🔗 Share this article

Russia's monetary authority has announced it is seeking compensation valued at $230 billion from the securities depository Euroclear. This move constitutes a clear warning from the Kremlin regarding proposals to utilize frozen Russian sovereign assets to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion claim.

European Union officials will decide later this week on a proposal to leverage around €210 billion in frozen Russian state funds. This scheme involves providing Ukraine with a substantial loan to fund its defence and financial needs.

Most of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the primary keeper for the Kremlin's immobilised financial reserves.

Divergent Legal Views

EU authorities have maintained that their proposal is legally sound. They argue is based on the principle that ownership of the state assets remains with Russia, even though it was frozen in EU countries following the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any use of the funds as illegal appropriation. It has warned of retaliatory measures, such as seizing EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a prominent role in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a severe attack on property rights and the international reserves system established by the United States."

Euroclear declined to provide a statement on the latest lawsuit. The institution has in the past stated it is facing over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are unlikely to recognize judgments from Russian courts, analysts expect Moscow to pursue enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such holdings can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing steps to deter other nations from assisting any Russian lawsuits against EU companies. They are also designing protections to shield EU countries with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed plan, the EU would provide an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would remain unaffected.

Ukraine would solely be obligated to repay the loan if and when Russia consented to pay reparations for the vast destruction inflicted during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different method for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the most credible solution" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is equally significant," she stated. "Furthermore, it sends a clear signal that when you cause all this destruction to another country, you have to pay for the rebuilding."