STRASBOURG, France – Brussels proposed hiving off profits earned from frozen Russian state assets on Dec 12, a step towards sending billions of euros in funds to Ukraine, European Union officials said.

The EU has frozen some €200 billion (S$290 billion) of Russian central bank assets as punishment for Moscow’s invasion of its pro-Western neighbour.

About 90 per cent of those funds are held by international deposit organisation Euroclear, based in Belgium.

Painstaking legal work has been going on for months to ascertain how profits being earned on those funds could be diverted to help Ukraine.

Belgian Premier Alexander De Croo said in June that there was general backing for a windfall tax that could generate €3 billion a year for Kyiv.

But some countries are reluctant, amid warnings that targeting frozen funds, which are usually returned untouched when sanctions expire, could rattle financial markets or undermine the euro.

In its proposal, which needs to be approved by all 27 members, the European Commission took a cautious approach of first saying deposit holders like Euroclear would have to separate interest or profits earned on the frozen assets and ring-fence them, an EU official said.

The official said there would then be a second proposal later on how the profits could be shifted into a fund that would go to Kyiv.

“They should be used for the purpose of helping the reconstruction and the recovery of Ukraine. That’s the long-term objective,” the EU official said.

The proposal aimed at finding a way to get more money to Ukraine comes as efforts in the United States and Europe to secure long-term funding for Kyiv risk being derailed.

EU leaders face a major challenge at a summit on Dec14 to overcome opposition from Hungary’s Prime Minister Viktor Orban to providing Ukraine €50 billion in financial aid. REUTERS