Moscow Demands Substantial Amount in Compensation against Euroclear over Seized Funds

The Russian central bank has declared it is claiming compensation amounting to $230 billion against the securities depository Euroclear. This move is a clear warning by the Kremlin against plans to use immobilized Russian state funds to aid Ukraine.

The Legal Claim

According to accounts in Russian state media, the monetary authority filed a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

EU leaders will decide in the coming days regarding a proposal to leverage around €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a large loan to fund its military and economic needs.

Most of these funds, totaling €185 billion, are stored at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Kremlin's frozen sovereign wealth.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. Their position rests on the fact that ownership of the sovereign wealth remains with Russia, despite being it was frozen in European countries shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the funds as theft. It has threatened reciprocal measures, such as confiscating European private investors' assets within Russia.

Kirill Dmitriev, a figure who has assumed a key role in peace negotiations, stated on X that Russia "will win in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements interpreted as an attempt to drive a wedge between Europe and the United States, the official described the proposal as "a severe assault on property rights and the global financial system created by the United States."

The clearing house refused to comment on the latest legal action. The institution has in the past noted it is contending with over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are not expected to recognize judgments from Russian tribunals, experts expect Moscow to seek implementation in nations with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant assets can be identified," commented a legal expert from an NSP law firm.

European Safeguards

European authorities said they are working on steps to discourage other countries from aiding any Russian legal action against EU entities. Additionally, they are designing safeguards to shield EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay untouched.

Kyiv would only be obligated to repay the loan in the event that Russia agreed to pay reparations for the vast 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 financing Ukraine. This entails common EU debt issuance to secure a loan, using unallocated funds within the EU budget.

Such a proposal, however, demands unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is equally important," she stated. "It also delivers a powerful signal that when you cause all this damage to another nation, you must pay for the reparations."