🔗 Share this article

The Russian central bank has stated it is pursuing compensation totaling $230 billion from the securities depository Euroclear. This action constitutes a direct response from the Kremlin regarding proposals to utilize immobilized Russian sovereign funds to aid Ukraine.

The Financial Lawsuit

According to reports in local news outlets, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

European Union officials are set to determine later this week regarding a plan to leverage around €210 billion in frozen Russian state funds. This scheme entails providing Ukraine with a large loan to fund its defence and economic stability.

The vast majority of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the primary custodian for the Kremlin's frozen sovereign wealth.

Divergent Legal Views

European Union authorities have argued that their proposal is legally sound. Their position is based on the fact that title of the sovereign wealth still belongs to Russia, even though it was frozen in EU countries shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has called any utilization of the funds as illegal appropriation. Authorities have threatened retaliatory actions, such as confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments seen as an effort to create division between Europe and the United States, the official described the proposal as "a severe assault on the right to ownership and the international reserves system created by the United States."

Euroclear refused to comment on the latest lawsuit. The institution has in the past stated it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are not expected to recognize judgments from Russian tribunals, analysts anticipate Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other nations from aiding any Russian lawsuits against EU companies. They are also crafting protections to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would provide an first €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would solely be obligated to repay the loan if and when Russia consented to pay reparations for the immense damage caused during the nearly four-year war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for funding Ukraine. This involves joint EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible solution" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, which means it is not drawn from our public funds, which is equally significant," she remarked. "It also sends a clear signal that if you do all this destruction to another nation, you must pay for the rebuilding."