The EU's sanctions regime vis-à-vis Russia

EPIS Policy Brief: “How to address the incoherence of the EU Sanctions Regime

vis-à-vis Russia - A Blueprint for repurposing immobilised Russian state assets

for Ukraine”

Authors: Christian BISSINGER; Jázmin MOLNAR

1. Introduction: The strategic imperative

Since 2022, the Russian war of aggression against Ukraine has prompted the European

Union (EU) to adopt numerous sanctions packages to weaken the Russian war economy.

Among these sanctions, the immobilised Russian state assets (IRSAs) held in foreign

exchange reserves repeatedly draw attention. Held in Western jurisdictions, these assets are

estimated to be approximately $300 bin, with around €200 bn in the Belgian Central

Securities Depository (CSD) of Euroclear. With the US scaling back its support for Ukraine,

calls to confiscate these frozen assets or repurpose the windfall net profits (WNPs) matured

from them have intensified. Furthermore, the erosion of public support for aid to Ukraine in

EU Member States (MS) is prompting them to turn to other funding sources than their own.

This is why the European Commission (EC) has proposed a €140 bn Reparation loan for

Ukraine, funded by the revenue generated from the IRSAs and backed up by Eurobonds.

Importantly, this loan would need to be paid back only if and when Ukraine receives

reparations from Russia.

What is hindering these efforts is the consensus-based decision-making in the Foreign

Affairs Council (FAC). The lack of unanimity in the FAC creates a political bottleneck,

hindering the EU from developing a long-term sanctions strategy. This brief intends to

answer the question of how the EU could overcome the politico-economic and legal

impasses, particularly the unanimity requirement, to mobilise the assets for Ukraine's mid-

and long-term benefit.

We argue that by implementing different legal and financial mechanisms, the FAC’s

deadlock can be bypassed and crucial aid can reach Ukraine timely. After examining the

unanimity trap and possible ways to overcome it, this paper presents further legal and

politico-economic hurdles and current initiatives. It concludes with general policy

recommendations which enable the EU to enhance the policy coherence of its sanctions

regime vis-à-vis Russia.

2. The unanimity dilemma: A weak link in EU resolve

Since the creation of the EU, the Common Foreign and Security Policy (CFSP) has remained a

particularly sensitive domain. MS have consistently resisted giving up sovereignty in this

area of EU policy. This means that in matters of foreign policy, the FAC has to vote on every

decision unanimously, giving all members political veto powers. Specifically, the prolonging

of the asset’s immobilisation requires biannual re-approval. Although the continuation of

support for Ukraine is quasi-consensual, there are exceptions. Notably, Hungary and

Slovakia have vetoed sanction packages and regulations targeting Russia because of their

governments’ close political and economic ties to the aggressor. This undermines the

development of a long-term strategic sanctions regime, potentially leading to so-called

“Sanctions Fatigue”. The deadlock in the FAC has created a need to bypass the unanimous

decision-making.

Legal scholars are calling for the use of Article 7 of the Treaty of the European Union (TEU)

to circumvent the veto of Hungary and Slovakia by suspending their voting rights in the area

of CFSP, or specifically, sanctions-related questions based on the violation of EU values, as

laid down in Article 2 TEU.

An alternative approach could exploit the legal distinction between Article 29 TEU and

Article 215 of the Treaty on the Functioning of the European Union (TFEU). This approach

states that while unanimity is needed under Article 29 TEU for setting a broader EU strategy,

the details about the latter’s implementation and its enforcement mechanisms can be

adopted by Qualified Majority Voting (QMV) under Article 215 TFEU.

Lastly, an option already used by the EU Council: Since Hungary abstained from a Council

decision that allocated WNPs to Ukraine in May 2024, it has no further right in the decisions

about the fund’s future. In response to this step, Hungary sued the EU for ignoring its veto

on the matter. Nevertheless, it has to be noted that this solution would not be able to

circumvent other MS’s vetos.

As a last resort, the possibility of releasing €550 million of blocked EU funds for Hungary as a

bargaining chip could enable reaching a consensus on future sanction packages. However,

with the reemergence during the next sanction renewal cycle, this would merely postpone

the challenge created by the unanimity requirement.

