🔗 Share this article

Russia's monetary authority has declared it is pursuing damages amounting to $230 billion from the securities depository Euroclear. This move represents a direct warning by the Kremlin regarding plans to use immobilized Russian state funds to aid Ukraine.

The Substantial Demand

According to accounts in Russian state media, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

European Union officials are set to determine in the coming days regarding a plan to leverage approximately €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear acts as the primary custodian for the Kremlin's frozen financial reserves.

Divergent Legal Views

European Union authorities have maintained that their proposal is legally sound. They argue is based on the principle that title of the sovereign wealth still belongs to Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any utilization of the assets as illegal appropriation. It has warned of retaliatory measures, such as seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe attack on the right to ownership and the global financial system created by the United States."

Euroclear declined to comment on the latest lawsuit. The institution has previously noted it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in European nations are not expected to recognize rulings from Russian courts, experts expect Moscow to seek implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be identified," stated a lawyer from an international firm.

European Safeguards

European authorities indicated they are developing measures to deter other nations from aiding any Russian legal action against EU entities. Additionally, they are designing safeguards to shield EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would only be required to repay the loan if and when Russia consented to pay reparations for the immense destruction inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for funding Ukraine. This involves joint EU borrowing to secure a loan, using unused funds within the EU budget.

This alternative move, nevertheless, demands full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is also important," she stated. "It also delivers a clear signal that when you cause all this damage to another country, you have to pay for the reparations."