G7 to create a fund to help Ukraine use proceeds from Russian frozen assets

Nikkei Asia reported on June 11 that the Group of Seven (G7) will establish a fund to support Ukraine with the proceeds from blocked Russian assets.

The fund will supposedly be established under a global financial body like the World Bank, with loans for “Extraordinary Revenue Acceleration” (ERA) serving as contributions.

On June 13, at a joint gathering in Italy, G7 leaders intend to unveil the concept and formalize this agreement, the report said.

According to Nikkei Asia, the U.S. has said it will provide $50 billion, while the U.K., Canada, and Japan are also thinking about making contributions. Japan might emphasize its nonmilitary assistance through the Japan International Cooperation Agency.

The total amount of Russian assets frozen by the West is $300 billion. The Belgian clearing facility Euroclear holds an important part of the two-thirds of the frozen assets, which are situated in the EU. 

Although European G7 members do not intend to participate in the new program, the EU has already set up a mechanism for transferring investment income from these assets to Ukraine.

The article states that Ukraine will receive military and other assistance using funds from investments held by Euroclear.

Western nations have frozen $300 billion in Russian assets, but they can only receive the revenue these funds generate, approximately $3.2 billion annually. With this amount, nations can instantly assist Ukraine by setting up a fund that will repay loans from this income.

With its just-enacted REPO act, the United States suggested taking Russian assets outright, but the European Union has been more cautious, concerned about the financial and legal risks associated with seizure.

U.S. President Joe Biden signed the Rebuilding Economic Prosperity and Opportunity for Ukrainians (REPO) Act on April 24. 

The REPO Act allows the US administration to confiscate Russian sovereign assets that are subject to US jurisdiction in order to support Ukraine. The bill overcomes the main legal concern of Russia’s sovereign immunity by allowing Washington to confiscate the assets due to Russia’s violation of international law.

All Russian state assets, including the Central Bank of Russia, the Russian Direct Investment Fund, the Russian Finance Ministry, and the property and financial institutions owned by the Kremlin, could be seized. Assets under diplomatic immunity cannot be touched.

The REPO Act stipulates that all Russian sovereign assets remain frozen until the end of Russia’s war and that Ukraine is fully compensated either by Moscow or an international mechanism.

At the same time, the EU wants to send the unforeseen income from the frozen assets to Ukraine.