Moscow Demands Substantial Sum in Damages from Euroclear over Seized Funds

The Russian central bank has stated it is claiming damages amounting to $230 billion from the securities depository Euroclear. This legal step constitutes a direct warning by the Kremlin regarding plans to utilize frozen Russian sovereign funds to aid Ukraine.

The Financial Lawsuit

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

European Union officials are set to determine in the coming days regarding a proposal to use around €210 billion in immobilized Russian assets. This scheme entails providing Ukraine with a substantial loan to finance its defence and economic needs.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the main keeper for the Russian frozen financial reserves.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. Their position is based on the principle that title of the sovereign wealth still belongs to Russia, even though it was immobilized in European jurisdictions following the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as illegal appropriation. Authorities have threatened retaliatory actions, such as confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in peace negotiations, stated on a social media platform that Russia "will win in court" and regain its funds. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an attempt to create division between Europe and the United States, the official described the proposal as "a severe assault on the right to ownership and the global financial system created by the United States."

The clearing house refused to provide a statement on the new legal action. It has previously noted it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in EU countries are unlikely to recognize rulings from Russian courts, analysts expect Moscow to seek enforcement in nations with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be identified," commented a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on steps to discourage other countries from aiding any Russian legal action against European entities. They are also crafting protections to protect EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would issue an first €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 remain unaffected.

Ukraine would solely be required to repay the loan in the event that Russia agreed to pay reparations for the vast damage caused during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for financing Ukraine. This involves joint EU debt issuance to secure a loan, using unallocated funds within the EU budget.

This alternative move, nevertheless, requires unanimity among all 27 member states. The Hungarian government, viewed as aligned 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 most credible solution" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is equally important," she stated. "It also sends a clear message that when you do all this destruction to another country, you must pay for the reparations."