🔗 Share this article

The Russian central bank has declared it is seeking compensation totaling $230 billion from the securities depository Euroclear. This legal step constitutes a direct response by the Kremlin against proposals to utilize frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

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

European Union officials will decide later this week regarding a plan to use around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a substantial loan to fund its defence and financial needs.

The vast majority of these assets, 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 plan is on solid legal ground. They argue rests on the fact that ownership of the state assets still belongs to Russia, even though it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any utilization of the funds as illegal appropriation. It has threatened retaliatory actions, including confiscating EU corporate holdings 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 prevail in court" and regain its funds. He warned that the EU, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

In comments seen as an effort to create division between Europe and the United States, Dmitriev described the proposal as "a vicious attack on the right to ownership and the international reserves system established by the United States."

Euroclear declined to provide a statement on the latest legal action. It has in the past noted it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are not expected to recognize judgments from Russian courts, experts expect Moscow to seek enforcement in countries with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that such holdings can be located," stated a legal expert from an NSP law firm.

European Safeguards

European authorities indicated they are developing steps to discourage other nations from aiding any Russian lawsuits against EU companies. They are also crafting safeguards to shield EU countries with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

According to the complex scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Ukraine would only be obligated to return the loan in the event that Russia consented to pay compensation for the immense damage caused during the nearly four-year conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for funding Ukraine. This involves joint EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, demands unanimity among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, described the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is equally important," she remarked. "Furthermore, it delivers a clear signal that when you do all this damage to another nation, you have to pay for the reparations."