The confiscation of russian assets to cover Ukraine's losses – further development

For the first time, tax collections from frozen russian assets are being allocated to Ukraine. Simultaneously, a decision was made for the confiscation of Gazprom’s assets in Poland.

A just peace following Ukraine’s victory must encompass reparations from the aggressor state. Since the beginning of war, Ukrainian diplomacy has been diligently working to lay the groundwork for the implementation of this process.

Frozen assets

In the spring of 2022, the European Union and several Western countries (including the United States, the United Kingdom and Switzerland), froze substantial assets – over $200 billion – belonging to the russian Central Bank and private individuals from russia, held within their jurisdictions. Since then, questions arose regarding the future of these funds: a process needed to be devised that was legally sound (ensuring the inviolability of property rights) and technically robust, allowing for the frozen assets use or their transfer to support Ukraine.

The respective projects were undertaken by governments of, among others, the United States, Germany, and the United Kingdom, along with European Union institutions. In general, more radical initiatives – such as the direct transfer of assets to Ukraine or government management of funds – were not given the green light due to the absence of a reliable legal procedure and the risks of lawsuits. However, a potentially applicable scheme was devised – allocating the tax collections from frozen assets to Ukraine.

A special fund

A significant breakthrough in the use of frozen Russian assets was achieved yesterday, on October 11. Firstly, the Belgian government announced the creation of a special fund amounting to €1.7 billion. Through this fund, funds obtained from taxing russian assets with an income tax will be allocated to Ukraine, in particular for the purpose of stabilizing the economy. This marks the first such decision among Ukraine’s allied nations. Secondly, the authorities of Poland decided to confiscate and transfer to PKN Orlen (Poland’s oil refineries company) a portion of russia’s Gazprom (which was previously frozen and placed under external management) that previously belonged to the owner of the Yamal-Europe gas pipeline’s section in Poland.

A perspectives

Henceforth, we witness positive implications for Ukraine’s economic recovery prospects. Primarily, allies are demonstrating that russian assets are no longer untouchable. Moreover, a significant decision has been made to directly support Ukraine’s economic stability through the use of russian assets. The growing determination of the international community in actions concerning the aggressor state’s assets provides grounds to consider the assets – seized and allocated for Ukraine’s post-war reconstruction – as an additional foundation for enhancing its investment attractiveness.

The «Syrota Dzis Melnyk & Partners» team is actively engaged in safeguarding the rights of Ukrainian business affected by aggression, as well as compensation issues. We are happy to assist in case of any inquiries.