🔗 Share this article

Russia's monetary authority has declared it is pursuing compensation valued at $230 billion from the financial institution Euroclear. This move is a clear response by the Kremlin against plans to utilize frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on reports in Russian state media, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This sum corresponds to the stated $230 billion claim.

EU leaders are set to determine in the coming days on a plan to leverage around €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a large loan to finance its defence and financial stability.

Most of these funds, totaling €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the primary custodian for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

European Union officials have argued that their plan is on solid legal ground. Their position rests on the principle that title of the sovereign wealth still belongs to Russia, even though it was frozen in EU jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has labeled any use of the funds as theft. Authorities have threatened retaliatory actions, including seizing EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will suffer" from the plan.

Geopolitical Maneuvering

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the global financial system created by the United States."

The clearing house refused to provide a statement on the latest legal action. It has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Enforcement Challenges

Although courts in EU countries are unlikely to recognize judgments from Russian tribunals, analysts expect Moscow to pursue enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such holdings can be located," stated a lawyer from an international firm.

European Safeguards

EU officials said they are working on steps to discourage other countries from aiding any Russian legal action against European companies. They are also crafting safeguards to shield 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, using the cash generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would remain untouched.

Ukraine would solely be obligated to return the loan if and when Russia consented to pay compensation for the vast damage inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for financing Ukraine. This entails common EU borrowing to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is equally significant," she remarked. "Furthermore, it delivers a powerful signal that when you cause all this damage to another nation, you must pay for the rebuilding."