🔗 Share this article

The Russian central bank has declared it is claiming damages totaling $230 billion from the financial institution Euroclear. This action constitutes a direct warning from the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on accounts in local news outlets, the central bank filed a claim last week for approximately 18 trillion roubles. This figure is equivalent to the stated $230 billion demand.

EU leaders are set to determine later this week on a proposal to leverage around €210 billion in immobilized Russian assets. The proposal involves providing Ukraine with a large loan to finance its military and financial needs.

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

Dispute on Ownership

EU authorities have argued that their proposal is on solid legal ground. Their position is based on the fact that ownership of the state assets still belongs to Russia, despite being it was immobilized in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as illegal appropriation. Authorities have threatened retaliatory measures, including confiscating European private investors' holdings within Russia.

Kirill Dmitriev, a figure who has assumed a key role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its funds. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe attack on property rights and the global financial system established by the United States."

Euroclear refused to provide a statement on the new lawsuit. It has in the past noted it is contending with more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in European nations are not expected to recognize rulings from Russian tribunals, analysts anticipate Moscow to pursue enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be identified," commented a lawyer from an international firm.

EU Countermeasures

EU officials indicated they are developing measures to discourage other countries from assisting any Russian legal action against European entities. Additionally, they are crafting protections to shield EU member states with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would issue an first €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain unaffected.

Ukraine would solely be required to repay the money if and when Russia consented to pay compensation for the vast destruction caused during the ongoing conflict.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for funding Ukraine. This involves common EU borrowing to fund a loan, backed by unused funds within the EU budget.

This alternative move, nevertheless, demands full agreement among all 27 member states. The Hungarian government, viewed as aligned with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally significant," she stated. "Furthermore, it delivers a powerful signal that if you do all this damage to another nation, you have to pay for the reparations."