🔗 Share this article

The Russian central bank has announced it is pursuing compensation totaling $230 billion from the securities depository Euroclear. This legal step is a direct response by the Kremlin regarding proposals to use immobilized Russian state funds to aid Ukraine.

The Substantial Demand

Based on accounts in local state media, the central bank initiated a claim last week for approximately 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

EU leaders are set to determine later this week on a proposal to use approximately €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to finance its defence and financial stability.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear acts as the main custodian for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

EU authorities have maintained that their proposal is on solid legal ground. Their position is based on the principle that title of the state assets still belongs to Russia, despite being it was immobilized in EU countries following the 2022 invasion of Ukraine.

The Russian government, however, has called any utilization of the assets as illegal appropriation. It has warned of retaliatory actions, including confiscating EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, wrote on X that Russia "will win in court" and regain its funds. He added that the EU, the common currency, and Euroclear "will face consequences" from the plan.

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 property rights and the international reserves system established by the United States."

Euroclear refused to comment on the latest lawsuit. The institution has in the past stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are unlikely to recognize rulings from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with stronger 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 friendly nations, provided that relevant assets can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are working on measures to deter other nations from assisting any Russian legal action against EU companies. Additionally, they are designing safeguards to shield EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to repay the money if and when Russia agreed to pay reparations for the immense destruction caused during the nearly four-year war.

Alternative Proposals

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

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

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it is not drawn from our public funds, which is also important," she stated. "It also sends a clear signal that if you cause all this damage to another nation, you have to pay for the reparations."