Moscow Demands Significant Amount in Compensation from Clearing House Regarding Frozen Assets

Russia's monetary authority has announced it is pursuing damages amounting to $230 billion against the securities depository Euroclear. This action represents a direct response by the Kremlin regarding proposals to utilize immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

According to reports in local news outlets, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This sum is equivalent to the stated $230 billion demand.

European Union officials are set to decide in the coming days on a proposal to use approximately €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a large loan to fund its defence and economic needs.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

European Union authorities have argued that their proposal is on solid legal ground. They argue rests on the fact that title of the sovereign wealth still belongs to Russia, even though it was frozen in EU countries following the full-scale invasion of Ukraine.

Moscow, however, has called any use of the assets as illegal appropriation. It has threatened retaliatory measures, such as confiscating EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its assets. He warned that the European Union, the common currency, 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 assets plan as "a vicious attack on the right to ownership and the international reserves system established by the United States."

Euroclear refused to provide a statement on the latest legal action. It has in the past stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are unlikely to enforce rulings from Russian tribunals, analysts anticipate Moscow to pursue implementation in nations with closer ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to discourage other nations from aiding any Russian legal action against European entities. Additionally, they are designing safeguards to shield EU countries with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

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.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for financing Ukraine. This entails common EU debt issuance to fund a loan, backed by unused funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the most credible solution" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is also important," she stated. "Furthermore, it delivers a clear signal that if you do all this destruction to another country, you have to pay for the rebuilding."