Altogether, the issue of unanimity in the FAC is far from solved. However, the ongoing legal

discussions could ultimately alter the decision-making processes within CSFP. Until then,

however, it is important to look at other mechanisms which would allow aid to reach

Ukraine as fast as possible.

2.1 Navigating the legal and politico-economic minefield towards the WNPs'

repurposing

Under customary international law, state sovereign immunity prevents the IRSAs’ outright

confiscation, offering heightened protection to central bank assets and functioning as a

procedural bar to enforcement measures, such as their seizure within foreign jurisdictions.

This immunity, however, is subject to challenge. Viewed through the International Law

Commission’s “Articles on the Responsibility of States for Internationally Wrongful Acts”

(ARSIWA), one could argue that confiscation would be permissible under the doctrine of

countermeasures 1 , which permits an action that would normally infringe international law if

it is aimed at inducing another state’s (Russia's) compliance with its international legal

obligations. Legal experts have explored justifications to override the principle of state

sovereign immunity, e.g. by framing the IRSAs’ seizure as a lawful countermeasure in

response to Russia’s breach of international law. However, no clear consensus regarding

legal pathways of the WNPs’ repurposing has emerged.

Direct confiscation remains legally contested because the established legal norm governing

countermeasures mandates that they be temporary, reversible, and designed to induce

compliance. This requisite is reflected in the stance of the Russian Elites, Proxies, and

Oligarchs (REPO) Taskforce 2 participatory States, which advocate for keeping the IRSAs

1 Renew Democracy Initiative, ‘The legal, practical and moral case for transferring Russian sovereign

assets to Ukraine’ (17 September 2023): pp. 119-123.

2 Set up between the EU, G7 countries, and Australia in March 2022, the REPO Taskforce

participatory states pledged to „jointly commit to prioritizing (their) resources and working together to

frozen until Russia has provided reparations after the conclusion of the war.

Currently, a part of the WNPs is transferred to Ukraine for military purposes and serves as

repayment for the country’s loans; the assets themselves function as a deposit for future

reparations. A solution that might satisfy the criteria above is the transfer of the WNPs to

another legal entity, thereby crediting the transferred amount against Russia’s reparations

debt toward Ukraine. According to Art. 36 of ARSIWA, Russia is “under an obligation to

compensate for the damage caused thereby (...)”. This could include various types of

humanitarian expenditures. In the event of a peace accord, the IRSAs could be disbursed to

Ukraine and other injured parties. Furthermore, the latent threat of future confiscation can

be leveraged to ensure Russian compliance with a potential ceasefire agreement.

However, significant geoeconomic risks remain: an EU or “Coalition of the Willing” -led

confiscation could establish a legal precedent, which could be exploited, e.g. by the PRC or

India, to justify similar actions against EU interests or cause capital flight of EU-inbound

Foreign Direct Investment (FDI). Viewed from the ECB’s risk-adverse perspective, any action

that might undermine the Eurozone’s financial stability should be avoided, mirroring the

initial viewpoints from MS with large economies and high amounts of inbound FDI, such as

Germany and France.

With EU MS holding approximately 75% of all IRSAs amongst G7 countries, including

Australia and Switzerland, this leads to the centrepiece of contention: Euroclear. The Belgian

government is already collecting 25% of the WNPs as tax and transferring them to Ukraine.

Furthermore, Euroclear is turning over the remaining revenue to the European Fund for

Ukraine. With the creation of the new legal category of WNPs, as property of Euroclear, the

process of repurposing has been highly facilitated. However, a decision within a “Coalition

of the Willing” to repurpose the WNPs held at the CSD requires an equitable distribution of

the associated liability risks. With the institutional gridlock within the FAC and Belgium

remaining opposed to the WNPs' repurposing, novel instruments are needed.

take all available legal steps to find, restrain, freeze, seize, and, where appropriate, confiscate or

forfeit the assets of those individuals and entities that have been sanctioned in connection with

Russia’s premeditated, unjust, and unprovoked invasion of Ukraine and the continuing aggression of

the Russian regime”

2.2 Innovative pathways: Creative solutions forward

To provide Ukraine with longer-term financial support, the EC is developing plans to create a

“Special Purpose Vehicle” (SPV), which would contain IRSAs from CSDs from the “Coalition

of the Willing”. Created outside the EU treaties, this model, administered by the ECB or the

EC, could allow the WNPs to be reinvested with a higher yield and, once established, even

be open to states outside of the EU (e.g. the G7). Whilst shielding the EU’s financial system,

this scheme would also rule out confiscation until the signature of a peace settlement

between Kyiv and Moscow.

