Introduction to the Issue
The Russian Central Bank in Moscow has been a focal point of international attention since the start of the war in Ukraine. In 2022, Canada played a significant role in freezing approximately $300 billion worth of Russia’s Central Bank reserves held in Western currencies. This move saw the value of the ruble plummet, significantly hampering Russia’s ability to fund its war efforts. However, these frozen assets remain at risk of being returned to Russia, posing a threat to global security and undermining international efforts to support Ukraine.
The Risk of Frozen Assets Being Returned
The frozen assets, managed by Belgian securities depository Euroclear, include Canada’s $22 billion share. Although Euroclear is based in Belgium, these funds are likely held in Canadian financial institutions or the Bank of Canada itself. The European Union and its allies are nearing an agreement to use these frozen funds for loans to Ukraine, but the plan does not involve seizing the funds outright. Instead, the funds are frozen through EU sanctions that must be unanimously extended every six months. If even one EU member vetoes the extension, the $22 billion could be returned to Russia, providing a significant boost to its war efforts.
A Solution for Canada
To mitigate this risk, Canada can independently freeze its share of the frozen assets. By doing so, Canada would strengthen its negotiating position and ensure that the $22 billion remains out of Russia’s reach. This can be achieved through Canada’s sanctions legislation, which allows the Foreign Affairs Minister to request that Canadian banks disclose any Euroclear deposits they are holding on behalf of Russia’s Central Bank. Once these deposits are identified, they can be moved to separate accounts and frozen under the Special Economic Measures Act.
Double-Freezing as a Strategy
This strategy, known as "double-freezing," would effectively lock the $22 billion in place, preventing it from being returned to Russia even if the EU sanctions are vetoed. By taking this step, Canada would demonstrate leadership in its support for Ukraine and encourage other non-euro countries holding frozen Russian assets to follow suit. Britain and Australia, with their significant shares of frozen Russian assets, could be influenced by Canada’s actions, leading to a broader international effort to keep these funds out of Russia’s reach.
Implications of Inaction
The consequences of failing to double-freeze the frozen assets could be dire. If the $22 billion were to flow back to Russia, it would provide a significant war chest, eclipsing the $19.5 billion in support provided to Ukraine by Canada since 2022. This windfall would likely be used to further threaten Ukraine and the wider West, including Canada’s Arctic region. Additionally, Canadian taxpayers could be left on the hook for billions in loans made to Ukraine, as the interest on frozen Russian assets is currently being used to repay these loans.
Conclusion
In conclusion, Canada must take immediate action to double-freeze the $22 billion in frozen Russian assets held in Canadian dollars. With the next EU sanctions rollover deadline looming, there is no time to waste. By taking this step, Canada can safeguard its own security, support Ukraine, and demonstrate international leadership. The consequences of inaction far outweigh the simplicity of this solution, making it imperative for Canada to act swiftly and decisively to prevent these funds from being returned to Russia.
