🔗 Share this article

Russia's monetary authority has announced it is pursuing damages valued at $230 billion from the securities depository Euroclear. This action is a direct response from the Kremlin against proposals to use frozen Russian state funds to aid Ukraine.

The Legal Claim

According to reports in local news outlets, the central bank initiated a claim last week for approximately 18 trillion roubles. This sum corresponds to the aforementioned $230 billion demand.

EU leaders are set to determine later this week regarding a proposal to use approximately €210 billion in immobilized Russian state funds. The proposal entails granting Ukraine with a large loan to fund its defence and economic stability.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the primary custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

European Union officials have maintained that their proposal is legally sound. They argue rests on the fact that title of the sovereign wealth still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as illegal appropriation. It has warned of reciprocal actions, including confiscating European private investors' assets within Russia.

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

Strategic Positioning

In comments interpreted as an attempt to drive a wedge between Europe and the United States, the official characterized the proposal as "a vicious assault on the right to ownership and the international reserves system created by the United States."

Euroclear refused to provide a statement on the new legal action. The institution has in the past noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are unlikely to enforce rulings from Russian tribunals, analysts expect Moscow to seek implementation in countries with stronger relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such holdings can be located," commented a legal expert from an international firm.

EU Countermeasures

EU officials said they are working on steps to deter other countries from assisting any Russian lawsuits against European companies. Additionally, they are crafting safeguards to protect EU countries with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would solely be obligated to return the money in the event that Russia agreed to pay compensation for the immense damage caused during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for funding Ukraine. This involves common EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, however, demands unanimity among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is equally important," she stated. "Furthermore, it sends a powerful message that when you do all this damage to another country, you must pay for the rebuilding."