Getting back to the Belgian CSD, it would require an equal amount of EU Bonds to cover the

liability. The main difference would be that Euroclear invests the WNPs in EC bonds rather

than ECB deposits. However, this would require a clear ownership structure, mandate, the

creation of a new legal entity, as well as oversight and reporting structures.

EC President U. von der Leyen’s proposal of a €140 bn Reparations Loan for Ukraine during

her State of the EU speech complements the SVP proposal: once transferred, the loan would

allow Kyiv to spend the money right away. However, in an opinion piece in the Financial

Times, German Chancellor F. Merz argued that it should only be limited to military

expenditure. Germany and France have been the harshest critics of the assets' outright

confiscation and, for some time, the WNP’s repurposing. However, the evolution of the

Russian counter-sanctions regime, which as of late September 2025 allows previously

expropriated Western assets 3 to be sold, should be all the more reason for the “Coalition of

the Willing” to seize the strategic initiative and address the policy incoherence of its own

sanctions regime vis-à-vis Russia.

2.3 Forging policy coherence in the EU's sanctions regime

3 For further details: Russian Presidential Decree No. 693 tithe tled “On Certain Specifics for the Sale

of Property held in Federal Ownership”

The lack of policy coherence in the EU’s sanctions regime has long been criticised. The fact

that measure’s implementation is left to MS demonstrates the need for harmonisation. Only

in 2023 did the EU, for the first time, adopt a law on criminalisation of sanction violation.

However, national capabilities to enforce such laws still vary widely.

The decentralisation of the EU’s Sanctions Regime is seen as an additional issue. According

to a 2022 report from the Jaqcues Delors Institute, 160 authorities amongst all MS were

responsible for enforcing sanctions. This fragmentation creates exploitable loopholes within

the enforcement framework.

For instance, third-country circumvention could be tackled by a more centralised,

harmonised EU sanction regime. Furthermore, coherence between EU MS is needed to

create more effective global sanctions through cooperation with partners, such as the G7.

To that end, the EU needs a more harmonised approach to its economic statecraft.

European and Western technologies have not simply been substituted by alternatives from

non-European sources, but significant efforts were made to ensure that these goods can

continue to move by all possible means. In that sense, a so-called “Single Market for EU

Sanctions” could offer a way forward. Such a framework would foster a coherent and

coordinated approach to EU sanctions implementation, close the existing loopholes and cut

Russia off from the European market.

3. Conclusion and policy recommendations

To enable long-term support for Ukraine and improve policy coherence, the EU should

elaborate on the development of financial mechanisms outside of the EU Treaties, which

would only require support from a Coalition of the Willing MS. The presented SPV is only

one example of how the EU can create legal certainty whilst repurposing the WNPs and at

the same time ensuring that liability risks are evenly distributed. While details of the EC’s

legal and financial feasibility study on the SVP remain to be seen, the lasting economic ties

between Russia and certain EU MS should alarm the European executive and make it

consider using the Suspension clause enshrined in Art. 7 TEU. Furthermore, it should start

trade consultations with the biggest importers of Russian Fossil Fuel, such as the PRC and

India, to find alternative sources of energy and ultimately disrupt the most important

income source to the Russian war economy.

Furthermore, the EU must close loopholes. An astonishing number of EU corporations keep

doing (in-) direct business in Russia. Enforcement is solely a MS competence, but there is a

lack of oversight. The creation of an EU sanctions agency could ensure monitoring and

investigating MS practices, with the ideal goal of harmonising MS practices and eventually

even enforcing sanctions. This could involve other EU and MS institutions, as well as

academia and civil society. Most importantly, this could strengthen the public’s trust in the

sanctions regime and turn the