The EU leaders to discuss draft law to send profits from Russian frozen assets to weapons for Ukraine

EU foreign policy chief Josep Borrell said he proposes that the EU use 90% of the direct profits from Russian frozen assets in Europe to buy weapons for Ukraine through the European Peace Fund.

The EU’s top diplomat told reporters in Brussels that he would propose transferring the remaining 10% to the EU budget to be used to strengthen the capacity of the Ukrainian defense industry, Reuters reported.

Borrell proposes to use 90% of profits from Russian frozen assets in Europe to buy weapons for Ukraine

Josep Borrell presents the proposal to EU member states ahead of a summit of EU leaders on Thursday and Friday.

Last week, a senior EU official said that Russian assets frozen in the European Union could generate between €15 billion and €20 billion in after-tax profits by 2027, depending on global interest rates.

The Belgian central securities depository Euroclear, which holds the equivalent of €190 billion in various securities and cash held by the Russian central bank, holds about 70% of all Russian assets frozen in the West.

Borrell emphasized that the proposal is to use the profits from the assets held in Europe, not the assets themselves. According to him, this could bring in about 3 billion euros annually.

Ukraine might start receiving profits from frozen Russian assets in July

Earlier, Bloomberg reported that the EU has prepared a draft law under which Ukraine will start receiving profits from frozen Russian sovereign assets in July.

The proposal envisages the application of a windfall profits tax on the immobilized reserves of the Russian Central Bank to use approximately 3 billion euros a year to finance arms supplies to Ukraine and develop its defense industry. 

The proposal stipulates that the EU will receive a yet-to-be-determined share of the proceeds received after February 15 twice a year, until the lifting of sanctions against Russia. The European Peace Fund, the EU’s mechanism for reimbursing the cost of weapons supplied to Kyiv, and the EU fund for Ukraine in the EU budget will initially receive the funds.

Part of the profits will remain in central depositories, which will keep reserves to cover asset management costs and any risks, including potential retaliation from Russia. 

The EU will also deduct related expenses and income tax from the income before transferring it. According to some estimates, this will leave about 3 billion euros of net profit per year.

Russian frozen assets can generate up to €20 billion by 2027

The Belgian clearinghouse Euroclear, which generated about €4.4 billion in profits last year, frozen the vast majority of the Russian funds.

The EU will temporarily withhold profits earned in the past. In this case, the transfer to the EU will take place no earlier than in five years, the draft proposals say.

If the risks materialize, “unexpected and extraordinary income received by the central securities depository before February 15, 2024, should be used primarily to cover the relevant costs,” one of the documents says. 

“Conditions should be established for the transfer of amounts temporarily withheld to the EU when they are no longer needed,” the document also says.

EU leaders will discuss the proposal at a meeting in Brussels later this week. It requires unanimous approval by all EU countries.

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