Russia Seeks Significant Sum in Compensation against Euroclear over Frozen Assets

Russia's monetary authority has declared it is seeking damages amounting to $230 billion from the securities depository Euroclear. This move is a direct response from the Kremlin against proposals to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

European Union officials are set to determine later this week regarding a proposal to use approximately €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to finance its defence and financial stability.

The vast majority of these funds, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Kremlin's frozen financial reserves.

A Clash Over Legality

European Union officials have argued that their proposal is legally sound. Their position is based on the fact that ownership of the sovereign wealth remains with Russia, even though it was frozen in European jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any use of the assets as illegal appropriation. It has warned of retaliatory measures, such as seizing EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a prominent position in peace negotiations, stated on X that Russia "will win in court" and regain its assets. He added that the EU, the euro, 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 characterized the proposal as "a severe attack on property rights and the global financial system established by the United States."

Euroclear declined to comment on the new lawsuit. It has in the past noted it is contending with over 100 legal cases in Russian courts.

Enforcement Challenges

Although courts in European nations are not expected to enforce judgments from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with closer relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be identified," stated a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing measures to discourage other countries from assisting any Russian legal action against EU entities. Additionally, they are crafting protections to shield EU member states with investments 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 immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay untouched.

Kyiv would solely be required to repay the money if and when Russia agreed to pay compensation for the vast damage caused during the nearly four-year war.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This entails joint EU borrowing to fund a loan, using unallocated funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it is not drawn from our public funds, which is equally significant," she stated. "Furthermore, it sends a powerful signal that if you cause all this damage to another country, you have to pay for the rebuilding."