EU proposal would send proceeds of frozen Russian funds to Ukraine

By John Chalmers

BRUSSELS (Reuters) – The European Commission on Wednesday proposed a plan to compensate Ukraine for damage caused by the Russian invasion with proceeds from the investment of Russian funds frozen under sanctions.

EU, US and other Western officials have questioned whether Ukraine could benefit from frozen Russian assets, including about $300 billion in Russian central bank reserves and $20 billion held by blacklisted Russians.

Moscow says seizing its funds or those of its citizens is tantamount to theft.

“Russia must (…) pay financially for the devastation it has caused,” Ursula von der Leyen, chair of the EU executive, said in a statement.

“The damages suffered by Ukraine are estimated at 600 billion euros. Russia and its oligarchs must compensate Ukraine for the damages and cover the costs of rebuilding the country.”

European Commission officials have said that a short-term option for Western countries would be to set up a fund to manage and invest liquid assets – mainly cash – from the central bank, and use the proceeds to support the ‘Ukraine.

The assets would be returned to their owners when sanctions are lifted, which could be part of a peace deal ensuring Ukraine receives compensation for the damages.

“It is not easy, so it will require strong support from the international community, but we believe it is doable,” an official said.

A second official said the legal distinction between outright confiscation of assets and confiscation of the proceeds of those assets was unclear because there was no precedent for such a scheme.

However, the proposal echoes a plan announced by Washington in September to transfer $3.5 billion in Afghan central bank assets to a Swiss-based trust fund that would be protected from the Taliban and used to help stabilize the Afghan economy.

The first European Commission official said there had been initial contacts with the United States over their plan for Russian central bank assets, but that it was “very early” and the idea would be presented to a G7 working group in December. With regard to the frozen assets of individuals and entities, the seizure of these is generally only legally possible in the event of a criminal conviction.

The Commission has proposed that breaches of sanctions be qualified as offenses allowing confiscation.

Von der Leyen also said the Commission was proposing the creation of a specialized tribunal, backed by the United Nations, “to investigate and prosecute Russia’s crime of aggression.”

Moscow denies that its invasion, which it describes as a “special military operation”, constitutes aggression, a war crime under international law.

(Editing by Peter Graff and Raissa Kasolowsky)

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