🔗 Share this article

Russia's monetary authority has stated it is pursuing damages totaling $230 billion from the securities depository Euroclear. This action constitutes a clear warning from the Kremlin against plans to use frozen Russian state assets to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This sum corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide later this week regarding a proposal to use approximately €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

European Union authorities have maintained that their proposal is on solid legal ground. They argue rests on the fact that title of the sovereign wealth still belongs to Russia, even though it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, however, has labeled any use of the assets as illegal appropriation. It has threatened reciprocal measures, such as seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and regain its funds. He warned that the European Union, the euro, and Euroclear "will suffer" from the plan.

Strategic Positioning

In comments interpreted as an effort to create division between Europe and the United States, the official described the assets plan as "a severe assault on the right to ownership and the global financial system created by the United States."

The clearing house declined to provide a statement on the new lawsuit. It has in the past stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are unlikely to recognize judgments from Russian courts, analysts expect Moscow to seek implementation in countries with closer relations to the Kremlin.

"Russian monetary authorities 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 assets can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing steps to deter other nations from assisting any Russian lawsuits against European companies. They are also crafting protections to protect EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain untouched.

Kyiv would solely be obligated to return the loan if and when Russia consented to pay reparations for the immense damage caused during the ongoing war.

Alternative Proposals

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

Such a proposal, however, demands full agreement among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is also significant," she remarked. "Furthermore, it sends a powerful message that when you do all this damage to another country, you have to pay for the reparations."