🔗 Share this article

Russia's monetary authority has declared it is seeking damages totaling $230 billion against the financial institution Euroclear. This move constitutes a direct response by the Kremlin regarding proposals to use immobilized Russian state assets to support Ukraine.

The Substantial Demand

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

EU leaders are set to decide in the coming days regarding a proposal to leverage around €210 billion in immobilized Russian state funds. The proposal entails granting Ukraine with a substantial loan to fund its military and financial stability.

Most of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

EU authorities have argued that their proposal is on solid legal ground. They argue is based on the fact that ownership of the sovereign wealth remains with Russia, even though it was immobilized in European jurisdictions following the 2022 invasion of Ukraine.

Moscow, in contrast, has called any utilization of the assets as illegal appropriation. It has threatened reciprocal measures, such as seizing EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its assets. He added that the European Union, the common currency, 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 characterized the proposal as "a vicious assault on the right to ownership and the international reserves system established by the United States."

Euroclear refused to comment on the latest lawsuit. The institution has in the past noted it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

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

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if such assets can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are developing steps to discourage other countries from aiding any Russian lawsuits against EU entities. They are also crafting safeguards to shield EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay unaffected.

Ukraine would only be obligated to return the loan in the event that Russia consented to pay compensation for the vast destruction inflicted during the nearly four-year war.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for financing Ukraine. This involves joint EU debt issuance to fund a loan, backed by unallocated 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 previously expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it doesn't come from our public funds, which is equally important," she stated. "Furthermore, it delivers a powerful message that if you cause all this damage to another country, you have to pay for the rebuilding."