Moscow Demands Staggering Sum in Damages against Euroclear Regarding Frozen Funds

The Russian central bank has announced it is pursuing compensation totaling $230 billion from the securities depository Euroclear. This move constitutes a direct response from the Kremlin against plans to utilize immobilized Russian sovereign funds to aid Ukraine.

The Substantial Demand

Based on accounts 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 decide in the coming days regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a substantial loan to finance its defence and financial needs.

Most of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the primary custodian for the Russian frozen financial reserves.

A Clash Over Legality

European Union authorities have maintained that their plan is legally sound. They argue is based on the principle that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in European countries following the 2022 invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the assets as illegal appropriation. Authorities have threatened reciprocal measures, including seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in peace negotiations, stated on X that Russia "will win in court" and retrieve its assets. He warned that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments seen as an effort to create division 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 established by the United States."

Euroclear declined to provide a statement on the latest lawsuit. It has in the past stated it is contending with more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While courts in EU countries are unlikely to recognize judgments from Russian courts, analysts anticipate Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are working on steps to deter other countries from aiding any Russian legal action against EU companies. They are also designing safeguards to protect EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would remain untouched.

Ukraine would solely be required to repay the loan if and when Russia consented to pay compensation for the vast destruction caused during the nearly four-year conflict.

Alternative Proposals

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

This alternative move, however, demands full agreement among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has already expressed 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 secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also significant," she stated. "It also delivers a clear message that when you do all this damage to another nation, you have to pay for the reparations."