Moscow Demands Substantial Amount in Compensation against Euroclear Regarding Frozen Assets

The Russian central bank has declared it is seeking damages valued at $230 billion against the securities depository Euroclear. This move constitutes a clear response by the Kremlin regarding proposals to use frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

According to accounts in local state media, the central bank filed a claim last week for roughly 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

European Union officials will decide later this week on a plan to use approximately €210 billion in frozen Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its defence and financial needs.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

EU authorities have argued that their proposal is legally sound. They argue rests on the fact that ownership of the sovereign wealth remains with Russia, despite being it was frozen in European countries following the 2022 invasion of Ukraine.

Moscow, in contrast, has labeled any utilization of the assets as illegal appropriation. It has threatened retaliatory measures, including confiscating European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent role in diplomatic talks, stated on X that Russia "will prevail in court" and retrieve its funds. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, the official characterized the proposal as "a severe attack on the right to ownership and the international reserves system created by the United States."

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

Enforcement Challenges

While courts in EU countries are unlikely to recognize judgments from Russian courts, analysts expect Moscow to seek enforcement in countries with closer ties to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to deter other countries from assisting any Russian legal action against EU companies. They are also designing safeguards to shield EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be required to repay the loan in the event that Russia agreed to pay reparations for the immense destruction caused during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for funding Ukraine. This involves common EU debt issuance to secure a loan, backed by unused funds within the EU budget.

Such a proposal, however, requires unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the most credible solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is also significant," she stated. "Furthermore, it delivers a clear signal that if you do all this damage to another nation, you have to pay for the reparations."