Moscow Demands Staggering Amount in Damages from Clearing House Regarding Frozen Assets

Russia's monetary authority has announced it is pursuing damages valued at $230 billion from the financial institution Euroclear. This move constitutes a clear response from the Kremlin regarding plans to use frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials will decide in the coming days regarding a proposal to leverage approximately €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a substantial loan to fund its defence and economic needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the primary keeper for the Kremlin's frozen sovereign wealth.

Dispute on Ownership

European Union officials have argued that their plan is on solid legal ground. They argue is based on the fact that title of the state assets still belongs to Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as illegal appropriation. It has warned of retaliatory measures, including confiscating EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in peace negotiations, wrote on X that Russia "will win in court" and regain its assets. He warned that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on the right to ownership and the global financial system created by the United States."

Euroclear refused to comment on the new legal action. The institution has in the past stated it is contending with over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

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

"Russian monetary authorities could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such assets can be located," stated a legal expert from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to deter other countries from assisting any Russian legal action against EU entities. They are also crafting protections to protect EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

Kyiv would only be obligated to repay the loan if and when Russia consented to pay reparations for the vast damage caused during the nearly four-year conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for financing Ukraine. This entails joint EU borrowing to secure a loan, backed by unused funds within the European budget.

This alternative move, however, demands full agreement among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also significant," she remarked. "It also delivers a powerful signal that if you do all this destruction to another nation, you have to pay for the reparations."