🔗 Share this article

The Russian central bank has announced it is claiming compensation totaling $230 billion against the securities depository Euroclear. This legal step constitutes a direct warning from the Kremlin regarding plans to utilize frozen Russian sovereign funds to support Ukraine.

The Financial Lawsuit

According to reports in Russian state media, the monetary authority initiated a lawsuit last week for an estimated 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

European Union officials are set to determine in the coming days regarding a proposal to leverage approximately €210 billion in frozen Russian assets. The proposal entails providing Ukraine with a large loan to fund its defence and economic stability.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the primary keeper for the Russian frozen financial reserves.

A Clash Over Legality

European Union authorities have argued that their plan is on solid legal ground. They argue is based on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, however, has labeled any use of the funds as theft. It has threatened retaliatory measures, such as confiscating European private investors' assets within Russia.

Kirill Dmitriev, who has taken on a prominent role in diplomatic talks, stated on X that Russia "will win in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an effort to drive a wedge between Europe and the United States, the official characterized the proposal as "a vicious assault on property rights and the global financial system created by the United States."

Euroclear refused to provide a statement on the new legal action. It has previously stated it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in European nations are not expected to recognize judgments from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are working on measures to deter other nations from aiding any Russian lawsuits against EU entities. They are also designing protections to shield EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the principal funds would remain unaffected.

Ukraine would only be required to return the loan if and when Russia agreed to pay reparations for the immense destruction caused during the ongoing conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for financing Ukraine. This entails common EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it doesn't come from our public funds, which is also significant," she remarked. "It also delivers a powerful signal that if you cause all this damage to another nation, you have to pay for the rebuilding."