Euroclear to Seize and Redistribute €3 Billion in Frozen Russian Funds to Compensate Western Investors

Euroclear is preparing to confiscate approximately €3 billion ($3.4 billion) from Russian funds frozen at the Belgian clearinghouse, in response to Moscow’s recent seizure of Western investor assets inside Russia. Documents reviewed by Reuters and individuals familiar with the matter reveal that the move is part of an escalating tit-for-tat between the West and Russia over billions of dollars in financial assets entangled in the fallout of the war in Ukraine.

According to three sources, the funds will be redirected to compensate Western investors who saw their cash seized by the Russian government. Two individuals stated that the €3 billion will be drawn from a broader pool of €10 billion in cash linked to sanctioned Russian entities and individuals, whose assets were frozen under European Union sanctions following Russia’s full-scale invasion of Ukraine in 2022.

This marks a significant escalation in Europe’s retaliatory measures against Moscow. The European Union amended its sanctions framework late last year to permit the disbursement of frozen Russian assets to Western investors under certain conditions. Until now, Western efforts have primarily focused on using interest generated from frozen Russian central bank reserves to support Ukraine. Russian President Vladimir Putin has denounced these actions as theft.

The Belgian payout has been triggered by Moscow’s move last year to confiscate billions of euros from Western investors. Euroclear has been under mounting pressure from international investors to release funds. Reuters was unable to confirm which investors are in line to benefit from the payments.

In March, Euroclear obtained authorization from Belgium, which acts as the clearinghouse’s legal authority, to move forward with the compensation plan. Clients were notified in an April 1 briefing document reviewed by Reuters. “We received authorisation from our competent authority, to unfreeze the compensation amounts and make these available to our participants,” the briefing stated.

Reuters could not identify the specific Russian owners whose assets are being seized. Belgium’s government declined to comment on the matter, and Russia’s finance ministry did not respond to inquiries.

Euroclear has maintained that while it is responsible for implementing EU sanctions, it does not shape or decide those sanctions themselves. The upcoming payouts will not affect the estimated €200 billion in frozen Russian central bank reserves held across the EU, according to two sources familiar with the matter. Still, the redistribution will reduce the stockpile of Russian wealth, comprising cash, equities, and bonds, most of which is held at Euroclear and has served as leverage in the West’s standoff with Moscow. There had been hopes that these frozen assets could be used to finance Ukraine’s reconstruction.

Meanwhile, Western investors continue to grapple with significant financial losses in Russia, including seized cash and shuttered operations. While some view Europe’s plan to redistribute frozen Russian wealth to investors as a necessary countermeasure, others see it as ethically questionable.

“To seize Russian assets and give them to Western investors would be morally reprehensible,” said Jacob Kirkegaard, a sanctions expert at the Peterson Institute for International Economics, a think tank based in Washington. “It would represent a political decision to prioritise Western businesses over the taxpayer. Any frozen assets that don’t go to Ukraine’s reconstruction will … have to be covered by tax payers.”

The EU froze hundreds of billions of euros in Russian assets—including the central bank’s reserves—shortly after the February 2022 invasion. This move was unprecedented and stands as the largest financial sanction imposed by the bloc on Russia. Euroclear alone holds more than €180 billion of these frozen assets.

Moscow has made regaining access to these funds a top priority, prompting around 100 legal actions against Euroclear, according to one of the sources. Reuters could not determine the progress or outcomes of those court cases. Russia also amended its own laws earlier this year to allow the government to retaliate directly by seizing foreign-held assets.

Over the past few months, Russia has confiscated approximately €3 billion of cash that Euroclear had stored at a depository within Russia, reportedly to reimburse Russian investors harmed by Western sanctions, according to two people familiar with the situation.

Clearstream, a Luxembourg-based counterpart to Euroclear and a subsidiary of the German stock exchange, is facing similar challenges. The firm, which also holds and clears securities like stocks and bonds, is set to make payouts from frozen Russian assets to Western investors, although on a smaller scale. One source said the amount involved is several hundred million euros. Clearstream declined to comment.

Two individuals familiar with the matter described the situation as a kind of de facto asset swap—Western assets frozen in Russia being exchanged for Russian cash frozen in Europe—driven by Moscow’s legislative and financial maneuvers.

As Russia’s economy continues to strain under the weight of international sanctions now in their fourth year, the Kremlin has persisted in its military assault on Ukraine. Meanwhile, as negotiations between Washington and Moscow inch forward, Europe remains largely sidelined in the geopolitical arena.

By fLEXI tEAM