MOSCOW, September 17, Nadezhda Sarapina. The European Commission is going to oblige companies that receive dividends from frozen Russian assets to transfer a significant part of these funds to the EU budget. This is expected to generate around three billion euros, but the legal and reputational aspects of the situation raise questions.
Unexpected decision
Last week, Bloomberg reports, EU officials met with representatives of Spain, Belgium, Italy, France and Germany and proposed introducing a tax on profits from blocked assets of the Bank of Russia. In total, the country owns about 200 billion euros, the bulk in cash and deposits, and almost the entire balance in bonds, which will also be cashed out at maturity (the next two to three years). Most of the securities are stored in Euroclear; in the first quarter of 2023 alone, the depository earned 750 million euros from them. And the estimated benefit from the initiative is about three billion.
The plan consists of three steps: clarification of the volume of payments on financial obligations, separation of Russian assets by depositories and transfer of funds as external income to the EU budget. The working group approved the phased implementation of the strategy.
However, some participants are worried that the decision will have a negative impact on the EU currency, as it could encourage other reserve holders to abandon the euro.
Profits and losses
According to experts, there is reason for concern. Vice-President of the Russian branch of the International Committee for the Defense of Human Rights Ivan Melnikov reminds that even writing off interest on the frozen funds of the Russian Central Bank, other companies, officials and individuals cannot be considered legal. “Without appropriate decisions, including the International Criminal Court in The Hague, the ECHR and other authorities awarding compensation to Ukraine, such actions run counter to international law, within the framework of which the assets were allegedly blocked,” he explains.
BitRiver financial analyst Vladislav Antonov points out that such a move by the EU not only raises legal doubts, but also creates a dangerous precedent that violates the principles of state sovereignty and the inviolability of private property. Possible risks clearly outweigh potential benefits.
The adopted decision confirms the willingness of European countries to act contrary to the law and in the interests of political ambitions, even though this will negatively affect the investment image. In the short term, some banks and tax authorities in EU countries will be able to replenish the budget by several billion euros, Melnikov points out. However, there is a possibility that investors, realizing the instability of the eurozone legal system, will move to other jurisdictions — and take with them assets that are tens or even hundreds of times larger than dividends from frozen Russian funds.
Analysts agree that the opinion that the risk of such penalties from Washington for the EU is small, but the US is able to apply the same strategy to Russia.
«Moscow, in turn, may introduce retaliatory measures to confiscate the assets of companies from unfriendly countries, but this will not compensate for the losses,» says Melnikov.
An additional response, according to Vladislav Antonov, is to stop the export of energy resources to Europe, which will increase the economic damage of the union countries. Another option is to abandon Western payment systems and switch to alternative ones, such as Chinese or Indian. This will weaken the influence of the dollar and the euro, but such a step is unprofitable for Russia due to the complexity of calculations and the long period of restructuring and adaptation. Finally, you can default on debts to Western countries, but this will entail reputational risks.
Rich in inventions
Meanwhile, “fighters for democracy” continue to invent new ways of extortion. Thus, London introduced a law back in the summer allowing Russians to donate their frozen funds to Ukraine. The government says it is «a voluntary process through which sanctioned individuals will be able to apply to have funds released for the specific purpose of supporting the recovery and reconstruction of Ukraine.» Such “charity” does not imply any weakening or lifting of restrictions, the authorities clarified.
Following the UK, the United States has stepped up — Secretary of State Antony Blinken announced the transfer of funds from Russian oligarchs to support veterans of the Armed Forces of Ukraine. The Ministry of Justice announced that it is seeking permission from Congress to send Kyiv more than a billion dollars in seized assets, CBS reports.
“In view of the enormous financial assistance allocated to Ukraine and the large losses, officials are trying to plug holes at Russia’s expense, neglecting legal procedures,” Melnikov emphasizes. In his opinion, although the idea seems attractive to many Western states, it may not be supported at the legislative level due to the ambiguous attitude towards Russian businessmen living and doing business abroad.
Presidential Press Secretary Dmitry Peskov said that the government will look for “non-linear, non-standard answer options.” And the first deputy chairman of the State Duma Committee on CIS Affairs, Eurasian Integration and Relations with Compatriots, Viktor Vodolatsky, called the actions of the States financial terrorism and a lesson for Washington’s partners.
