Moscow Demands Significant Sum in Damages from Euroclear over Frozen Assets

The Russian central bank has declared it is claiming compensation valued at $230 billion from the financial institution Euroclear. This legal step constitutes a clear response from the Kremlin regarding proposals to utilize immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

According to accounts in Russian news outlets, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

EU leaders are set to determine in the coming days on a proposal to use approximately €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a substantial loan to finance its defence and financial needs.

The vast majority of these assets, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the primary keeper for the Russian frozen sovereign wealth.

Divergent Legal Views

EU officials have maintained that their plan is legally sound. Their position is based on the principle that title of the sovereign wealth still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, however, has called any use of the assets as illegal appropriation. It has threatened reciprocal actions, including seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, wrote on X that Russia "will win in court" and regain its funds. He added that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the assets plan as "a vicious assault on the right to ownership and the international reserves system created by the United States."

Euroclear refused to comment on the new legal action. It has in the past stated it is contending with over 100 lawsuits in Russian courts.

Enforcement Challenges

Although judges in EU countries are not expected to enforce judgments from Russian tribunals, analysts expect Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be located," stated a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to discourage other nations from assisting any Russian lawsuits against European companies. Additionally, they are designing safeguards to shield EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would provide an first €90 billion loan to Ukraine, using the cash earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain unaffected.

Ukraine would only be required to return the money if and when Russia agreed to pay compensation for the immense damage caused during the nearly four-year conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for funding Ukraine. This entails common EU borrowing to secure a loan, backed by unused funds within the EU budget.

This alternative move, however, requires full agreement among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also significant," she stated. "Furthermore, it delivers a powerful message that if you cause all this destruction to another nation, you have to pay for the reparations."