Moscow Demands Substantial Amount in Damages against Clearing House Regarding Frozen Funds

The Russian central bank has announced it is pursuing compensation amounting to $230 billion against the securities depository Euroclear. This move is a direct response by the Kremlin regarding proposals to use immobilized Russian sovereign assets to aid Ukraine.

The Substantial Demand

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

EU leaders will determine in the coming days on a plan to use around €210 billion in frozen Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its military and economic stability.

Most of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Kremlin's immobilised financial reserves.

Divergent Legal Views

European Union authorities have argued that their plan is legally sound. Their position rests on the principle that title of the state assets remains with Russia, even though it was frozen in European jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, however, has called any utilization of the funds as illegal appropriation. It has warned of reciprocal measures, including confiscating European corporate holdings within Russia.

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

Strategic Positioning

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

Euroclear refused to comment on the latest lawsuit. The institution has previously stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are not expected to enforce judgments from Russian courts, experts anticipate Moscow to pursue implementation in nations with stronger ties 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 states, provided that relevant holdings can be identified," stated a legal expert from an international firm.

EU Countermeasures

European authorities indicated they are developing steps to deter other nations from aiding any Russian lawsuits against European companies. They are also crafting protections to shield EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay unaffected.

Ukraine would solely be required to repay the money if and when Russia agreed to pay reparations for the vast damage inflicted during the ongoing war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for financing Ukraine. This involves common EU borrowing to secure a loan, backed by unallocated funds within the European budget.

This alternative move, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the most credible option" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is equally significant," she stated. "It also delivers a clear signal that if you cause all this damage to another country, you must pay for the rebuilding."