Russia's international reserves dropped by 1.2%, or $6.9bn, in a week to $582.1bn as of February 17, 2023, according to a statement released by the Central Bank of Russia (CBR) on February 27, due to negative revaluation and transactions under the new budget rule. (chart)

That number includes the $300bn of reserves seized by the West in the first week of the Russo-Ukraine war; however, it appears that the Kremlin might have access to a lot of that money after all. The EU legal authorities have admitted they can’t find most of it, reports Delfi.

As of February 10, international reserves were valued at $589bn, comprising foreign currency, Special Drawing Rights (SDRs), a reserve position in the International Monetary Fund and monetary gold. These reserves represent highly liquid foreign assets available to the CBR and the Russian government.

Following Moscow's military operation in Ukraine, Western countries imposed sanctions against the CBR. These sanctions include freezing $300bn of Russia's gold and foreign currency reserves held in Europe and the US, as well as prohibiting all transactions related to the management of the regulator's reserves and assets, and transactions with any legal entity, organisation, or body acting on behalf or at the direction of the CBR.

However, according to recent reports, the EU legal enforcement authorities have only been able to identify €33.8bn of the €250bn held in Europe, which has been frozen. The remaining funds have not been found and presumably remain under Russian control.

Last week 45 members of the European Parliament wrote to the leaders of the EU asking for a centralised registry to be created detailing where the CBR funds are held, as well as €19bn worth of frozen oligarchs' money and other sanctioned Russia citizens and companies. Delfi reports that the EU has still not been able to identify where the majority of the CBR funds are held. Moreover, they admitted the $300bn number was based on the CBR’s own reporting of the amount held in Europe and not on reports from the institutions that were supposed to hold the reserves; consequently the amount held in Europe may be a lot lower than the reported figure of $300bn.

The problems with finding these funds is a function of the complexity of how Russia manages its foreign reserves, and has proved to be more difficult to untangle than was expected.

The hunt for the cash is on. The EU ordered all member countries to order their banks to report any holdings of CBR money on February 15.

The funds have only been frozen, but technically they still belong to the CBR. Under international law one government cannot seize another government’s property unless it declares war; the EU has repeatedly said it has no intention of declaring war on Russia. That makes seizing the $300bn of frozen funds legally very difficult.

US Treasury Secretary Janet Yellen admitted to Reuters that there are serious obstacles to confiscate major frozen Russian assets, during an unannounced trip to Kyiv on February 27. 

"We have on this small scale, seized assets, but there are certainly legal challenges in doing more than that," she said talking about Russian funds that the United States would like to transfer to the Ukrainian authorities.

Reuters reported that the money that has been seized was "assets used in criminal activity."

Europe’s laws also made it hard to seize the oligarchs’ money, as in most countries it is only possible to seize frozen funds if there is a criminal conviction, a rule that obviously doesn’t apply to countries. However, a lot of oligarchs' money is held in the name of family members or front men, who have not been convicted of anything. Being on a sanctions list does allow the authorities to freeze funds, but it doesn’t mean those funds can then be legally seized and used to rebuild Ukraine.

Currently the EU has the legal right to temporarily use €33.8bn of the CBR assets. The EU has suggested investing this money in a fund and using any profits for the reconstruction of Ukraine, while the principal remains untouched and the property of Russia.

The CBR no longer holds any dollars, but lawmakers said this month that the regulator plans to sell off all its euros this year as well. After the change the CBR will hold only gold and yuan in its reserves, split 40% and 60% respectively.