🔗 Share this article

The Russian central bank has stated it is pursuing damages valued at $230 billion against the securities depository Euroclear. This legal step is a direct warning by the Kremlin regarding proposals to utilize frozen Russian sovereign funds to support Ukraine.

The Financial Lawsuit

Based on accounts in local news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

European Union officials are set to decide later this week on a plan to leverage approximately €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Russian immobilised sovereign wealth.

A Clash Over Legality

European Union officials have maintained that their plan is on solid legal ground. Their position rests on the fact that ownership of the state assets remains with Russia, even though it was frozen in EU jurisdictions shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as theft. Authorities have threatened reciprocal actions, such as seizing EU corporate assets within Russia.

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

Wider Implications

With statements interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe attack on property rights and the global financial system established by the United States."

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

Enforcement Challenges

While courts in EU countries are unlikely to enforce rulings from Russian courts, analysts anticipate Moscow to pursue implementation in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be identified," commented a legal expert from an international firm.

European Safeguards

European authorities said they are working on steps to deter other countries from aiding any Russian lawsuits against European companies. Additionally, they are designing safeguards to protect EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the principal funds would stay untouched.

Ukraine would only be obligated to repay the loan if and when Russia agreed to pay reparations for the vast destruction inflicted during the nearly four-year war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different method for funding Ukraine. This entails joint EU borrowing to fund a loan, using unused funds within the EU budget.

This alternative move, nevertheless, demands unanimity among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the most credible solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, meaning it is not drawn from our public funds, which is also significant," she remarked. "Furthermore, it delivers a powerful signal that if you cause all this damage to another nation, you have to pay for the reparations."