🔗 Share this article

Russia's monetary authority has announced it is pursuing damages totaling $230 billion from the securities depository Euroclear. This action constitutes a clear warning from the Kremlin against proposals to utilize frozen Russian sovereign assets to aid Ukraine.

The Substantial Demand

Based on reports in Russian news outlets, the monetary authority filed a lawsuit last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

European Union officials will determine in the coming days regarding a plan to use around €210 billion in immobilized Russian state funds. The proposal involves providing Ukraine with a large loan to fund its defence and economic needs.

Most of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian frozen sovereign wealth.

Dispute on Ownership

European Union authorities have argued that their plan is legally sound. Their position is based on the principle that ownership of the state assets remains with Russia, despite being it was frozen in EU countries shortly after the 2022 invasion of Ukraine.

The Russian government, however, has labeled any use of the funds as illegal appropriation. Authorities have warned of reciprocal actions, such as confiscating EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, stated on X that Russia "will prevail in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

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

Euroclear refused to comment on the new legal action. It has in the past stated it is contending with over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although courts in European nations are not expected to recognize judgments from Russian tribunals, analysts expect Moscow to seek enforcement in nations with stronger ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant holdings can be located," commented a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to deter other nations from aiding any Russian legal action against EU entities. Additionally, they are crafting protections to shield EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain untouched.

Kyiv would only be required to repay the money if and when Russia consented to pay reparations for the immense damage inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for funding Ukraine. This involves joint EU debt issuance to fund a loan, backed by unused funds within the EU budget.

This alternative move, however, requires unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also important," she remarked. "Furthermore, it delivers a clear signal that when you cause all this damage to another country, you have to pay for the reparations."