The Legal Wall Around Russia’s Frozen Assets Is Starting to Crack

The European Union’s General Court has ruled against Hungary’s attempt to challenge a mechanism that directs revenue from frozen Russian assets towards military support for Ukraine. The court’s September 9 decision did not permit the seizure of Russia’s sovereign assets but removed a hurdle within the EU for funding the existing mechanism.

Hungary’s appeal centered on jurisdictional issues, which the court dismissed while not addressing the mechanism’s legality. Budapest claimed its voting rights were infringed, but the court maintained the measure was within the EU’s foreign and security policy domain. The key point is the distinction between the assets and the profits they generate; currently, the mechanism deals with extraordinary revenues, while the principal remains with the Russian central bank.

Ukraine receives billions annually through the European Peace Facility, with much of the funds directed to military assistance. European governments are increasingly considering how the approximately €210 billion in frozen Russian assets could be utilized more directly. Swedish, Polish, Spanish, and Dutch foreign ministers have urged the European Commission to explore further options, deeming the planned €90 billion for Ukraine insufficient.

The main challenge now lies more in financial and political realms than judicial. Over €185 billion of the Russian assets are held at Euroclear in Belgium, prompting Brussels to worry about potential legal and financial repercussions. Other EU nations possess roughly €25 billion, and Belgium has advocated for risk-sharing among member states.

For Ukraine, the urgency of the situation intensifies as the nation confronts significant funding gaps for the war. While the court ruling bolsters protection for the present revenue mechanism, it does not grant access to the principal of the frozen assets. The legal barrier surrounding Russia’s assets is therefore weakening gradually, driven by shifting political sentiments in European capitals.

Ultimately, the speed at which governments are willing to share risks in utilizing the assets may ultimately decide whether the principal can be activated.