Immobilised Assets, Extraordinary Profits: The EU Council Decision on Russia’s Central Bank Reserves and Its Legal Challenges

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On 28 February 2024, the President of the European Commission, Ursula von der Leyen, announced that ‘it is time to start a conversation about using the windfall profits of frozen Russian assets to jointly purchase military equipment for Ukraine’. This statement comes on the heels of a decision adopted by the Council of the European Union (EU) on 12 February 2024, which was hailed as the ‘first step to use Russia’s frozen assets for Ukraine’. According to this decision, Central Securities Depositories (CSDs) holding more than EUR 1 million in assets and reserves of the Central Bank of Russia (CBR) that are frozen (‘immobilised’) under EU sanctions are mandated to account for them separately and prohibited from using profits generated by these assets. This move paves the way for a future financial contribution to the EU budget from these profits, which – at least, until von der Leyen’s statement – was expected to be directed to assist Ukraine’s reconstruction through the newly established ‘Ukraine Facility’.

Whether intended to support Ukraine’s reconstruction or the purchase of weapons, the EU Council decision remains significant considering that the majority of CBR’s assets frozen by the G7 consists of securities held by Euroclear, a Brussels-based CSD. EU officials estimate that around EUR 15 billion in such profits could be allocated to Ukraine over the next four years. However, the ambivalent language used in reporting about this has led to confusion, implying that the EU may be poised to seize profits belonging to Russia. As of now, there is no concrete indication that such a measure may be forthcoming. The focus of the recent EU Council decision remains on earnings (‘net profits’) made by Euroclear and other CSDs holding CBR’s assets.

Still, the legality of measures taken pursuant to this decision is not guaranteed. Depending on the chosen course of action, various international law challenges could arise. This article delves into these challenges, starting with an overview of the CSDs’ profits targeted by the EU Council. Next, it addresses potential international legal issues stemming from a windfall tax on these profits. Finally, it outlines legal concerns regarding potential confiscatory measures extending beyond CSDs’ profits and involving interests generated by CBR’s assets, contextualizing them within the broader discussion on confiscation of Russia’s sovereign assets.

Extraordinary Revenues Generated by Frozen Russian Assets

Euroclear is one of two international CSDs located in the EU, alongside Clearstream, operating the infrastructure that enables the so-called securities settlement systems. As a consequence of the EU sanctions levied against Russia in response to its invasion of Ukraine, approximately EUR 191 billion worth of CBR’s reserves in the form of securities held by Euroclear were frozen. As these securities matured, they generated interests for the CBR in the form of coupon payments and bond redemptions. However, sanctions prevented Euroclear and other CSDs from distributing these interests to their owner, leading to an accumulation of extraordinary cash balances in their accounts. By the end of 2023, Euroclear reported a year-on-year increase in its cash balances of EUR 38 billion, reaching a total of EUR 162 billion (information regarding profits generated by Clearstream’s holdings of Russia-related securities is not readily available).

Euroclear and other CSDs do not maintain large cash balances; in line with their statutory capital and risk management requirements, this cash is reinvested, typically in Eurobonds, and generates further returns. According to its latest report, Euroclear earned EUR 4.4 billion in 2023 by reinvesting cash balances resulting from sanctioned Russian assets. The upshot is that such profits are no longer part of the CBR’s portfolio; they ‘legally belong to Euroclear’.

Euroclear already remitted EUR 1,085 million of these profits in corporate tax to the Belgian State, with Belgium announcing that it will direct these funds to support Ukraine. However, the recent EU Council’s decision opens the door to seizing the remainder of the revenues generated by frozen Russian assets. Depending on the measures the EU decides to adopt, its actions might face varying legal challenges.

Legal Issues Arising from a Windfall Tax on CSDs’ Revenues

The most sound – and likely – course of action involves the confiscation in whole or in part of the revenues earned by Euroclear and other CSDs. This may occur through a ‘windfall tax’, a one-time tax levied on certain industries or sectors when economic conditions result in significant, unexpected profits. Although such a measure may still face legal challenges akin to those mounted by ExxonMobil against the EU windfall tax on energy producers, it stands on much firmer legal ground compared to the confiscation of CBR’s assets.

States possess significant discretion to enact tax measures under international law. While taxation may, in principle, interfere with the right to property guaranteed by Article 1 of Protocol No. 1 of the European Convention on Human Rights, states typically enjoy a ‘wide margin of appreciation’, and even retroactive measures may be permissible under certain conditions. Ultimately, the international legality of tax measures hinges on their ability to strike a ‘fair balance’ between the demands of the general interest of the community and the protection of property rights. Therefore, proposals to seize 100% of the profits generated by the Russian assets may prove challenging to defend, especially considering the costs associated with managing these assets. A compromise must be reached regarding the extent to which these excess profits should be redirected to the EU coffers.

