On May 22, 2024, Regulation (EU) 2024/1469, which authorizes the use of net profits from the frozen assets of the Central Bank of Russia to support Ukraine’s recovery, reconstruction, and self-defense against Russia’s war of aggression, entered into force. It amends Regulation (EU) No 833/2014, which first imposed sanctions on Russia, and implements the measures authorized in Council Decision (CFSP) 2024/1470. (Regulation (EU) 2024/1469, recital 25, art.1, paras.2, 3, annex; Regulation (EU) No 833/2014, art.5a, para.14 (new); Decision 2024/1470, art.1, para.2; Decision 2014/512/CFSP, art.1a, para.11 (new).)
European Union (EU) regulations have general application and are binding and directly applicable in the EU member states. (Consolidated Version of the Treaty on the Functioning of the European Union, art. 288, para. 2.)
Background
In response to the annexation of Crimea and other regions of Ukraine and Russia’s invasion of Ukraine, the EU decided to sanction 1,706 individuals and 419 organizations by imposing travel bans and freezing their assets held in EU banks.
Since the beginning of the war in 2022, assets of the Central Bank of Russia worth around 260 billion euros (about US$281 billion) have been frozen in the G7 states, the EU, and Australia; two thirds of those assets are located in EU member states. The EU’s frozen assets are held by Central Securities Depositories (CSD). (Regulation (EU) 2024/1469, recital 20.) CSDs are organizations that operate the infrastructure for the settlement of securities by, for example, holding reserves and assets. When the assets held by the CSD reach their payout date, “they are converted into cash which is [usually reinvested] on behalf of the owner,” which in this case would be the Central Bank of Russia.
On February 24, 2024, the leaders of the G7 nations underlined that the frozen assets of the Central Bank of Russia will remain frozen “until Russia pays for the damage it caused to Ukraine.” They further welcomed the planned EU regulation to use the assets to support the Ukraine.
The United States has recently enacted legislation to direct seized Russian sovereign assets for assistance to Ukraine.
Frozen Assets to Support Ukraine
The new regulation amends Regulation (EU) 883/2014 on restrictive measures (sanctions), which was adopted to freeze funds and certain economic resources of sanctioned individuals and organizations. (Regulation (EU) 883/2014, recital 1.)
According to article 1 of the new regulation, CSDs holding more than 1 million euros (about US$1.08 million) of assets as extraordinary cash holdings must now keep the corresponding income separate and are prohibited from using the resulting net profits. As a consequence, they will be required to make a financial contribution to the EU.
The financial contribution that will made by the CSDs will equal 99.7% of the net profits from frozen assets accumulated since February 2024. (Regulation (EU) 2024/1469, art. 1, para. 1; Regulation (EU) No 833/2014, art.5a, para.9 (new).) Of this contribution, 90% will be transferred from the CSDs to the EU on a biannual basis. (Regulation (EU) 2024/1469, art. 1, para. 1; Regulation (EU) No 833/2014, art.5a, para.10(f).) The remaining amount will be retained by the CSDs to meet the “statutory capital and risk management requirements in view of the impact due to the war in Ukraine.” (Regulation (EU) 2024/1469, art. 1, para. 1; Regulation (EU) No 833/2014, art.5a, para.10(a) (new).)
The financial contribution paid to the EU will then be utilized to provide support to Ukraine. (Regulation (EU) 2024/1469, art. 1, para. 2, annex XLI, para. 1(a); Regulation (EU) No 833/2014, art. 5a, para.14 (new).) The money will be used to “address the social, economic, and environmental consequences of Russia’s war . . . and the post-war recovery,” such as by rebuilding infrastructure damaged by the war and by strengthening the rule of law. (Regulation (EU) 2024/792, art. 3, paras. 1(a), 2(h).) According to recital 35 of Regulation (EU) 2024/1469, the new rules are to remain in force until Russia ceases its war against Ukraine and compensates it for the damage caused.
It is expected that these financial resources allocated to support Ukraine will have a value of around US$3 billion a year, based on the fact that in 2023, the Brussel-based CDS group Euroclear generated more than US$4 billion in net interest earnings from frozen Russian assets.
Russia’s Reaction
After the new regulation was adopted, Russian Foreign Ministry spokeswoman Maria Zakharova said that the “European Union will feel the ‘full measure’ of Russian retaliation over its plan” to use the net profits of the frozen assets to support the Ukraine.
Prepared by Eva Dauke, Law Library Intern, under the supervision of Jenny Gesley, Foreign Law Specialist
Law Library of Congress, June 4, 2024
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