🔗 Share this article

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

The Legal Claim

Based on reports in Russian state media, the monetary authority filed a lawsuit last week for approximately 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

EU leaders will decide in the coming days on a proposal to leverage around €210 billion in immobilized Russian assets. This scheme involves granting Ukraine with a large loan to finance its military and financial stability.

The vast majority of these funds, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the primary custodian for the Russian frozen financial reserves.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. They argue is based on the principle that title of the sovereign wealth still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any use of the assets as illegal appropriation. It has threatened retaliatory actions, including confiscating European private investors' 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 prevail in court" and regain its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an effort to create division between Europe and the United States, the official described the proposal as "a severe assault on property rights and the global financial system created by the United States."

The clearing house refused to comment on the new legal action. It has previously stated it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are unlikely to enforce rulings from Russian tribunals, analysts expect Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such holdings can be located," commented a lawyer from an international firm.

European Safeguards

EU officials indicated they are working on measures to discourage other nations from assisting any Russian lawsuits against European companies. Additionally, they are designing protections to protect EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

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

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves common EU borrowing to secure a loan, using unallocated funds within the EU budget.

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

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is equally significant," she remarked. "It also sends a powerful signal that if you cause all this damage to another country, you must pay for the rebuilding."