In addition, because some of the CSDs’ shareholders are foreign entities—such as China’s sovereign wealth fund, one of the largest shareholders in Euroclear—measures affecting their profits might prompt legal challenges based on applicable investment treaties. Although there are precedents for successful investment claims related to windfall taxes, a carefully designed windfall tax should be capable of complying with the most common investment protection standards. Windfall taxes do not generally amount to indirect expropriation if the investment maintains its ‘capacity to generate a commercial return’, which is typically the case if the enterprise remains profitable. Likewise, if investors do not have legitimate expectations that the tax regime will remain unchanged throughout the investment’s duration, windfall taxes are unlikely to violate Fair and Equitable Treatment (FET) standards. It seems plausible that investors cannot have such expectations regarding extraordinary profits generated by war-related sanctions. Moderation is again crucial; two tribunals determined that Ecuador’s increase of a windfall tax on the energy sector from 50% to 99% of the extra profit constituted a breach of FET standards because it altered the economic nature of the investment.

In sum, seizing at least some of the CSDs’ profits is legally feasible. However, its yield will be limited and likely insufficient to meet Ukraine’s full reconstruction needs. For this reason, some have questioned the wisdom of ‘meddling with the foundations of international central banking’ for a relatively small gain. As one official put it, ‘if you are going for the big prize, go for the big prize’. In other words, it is likely that the EU will face pressure to escalate its measures and confiscate the interests or even principal assets belonging to Russia. Such measures, however, pose different and more complex legal considerations under international law.

Legal Issues Concerning the Seizure of CBR’s Interests

Seizing income generated by CBR’s assets, whether or not through a windfall tax, would likely face legal challenges similar to those posed by seizing the principal assets themselves. Several reasons underpin this view. First, as a matter of legal principles there is no reason to distinguish between ownership of a state’s assets and the income generated by them. Second, without knowing the details of the contracts under which the CBR deposited its assets with Euroclear, it is difficult to determine if the accumulated interests are ‘windfall’ or typical returns for any investor holding similar securities. Third, even if deemed windfall profits, taxing them might not be straightforward. State practice varies significantly regarding the taxation of state-owned property. While some states, like Germany, do not exempt governments from taxing passive income, others, like the UK, traditionally exonerate foreign states from all tax liabilities – although this might change. Moreover, foreign exchange reserves are not like any other state property. Since they serve sovereign (central banking) purposes, they are generally considered immune from measures of constraints. This likely extends to the interests generated by these assets.

To be clear, these obstacles do not make seizing CBR’s interests impossible. They simply highlight that the legal justification required should be equivalent to that needed for confiscating the principal assets. In this regard, discussions on the legality of confiscating CBR’s assets have been ongoing for almost two years, with arguments both in favour and against. In short, while CBR’s asset freezing is arguably justifiable as a ‘third-party’ or ‘collective’ countermeasure, seizure is more difficult to justify as countermeasures should be temporary and reversible. In a previous post, I argued that this issue might not be as problematic as it seems. At the same time, enforcing Russia’s obligation to provide reparation to Ukraine remains challenging until a settled agreement or court decision defines the specific content of the obligation owed by Russia. It is conceivable that measures of confiscation limited exclusively to aid Ukraine in repelling Russia’s aggression might be justifiable in terms of collective self-defence. Doubts remain, however, as to whether self-defence is applicable to non-forcible measures such as confiscation.

Efforts to overcome these obstacles are ongoing, including a recent Belgian proposal to G7 members suggesting using frozen Russian assets as collateral to raise debt for Ukraine. Whether a similar initiative may offer a meaningful way forward remains to be seen. For the time being, such efforts appear much less likely to come to fruition than a windfall tax on the extraordinary profits generated by these assets.


Two years into Russia’s full-scale aggression against Ukraine, the debate over the use of frozen Russian assets continues unabated. While the EU and G7 states still hold divergent opinions on the feasibility of confiscation, alternative approaches might offer more immediate promise.

As this article argued, taxing the windfall profits generated by holders of CBR’s securities presents minimal international law hurdles so long as the content of such a windfall tax is carefully calibrated. Conversely, targeting interests generated by CBR’s assets that belong to Russia would likely trigger legal challenges equivalent to those associated with full asset seizure.

While CSD’s profits can offer only a small contribution to Ukraine’s needs, implementing a windfall tax on them may be a valuable starting point. Beginning with the most legally sound option could pave the way for exploring more innovative approaches to leverage these assets in support of Ukraine. This is especially critical at a time when public support for financing Ukraine’s war effort across Western states appears to be dwindling.

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