🔗 Share this article

Russia's monetary authority has stated it is pursuing compensation valued at $230 billion from the securities depository Euroclear. This action constitutes a clear warning by the Kremlin regarding proposals to use frozen Russian sovereign funds to aid Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the central bank initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

EU leaders will decide in the coming days on a proposal to leverage around €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a large loan to finance its military and economic needs.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the main keeper for the Kremlin's immobilised financial reserves.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. Their position is based on the principle that ownership of the sovereign wealth remains with Russia, even though it was immobilized in European jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as theft. It has warned of retaliatory actions, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in peace negotiations, stated on X that Russia "will prevail in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an effort to drive a wedge between Europe and the United States, the official described the proposal as "a severe assault on property rights and the international reserves system created by the United States."

The clearing house refused to provide a statement on the latest lawsuit. It has previously stated it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are not expected to enforce judgments from Russian tribunals, analysts anticipate Moscow to pursue implementation in countries with closer ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such holdings can be identified," stated a lawyer from an NSP law firm.

European Safeguards

EU officials said they are developing measures to discourage other countries from assisting any Russian legal action against EU entities. They are also designing 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 issue an first €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be required to repay the money if and when Russia agreed to pay compensation for the vast damage inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for financing Ukraine. This involves joint EU borrowing to fund a loan, backed by unallocated funds within the European budget.

Such a proposal, however, demands unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is equally important," she remarked. "It also sends a clear signal that when you do all this destruction to another nation, you must pay for the rebuilding."