Page 45 - bne_November 2023_20231105

bne November 2023 Eastern Europe I 45
Belgium moves first to tap Russian central bank's frozen reserves, creates a €1.7bn Ukraine fund
Ben Aris in Berlin
Belgium has become the first European country to seize the profits of Russia’s frozen $300bn of Central Bank of Russia (CBR) reserves, it was reported on October 11.
Belgium will create a €1.7bn fund from the taxes charged on profits generated from frozen Russian assets, according to Belgium's prime minister, Alexander De Croo.
"Here in Belgium, we have taxation on the income from these frozen assets. Last year, it became obvious to us
that the income taxes on these assets should be 100% aimed at helping the Ukrainian people. We did it last year and will do it this year," the prime minister noted.
These funds will go to the military, and humanitarian aid will be sent to the European Peace Fund to support the macroeconomics of Ukraine.
The president of Ukraine, Volodymyr Zelenskiy, thanked De Croo for the initiative and said that the money from the €1.7bn fund will be used next year, UBN reports.
"It is crucial that Belgium became
the first country to start using frozen Russian assets to support Ukraine against Russian terror,” Zelenskiy said.
Only days after Russia’s invasion of Ukraine last year the EU imposed the CBR sanctions that froze half of Russia’s reserves held in Europe.
Since then, the funds have become a political football as a debate raged over the legality of seizing the funds to use as reparations to pay for the reconstruction of Ukraine’s economy post-war.
Western courts are free to freeze funds believed to be accumulated as a result
of criminal activity. Seizing them – transferring the ownership of those funds – is legally more difficult, however. The frozen funds technically still belong to the CBR and should be returned after the war is over. Legally, to seize the funds there needs to be a criminal conviction, or in the case of countries, the EU would need to declare war on Russia.
The West has been reluctant to illegally seize the funds as it fears undermining its property rights and sparking an exodus of funds held in Europe by other countries that could destabilise both the financial sector and the euro. The European Central Bank (ECB) has been especially outspoken against requisitioning the CBR’s money for the damage it would do to the reputation of Europe’s common currency.
While the EU has ruled out seizing the CBR’s principle capital, the legality of
seizing the profits generated by that capital is less clear. After a year-long hunt, about two thirds of the capital was discovered to be held by the Belgium- based Euroclear payment-and-settlement system, invested into various securities that are generating approximately $3bn a year of profit for the CBR.
However, the Belgium proposal neatly side-steps all the property-right problems as it proposes to only redirect the taxes on the profits to Ukraine, taxes the government is entitled to levy and use as it likes. Both the principle and the profits from investments will remain untouched and continue to technically remain the property of the CBR.
The development is important as Ukraine will run out of money if the international community reduces its funding next year. Following the removal of a $300mn allocation from a US spending bill at the start of October, funding for Ukraine is in increasing doubt.
Belgium is creating a €1.7bn Ukraine fund that is funded by taxing the profits earned by the Central Bank of Russia's frozen $300bn reserves. / bne IntelliNews
www.bne.eu