The European Union is currently at a crossroads, dealing with frozen Russian assets. While political discussions are ongoing, public statements indicate that both options are actively considered: investing and using the proceeds from these assets for compensation to Ukraine or imposing a special tax on them, with the proceeds directed towards Ukraine.

Read more in the article by Ivan Gorodytsky and Sofia Kosarevych from the Dnistrianskyi Center: "Replacing Confiscation: Why EU is Seeking New Mechanism for Frozen Russian Assets."

The first option gives a priority to using these assets, particularly, through investment. In this scenario, the accumulated dividends could be transferred to Ukraine to compensate for damages, and the Russian assets would be returned to their rightful owners after full payment of reparations. This approach has significant political support.

Later, an alternative idea emerged that does not require a separate entity or investment process. A significant portion of Russian assets is concentrated within the European Central Securities Depository, Euroclear. The income from these assets cannot be transferred to Russia as Euroclear is involved in freezing Russian assets. The status of funds earned in this manner after February 24, 2022 (amounting to hundreds of millions of US dollars) remains uncertain. EU representatives are contemplating whether these proceeds could be redirected to compensate Ukraine.

However, this idea faces political and legal challenges, particularly from Germany. Berlin has stated that managing Russian funds would create complex financial and legal circumstances within the EU. The European Central Bank shares a similar view.

The second scenario, supported during a recent European Council summit in Brussels, involves taxing the income from frozen Russian sovereign assets. Although many have rushed to call it a "windfall tax," it is essentially a collection within the framework of EU sanctions. This initiative has also received support from the United Kingdom, which stated its willingness to cooperate with the EU.

However, adopting this proposal would require the support of all member states. The Council did not present a formal decision after the discussion, but the President of the European Commission announced further work on the proposed mechanism.

While both options are interesting, they are less acceptable to Ukraine compared to the direct confiscation of Russian assets. Even if the proceeds from using frozen assets across the EU turn out to be several times greater than the announced $3 billion, which is a conservative estimate of the damages caused by Russian aggression (estimated at $400-600 billion), a simple calculation shows that receiving reparations in this manner could take decades or even centuries.

In any case, this process will be much longer than the payments made by Iraq as reparations following the occupation of Kuwait, which took 30 years.

The main challenge for the EU, the US, and other allies of Ukraine regarding Russian assets is the hope that confiscation can be avoided as a last resort, and freezing them serves as the leverage to ensure voluntary reparations. However, the cost of aggression and the magnitude of damages are constantly increasing, and resolving the issue of compensating for these damages is becoming more pressing.

An equally important aspect of confiscating the assets of the Russian Federation and its residents is holding the terrorist state and its residents financially accountable for their actions that led to the military aggression against Ukraine and profiting from the continuation of the war.

Such financial accountability can serve as a deterrent to initiating military aggressions worldwide.