Moscow Demands Substantial Amount in Damages from Euroclear over Seized Funds

The Russian central bank has announced it is pursuing damages totaling $230 billion against the securities depository Euroclear. This action represents a direct warning from the Kremlin against proposals to utilize frozen Russian state assets to support Ukraine.

The Legal Claim

According to reports in Russian news outlets, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion demand.

EU leaders will determine in the coming days on a proposal to leverage around €210 billion in immobilized Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its defence and economic needs.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear acts as the primary custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

EU officials have argued that their plan is on solid legal ground. They argue rests on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in European countries following the full-scale military offensive of Ukraine.

Moscow, however, has called any use of the funds as illegal appropriation. It has threatened reciprocal actions, such as seizing EU corporate holdings within Russia.

Kirill Dmitriev, who has taken on a prominent position in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious attack on the right to ownership and the global financial system established by the United States."

Euroclear refused to provide a statement on the new legal action. The institution has previously noted it is contending with more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in EU countries are unlikely to recognize rulings from Russian tribunals, experts expect Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant holdings can be located," stated a legal expert from an international firm.

European Safeguards

EU officials indicated they are working on measures to deter other nations from aiding any Russian lawsuits against European entities. They are also designing safeguards to shield EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Ukraine would only be obligated to return the money in the event that Russia consented to pay compensation for the immense destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different method for funding Ukraine. This involves common EU borrowing to secure a loan, using unallocated funds within the European budget.

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

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is also important," she remarked. "Furthermore, it sends a powerful signal that when you cause all this damage to another country, you have to pay for the reparations."