Newsletter of the main news 02.12/08.12

1. Russian frozen assets

The US and the EU are preparing to transfer $50 bn of frozen Russian assets to Ukraine, US Secretary of State Anthony Blinken said during a press conference in Brussels. The funds, which will be transferred in the coming weeks, will provide financial support to Ukraine for the next year. According to Blinken, the allies are actively working to ensure that Ukraine has the resources it needs for economic stability and defence, including ammunition, air defence systems, missiles and armoured vehicles. The secretary of state also stressed that the US remains resolute in its support for Ukraine.

In addition, Ukraine may avoid paying back $50 bn if it does not receive reparations from Russia, thanks to amendments to the Budget Code that introduce the concept of ‘contingent debt obligations’. Under the new rules, financial assistance from the G7 and the EU, which is covered by frozen Russian assets, will not be considered public debt and will not be subject to repayment. The head of the Budget Committee, Roksolana Pidlasa, noted that these funds will be used to finance priority expenditures, and Finance Minister Sergiy Marchenko will be entitled to conclude agreements to attract them.

Also, Ukraine and the EU signed an agreement on the establishment of the Ukraine Loan Cooperation Mechanism (ULCM). This mechanism will provide a legal basis for using the proceeds of Russia's frozen sovereign assets to repay loans of up to €45 billion under the G7 ERA initiative. The funds will be used to cover principal, interest and related costs, and their use will be strictly targeted.

However, Ukraine's budget deficit for 2025 will reach €38 billion, and the G7's commitment to provide a $50 billion loan only partially covers the needs. Therefore, Ukrainian MPs called on the EU to lead the process of seizing frozen Russian assets to use them to rebuild Ukraine and bring those responsible for the war to justice. Oleksandr Merezhko, chairman of the Verkhovna Rada Committee on Foreign Policy, noted that about €210 billion of Russian assets have been blocked in the EU, which should become an instrument of justice. French MEP Nathalie Loiseau suggested that these assets could be used as a loan for Ukraine's military needs, stressing the legitimacy of such actions in response to Russian aggression.

Norway's sovereign wealth fund, the world's largest with assets worth $1.8 trillion, has received permission to sell shares in Russian companies. Earlier, all transactions with Russian assets were suspended after Russia's invasion of Ukraine, but now the Norwegian Central Bank plans to get rid of the portfolio worth 1.5 billion kroner ($135 million). It includes shares of 49 companies, including Sberbank, Lukoil, and Gazprom, as well as companies with secondary listings such as Novatek and Yandex. In addition, the fund holds 3.2 billion kroons ($288 million) in rubles received as dividends since 2022.

2. Sanctions, their violation and circumvention

EU ambassadors failed to agree on the 15th package of sanctions against Russia due to differences in the positions of member states. Two governments blocked the decision because they disagreed on the timeframe for European companies to withdraw investments from Russia. The debate also concerned the extension of the exemption for imports of Russian oil products to the Czech Republic through the Slovak oil refinery Slovnaft, owned by the Hungarian company MOL. EU members plan to return to the sanctions package later.

The US imposed sanctions on the TGR Group, an international money laundering network for the Russian elite. The organisation, controlled by Ukrainian Georgy Rossi, is accused of circumventing sanctions and laundering money through cryptocurrencies. The sanctions also targeted Russian Yelena Chirkinian, Latvian Andrejs Bradens and related companies in the UK, UAE, Thailand and the US. The Russian elite used the network to circumvent sanctions and enrich themselves through digital assets, the US Treasury said.

A court in the Hungarian city of Szeged fined an entrepreneur one million forints (about $2,560) for violating EU sanctions against Russia. In October 2022, he tried to import car parts from Russia worth HUF 35 million by registering a company in Belarus to conceal the origin of the goods. The offender pleaded guilty, and the court also confiscated the batch of spare parts. This case was exceptional against the backdrop of the Hungarian authorities' position that criticises EU sanctions against Russia.

China is studying Russia's experience in circumventing sanctions to prepare for possible economic restrictions in the event of a conflict over Taiwan. An inter-ministerial group headed by Chinese Vice Premier He Lifeng is analysing Russian methods of avoiding sanctions, including reorientation of trade flows, de-dollarisation and circumvention of restrictions through third countries. China is also trying to diversify its $3.3 trillion in foreign exchange reserves to reduce its dependence on the dollar. However, due to its high integration into the global economy, China is more vulnerable to sanctions than Russia and is considering possible economic scenarios without explicitly preparing for military action.

The US Department of Justice has filed a lawsuit for civil forfeiture of $3.4 million in proceeds from the sale of a music studio in California, which is linked to Russian oligarch Oleg Deripaska. The lawsuit alleges that these funds are proceeds of sanctions violations. The KleptoCapture Task Force emphasised that it continues to fight financial abuse by sanctioned persons, and the U.S. Attorney for the Southern District of New York stressed his commitment to sanctions enforcement. The FBI confirmed that the seizure was aimed at stopping attempts to circumvent US national security laws.

3. Confiscation policy of Ukraine

The HACC upheld the second claim of the Ministry of Justice against Vyacheslav Boguslaev, confiscating assets to the state: a business complex in Prymorsk (Zaporizhzhia region) and a 100% share in the authorised capital of INNOVA LLC. Vyacheslav Boguslaev is a pro-Russian politician, a former Member of the Parliament of Ukraine of the 5th-8th convocations. The court has previously confirmed Boguslaev's involvement in the supply of aircraft engines to Russia, which contributed to the modernisation of military equipment used in the war against Ukraine. The decision of 02.12.2024 has not yet entered into force.