appears to be an early indicator of what’s to come. Belgium’s €1.7 billion fund remains a marginal amount to support the overall efforts to rebuild Ukraine, as the World Bank estimated in April that the total cost of the damage is $411 billion. Belgian clearing house Euroclear manages almost €125 billion of frozen CBR assets.