🔗 Share this article

Russia's monetary authority has stated it is seeking damages amounting to $230 billion against the securities depository Euroclear. This legal step represents a clear warning from the Kremlin regarding proposals to use immobilized Russian sovereign funds to support Ukraine.

The Legal Claim

According to accounts in Russian state media, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials will determine later this week on a plan to use around €210 billion in immobilized Russian assets. This scheme involves providing Ukraine with a large loan to finance its defence and financial needs.

Most of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. This institution serves as the main custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

EU officials have argued that their plan is on solid legal ground. Their position rests on the principle that title of the sovereign wealth still belongs to Russia, even though it was immobilized in EU jurisdictions following the full-scale invasion of Ukraine.

The Russian government, however, has called any utilization of the assets as theft. Authorities have threatened reciprocal measures, including confiscating EU corporate holdings within Russia.

Kirill Dmitriev, who has taken on a key role in diplomatic talks, stated on X that Russia "will win in court" and regain its funds. He added that the European Union, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

In comments seen as an attempt to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious assault on the right to ownership and the global financial system created by the United States."

Euroclear declined to comment on the latest lawsuit. It has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Enforcement Challenges

While courts in EU countries are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to pursue implementation in nations with stronger relations to the Kremlin.

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

EU Countermeasures

European authorities said they are working on measures to deter other nations from aiding any Russian lawsuits against EU companies. Additionally, they are crafting protections to shield EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be required to repay the loan in the event that Russia consented to pay reparations for the vast destruction inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This involves joint EU debt issuance to fund a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is also important," she remarked. "Furthermore, it delivers a clear signal that when you cause all this destruction to another country, you must pay for the rebuilding."