Western banks are expressing concerns regarding the European Union’s proposals to redistribute billions of euros in interest accrued on frozen Russian assets, as these proposals aim to fund arms for Ukraine to support its defence against Russia. The EU leaders are considering using up to 3 billion euros annually for this purpose, with the assurance that Russia would retain ownership of the underlying assets. However, banks are worried about possible future liability claims from Russia, as they fear they could be targeted for facilitating the transfer of funds to Ukraine. This apprehension extends to concerns that the plan could expand to include assets held for sanctioned entities, although the EU has not yet proposed such an extension.
The banks are also anxious about the broader implications for trust in the Western financial system. They are expressing their concerns to policymakers in the UK and Eurozone, highlighting the potential for litigation once sanctions against Russia are relaxed or removed. Russia has strongly opposed the confiscation of its assets or interest, labelling such actions as theft and threatening extensive legal battles against all parties involved. Western banks, including Euroclear, hold significant Russian assets, and the EU’s plan would involve paying a fee to Euroclear while allowing it to keep a portion of the profits to mitigate litigation risks.
The majority of the confiscated funds would be used to buy arms for Ukraine through the European Peace Facility, with the remainder allocated for recovery efforts. Current sanctions laws typically allow for freezing but not confiscation of assets, unless it’s proven to be proceeds of crime. Therefore, there are concerns among banks about the legality and precedents such proposals might set, including the potential “weaponization” of foreign-held reserves.
The Kremlin has criticized the proposals as a violation of international law, warning of long-term damage to trust and legal disputes. Legal experts highlight the complexity and potential for prolonged legal battles stemming from the EU’s proposal, underscoring the need for clarity in the proposal’s details and the significant legal challenges banks may face in complying with such measures.