Moscow Demands Substantial Amount in Damages against Euroclear over Frozen Funds

Russia's monetary authority has announced it is claiming damages amounting to $230 billion against the securities depository Euroclear. This move represents a direct warning by the Kremlin against plans to use frozen Russian state 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 aforementioned $230 billion demand.

European Union officials are set to decide later this week regarding a proposal to leverage approximately €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a large loan to fund its defence and economic stability.

Most of these assets, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian frozen financial reserves.

Dispute on Ownership

European Union authorities have argued that their proposal is legally sound. They argue rests on the fact that title of the sovereign wealth remains with Russia, even though it was frozen in European jurisdictions following the full-scale invasion of Ukraine.

The Russian government, however, has called any use of the assets as illegal appropriation. It has warned of retaliatory measures, such as seizing European corporate holdings within Russia.

Kirill Dmitriev, who has taken on a prominent position in peace negotiations, wrote on X that Russia "will win in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, the official described the proposal as "a severe attack on property rights and the international reserves system established by the United States."

Euroclear refused to comment on the latest legal action. It has in the past noted it is facing over 100 lawsuits in Russian courts.

Enforcement Challenges

While judges in European nations are unlikely to recognize rulings from Russian tribunals, experts anticipate Moscow to pursue enforcement in nations with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such assets can be located," stated a legal expert from an international firm.

European Safeguards

EU officials said they are working on steps to discourage other countries from aiding any Russian lawsuits against EU companies. They are also crafting safeguards to shield EU countries with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed plan, the EU would provide an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain unaffected.

Kyiv would solely be required to return the money in the event that Russia consented to pay reparations for the vast damage caused during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

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

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the strongest option" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our public funds, which is equally important," she stated. "It also sends a powerful signal that when you cause all this damage to another country, you must pay for the reparations."