Explainer-How the West might use Russia’s frozen reserves

LONDON (Reuters) – Western officials say they are open to the idea of confiscating $300-350 billion of frozen Russian financial assets to help support Ukraine, but how that would be done remains highly complex given it would set a controversial precedent.

Here are some of the ideas that have been suggested:


Some international policymakers and lawyers say the immobilised Russian reserves can simply be confiscated under a doctrine of international law known as “countermeasures”. The assets would then be sold or collateralised and the proceeds handed to Ukraine, or to a dedicated reconstruction fund.

Others raise concerns, though, that it would go against international norms and open a legal Pandora’s box given that Russia would challenge the move and it would be something of a precedent.

Previous examples of such seizures, such as of Iraqi assets following its invasion of Kuwait and of German assets after World War II, happened after those wars had ended, not while they were still raging.

Even in the United States, leading sovereign debt experts have highlighted that the International Emergency Economic Powers Act (IEEPA) does not authorise an outright confiscation of frozen Russian property in the absence of actual armed conflict between the U.S. and Russia.


The lion’s share of the near 210 billion euros of frozen reserves locked in the EU – essentially bonds and other types of securities in which the Russia central bank had invested – are held in a depository based in Brussels called Euroclear.

As those assets mature they get converted into cash, a transaction that is taxed at a rate of 25% in Belgium. Officials in the EU, as well as in the U.S. and Britain, are therefore proposing at least ringfencing that revenue for Ukraine, estimating it will add up to roughly 15 billion euros between 2023 and 2027.

Some in the bloc are still against the idea and the European Central Bank has also reportedly warned against swooping to claim trapped Russian assets because it could create instability if other countries became wary about keeping their reserves in Europe’s custodian banks.

Some lawyers also point out there that, legally, there is little difference between taking the revenues generated by the confiscated assets and grabbing the full $300-350 billion.


“Reparation bonds” have also been suggested as a way of circumventing some of the legal problems. Ukraine would sell securities that pay out if – and only if – it receives reparations from Russia for the damage done by the war.

Interest payments could also roll up and only become payable if Kyiv gets compensation.

The bondholders would not have a contractual claim on the Kremlin’s frozen reserves. But given that Russia is unlikely to pay up willingly, these assets would be the most likely source of cash to pay for damages.

Since the reserves are accruing interest, they could be used to pay both the bonds’ principal and coupons. This would be different from confiscation, because the assets would only be transferred if a legitimate compensation mechanism first ruled that damages were due to Ukraine.

Ukraine would have a plausible way to collect on any damages awarded up to the value of the reserves. It could therefore issue reparation bonds up to $300-350 billion. But it would only get anything like this sum if the United States, EU governments and other allies were willing to buy the securities.

($1 = 0.9183 euros)

(Reporting by Marc Jones; Editing by Alex Richardson)