Reuters last month reported that Euroclear is seizing and redistributing roughly three billion euros ($3.4 billion) in Russian assets that are frozen in Europe. This follows Moscow’s seizure of billions in western investors’ cash, and the billions in Russian cash will be used to confiscate these investors.
As an aside, I just finished listening to Bill Browder’s book “Red Notice”—a true story of the investor’s experience in Russia and his crusade to hold the murderers of Sergey Magnitsky, an attorney who worked to expose the massive theft of hundreds of millions in Russian tax funds, accountable for his death.
Throughout the entire book, I kept screaming at my Audible app, “HOW THE HELL DID THESE INVESTORS NOT SEE THE CORRUPTION IN RUSSIA???” I couldn’t understand how they blindly continued pouring billions of dollars into the country.
My husband was more tolerant. He reminded me that the investors probably thought things would change drastically after the fall of the USSR, and they were simply optimistic.
But after several decades of open and unaccountable corruption, foreign active measures, murders, and theft, I’m horrified that investors still kept their assets in Putin’s Russia. And now, after Russia’s full-scale invasion of Ukraine in 2022 and Moscow’s wholesale genocide against the country, I assess that it’s greed—and not naivete—that has kept those assets in Russia for so long.
Do these investors deserve to get reimbursed?
I don’t think that’s a question we need to answer here. I’m not here to play judge and jury.
I will, however, say that Russia needs to be held accountable for its violence against civilians, its kidnapping and russification of Ukrainian children, its wholesale destruction of churches and other religious sites, and its intentional targeting of civilian infrastructure and use of chemical weapons in a war Moscow started.
Freezing and seizing Russian assets is one way to help ensure accountability.
What is Euroclear, and how can the frozen Russian assets be used?
The actual assets have not been seized, but the profits from those funds that were invested by Euroclear have been sent to Ukraine.
Euroclear is based in Belgium and is a leading international central securities depository (CSD). The Euroclear Group's parent entity is Euroclear Holding SA/NV in Brussels.
Euroclear is where the majority of Russia’s Central Bank reserves is located—about €200 billion.
The UK wants those assets transferred into a separate investment fund as a step toward seizing those assets and using them to help Ukraine. Some European countries, such as Germany and Italy, are opposed, and France believes that the frozen assets could be a convenient stick approach should Russia violate a ceasefire (assuming it’s even reached, which seems less and less likely), which Moscow has done numerous times.
Interestingly, transferring those assets into a separate investment fund could protect any decision about the use of those funds to begin compensating Ukraine for the billions of dollars in damages caused by Moscow from Russian supporters in the EU such as Hungary or Slovakia.
Euroclear must invest the assets, per its operating rules—even frozen Russian funds—and the interest from those investments (roughly €4 billion) last year was earmarked to fund a G7 loan to Ukraine, leading Russian president Putin to pronounce that the move was “theft.”
Western investors who put their assets into the Russian economy already have seen their funds trapped. Russia in 2022 banned capital withdrawals, so there they sit. A very big part of me has very little sympathy for anyone who, after several decades of watching Russian corruption, still somehow thought that the country was a great place to park assets.
Sanctions tit for tat.
Euroclear is located in Belgium—a country that’s part of the EU. The bloc froze hundreds of billions in Russian assets—including the central bank reserves located in Euroclear—following Russia's full-scale invasion.
The funds have been frozen but not seized. Yet.
Moscow in April 2024 warned warned about retaliatory measures should Europe seize its frozen assets and give them toUkraine. New legislation drafted in February has expanded the Kremlin’s authority to seize the assets companies and investors from “unfriendly” countries that have imposed sanctions on Russia.
Euroclear so far hasn’t touched the actual assets, but the EU in May 2024 imposed a “windfall tax” on the profits from the Russian funds, and Euroclear has sent two tranches from the profits of that windfall tax to Ukraine so far.
[T]he CSDs holding Russian sovereign assets and reserves of more than €1 million will make a financial contribution from their corresponding net profits, accumulating since 15 February 2024.
The amounts will be paid by the CSDs to the EU on a bi-annual basis, and will be used for further military support to Ukraine through the European Peace Facility, as well as with support to Ukraine’s defence industry capacities and reconstruction needs with EU programmes…
What should US organizations do with frozen Russian assets?
If your institution holds frozen assets of sanctioned inviduals or entites on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List), the funds must be"frozen"—not seized (there’s a difference)—and may not be transferred, withdrawn, or otherwise dealt in, according to OFAC’s Frequently Asked Questions (FAQs) page. The blocked person may own the property, but the exercise of powers and privileges normally associated with ownership is prohibited without authorization from OFAC.
Blocked persons include those included on the SDN List, foreign governments subject to blocking, and persons blocked pursuant to OFAC’s “50 Percent Rule”—that is, assets that are 50 percent or more owned by SDNs. These entities or assets may not appear on the SDN list, and a bit of research is required to find out the ownership structures of these assets. They’re called “shadow SDNs,” and numerous tools and resources are available to research ownership and control structures of shadow SDNs.
And yes, blocked assets must be placed in interest-bearing accounts from which only OFAC-authorized debits may be made. The blocked funds must be allowed to earn interest at commercially reasonable rates that match what's offered to other depositors on comparable deposits.
As part of implementing the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (the “REPO for Ukrainians Act”), OFAC in July 2024 issued a new reporting requirement for financial institutions holding Russian sovereign assets.
Congress in April 2024 passed the REPO Act, and then-President Biden signed it into law the day after its passage. The law allows the president to confiscate Russian sovereign assets that are subject to the jurisdiction of the United States, for the purposes of supporting Ukraine.
No seizure of Russian assets has been authorized, but the tool is there. Does this mean Russan assets could be seized? I suppose it’s possible, depending on how badly Putin angers the current administration.
Therefore, firms and financial institutions should meticulously document any Russian assets that are frozen in their possession and ensure they follow developments in this sphere. They must understand their obligations against the myriad of new developments—especially if they transact internationally—and engage with sanctions experts to ensure they remain compliant.