🔗 Share this article

The Russian central bank has announced it is pursuing damages amounting to $230 billion against the securities depository Euroclear. This legal step represents a clear warning by the Kremlin regarding plans to utilize frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

According to accounts in Russian state media, the central bank initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

EU leaders are set to decide later this week regarding a plan to use around €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a substantial loan to finance its military and financial stability.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. This institution serves as the main keeper for the Kremlin's frozen sovereign wealth.

A Clash Over Legality

EU officials have argued that their plan is legally sound. Their position is based on the principle that title of the sovereign wealth still belongs to Russia, despite being it was immobilized in EU jurisdictions following the 2022 invasion of Ukraine.

Moscow, however, has called any use of the funds as theft. Authorities have warned of retaliatory measures, such as confiscating European private investors' assets 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 added that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the international reserves system established by the United States."

Euroclear refused to comment on the latest lawsuit. It has in the past stated it is contending with over 100 legal cases in Russian courts.

Enforcement Challenges

Although courts in European nations are unlikely to recognize rulings from Russian courts, experts expect Moscow to pursue implementation in countries with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such holdings can be located," commented a legal expert from an international firm.

EU Countermeasures

EU officials said they are developing measures to deter other nations from aiding any Russian legal action against EU companies. Additionally, they are designing safeguards to shield EU countries with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

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

Ukraine would only be required to return the loan in the event that Russia consented to pay reparations for the vast damage inflicted during the nearly four-year war.

Alternative Proposals

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

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

Speaking on Monday, the EU top diplomat, a senior official, 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 public funds, which is also important," she remarked. "It also sends a powerful message that when you cause all this damage to another country, you must pay for the reparations."