🔗 Share this article

The Russian central bank has stated it is pursuing damages totaling $230 billion against the financial institution Euroclear. This move is a clear warning by the Kremlin against proposals to use frozen Russian sovereign assets to aid Ukraine.

The Substantial Demand

According to reports in local news outlets, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide later this week regarding a proposal to use around €210 billion in immobilized Russian assets. The proposal involves granting Ukraine with a substantial loan to fund its defence and financial stability.

Most of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Kremlin's frozen sovereign wealth.

A Clash Over Legality

European Union officials have maintained that their proposal is legally sound. They argue is based on the fact that ownership of the state assets still belongs to Russia, even though it was frozen in European jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, however, has called any use of the assets as theft. It has warned of retaliatory measures, including seizing EU corporate holdings within Russia.

Kirill Dmitriev, who has taken on a prominent position in peace negotiations, stated on a social media platform that Russia "will win in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev 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 new legal action. It has in the past noted it is facing more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While judges in EU countries are not expected to recognize rulings from Russian courts, analysts expect Moscow to seek enforcement in countries with closer ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing steps to discourage other nations from assisting any Russian legal action against EU companies. They are also crafting safeguards to protect EU countries with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be required to repay the money in the event that Russia agreed to pay compensation for the vast damage inflicted during the nearly four-year war.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for financing Ukraine. This involves joint EU debt issuance to fund a loan, using unallocated funds within the EU budget.

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is also significant," she stated. "Furthermore, it delivers a powerful signal that if you cause all this destruction to another country, you have to pay for the reparations."