The European Union has set its sights on a legally tricky way to get Moscow to pay for some of the damage caused by its war in Ukraine: it wants to reinvest frozen Russian state assets, and confiscate the goods of sanctioned individuals caught trying to circumvent restrictions.

But when it comes to Russian public assets, the path ahead isn't easy, one expert told DW, after the European Commission floated options this week that it wants to delve into with international partners in the coming months. While the move has moral appeal for its proponents, it's not an easy way to line Kyiv's pockets.

Billions of frozen assets untapped

In the wake of Russia's full-scale invasion of Ukraine, the EU along with Western allies imposed sanctions of unprecedented scale on Moscow. Russian state assets in the EU — central bank deposits, for example — as well as those of sanctioned individuals were frozen.

Villas and yachts of wealthy Russians were seized, though not confiscated and sold off, throughout the EU. To date, the European Commission estimates that Russian-owned private assets worth some €19 billion (around $20 billion) have been frozen.

The total of Russian state assets frozen in the bloc is currently unknown, but €300 billion of Russian central bank reserves have been immobilized across all EU and G7 countries, according to the EU executive branch.

Simply being placed under EU sanctions does not lead to confiscation, the permanent disposal of goods. At present, billions of assets are therefore out of reach for their owners, but they also remain untapped for anyone else. Anyone removed from the sanctions list would be able to get their property back.

Calls to find ways to use the frozen funds to help Ukraine rebuild have grown louder in recent months. In September, the World Bank estimated that Ukraine's repair bill had already reached €350 billion on Wednesday, the European Commission said it was closer to €600 billion.

"We will make sure that Russia pays for the devastation it caused with the frozen funds of oligarchs and assets of its central bank," European Commission President Ursula von der Leyen said in a video statement on Wednesday.

This week, the European Commission circulated an "options paper" among the EU member states, setting out a number of possibilities, in line with a request from the 27 capitals.

Russian public assets as cash cows?

The EU executive branch has mooted setting up a structure, ideally internationally, to manage blocked Russian public funds so they could be invested more advantageously, with the proceeds going to Ukrainian reconstruction. The plan particularly applies to liquid assets of state-owned firms and the Russian central bank, as the options paper sets out.

The assets would still be returned once sanctions were lifted, for example, in the case of a peace deal deemed satisfactory to all, something which could provide leverage for Kyiv in future negotiations.

But as Nicolas Veron, a fellow at Brussels-based think tank Bruegel and the Peterson Institute for International Economics in Washington, points out, this idea is controversial. "There is a need for a lot of caution and international legitimacy," he told DW by phone. It's all about trust in the international banking system.

Russian central bank deposits abroad "belong to the Russian state and beyond that to the Russian people," Veron said. "There's this general principle that central banks should not be driven by short-term politics."

The Commission proposal appears to allow the fund to make "riskier investments with this money that would yield more returns," he explained. But as always, the higher the return, the higher the risk. "And then the question becomes, what if you lose money on those investments? That would be a form of confiscation."

A number of legal experts and officials have expressed doubt in the past. US Treasury Secretary Janet Yellen previously pointed out that Washington had no legal authority to seize Russian central bank assets. But there is increasing international interest in whether such a move is possible, and on what legal basis.

'Oligarchs use legal loopholes'

The EU executive also has plans to make it easier to get at some of the €19 billion of private assets. On Friday, it officially proposed listing evasions of sanctions as a crime throughout the bloc. "Oligarchs use legal loopholes to hide their money. With this proposal, we are closing these loopholes and we make sure that EU restrictive measures are well enforced," Commission spokesperson Christian Wigand said in Brussels.

Attempts to bypass EU sanctions by trying to move funds, change owners or conceal assets would be a crime in all EU member states, punishable with a prison sentence, said Wigand. For companies, punishment could be a fine of up to 5% of global turnover, he explained.

However, as the options paper sets out, "a link with criminal activities would always be needed to confiscate assets." Moreover, the reform would not apply retroactively. "Thus it would only target activities committed after its entry into force," the paper continued. In other words, this is not a way to automatically unlock €19 billion of frozen assets, though it could facilitate some confiscations.

'Radical thing that undermines global trust'

One problem for Veron is that these two measures won't necessarily raise vast amounts of capital.

Take, for example, the planned 2023 EU loan package for Ukraine of €18 billion. "Instead of doing this very radical thing that undermines global trust in the financial system, why don't we pay for it ourselves?" he said. "This 18 billion is more than pocket money, but very affordable."

Veron is not opposed to the Commission proposals in their entirety. The plan could be used to generate a "meaningful" amount to offset international commitments to Ukraine, he said. It is now a question of what can be agreed with other allies, and also what will fly in the international community.

Edited by: Martin Kuebler