Moscow Demands Substantial Amount in Damages from Clearing House over Frozen Funds

Russia's monetary authority has stated it is seeking damages totaling $230 billion from the securities depository Euroclear. This action is a clear warning from the Kremlin against proposals to utilize immobilized Russian state funds to aid Ukraine.

The Substantial Demand

According to reports in Russian news outlets, the central bank filed a claim last week for roughly 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

EU leaders are set to determine in the coming days regarding a proposal to leverage approximately €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a substantial loan to fund its military and economic stability.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Kremlin's frozen financial reserves.

Dispute on Ownership

EU officials have argued that their plan is legally sound. They argue is based on the principle that title of the state assets still belongs to Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any utilization of the funds as illegal appropriation. It has warned of retaliatory actions, such as confiscating EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key role in diplomatic talks, wrote on X that Russia "will win in court" and regain its assets. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Geopolitical Maneuvering

In comments interpreted as an attempt to drive a wedge between Europe and the United States, the official characterized the assets plan as "a vicious attack on property rights and the international reserves system created by the United States."

The clearing house declined to comment on the latest legal action. It has in the past stated it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are unlikely to recognize rulings from Russian tribunals, analysts expect Moscow to seek enforcement in nations with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are working on steps to deter other countries from assisting any Russian legal action against EU companies. Additionally, they are crafting protections to protect EU member states with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the complex scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

Ukraine would only be obligated to return the money in the event that Russia consented to pay compensation for the vast damage inflicted during the nearly four-year war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for funding Ukraine. This entails joint EU borrowing to fund a loan, using unallocated funds within the European budget.

This alternative move, however, requires unanimity among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible solution" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is equally important," she stated. "It also sends a clear signal that when you cause all this damage to another nation, you have to pay for the reparations."