Moscow Demands Significant Amount in Damages from Euroclear over Seized Assets

Russia's monetary authority has stated it is pursuing damages totaling $230 billion against the financial institution Euroclear. This action constitutes a clear warning from the Kremlin regarding proposals to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on accounts in local state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

European Union officials will determine later this week on a plan to leverage approximately €210 billion in frozen Russian assets. The proposal entails providing Ukraine with a large loan to finance 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 main keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

European Union authorities have maintained that their plan is on solid legal ground. They argue rests on the fact that ownership of the state assets remains with Russia, despite being it was frozen in European jurisdictions following the 2022 military offensive of Ukraine.

Moscow, however, has labeled any use of the funds as illegal appropriation. It has threatened retaliatory actions, including confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious attack on property rights and the international reserves system created by the United States."

Euroclear declined to provide a statement on the latest lawsuit. It has previously noted it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are not expected to enforce rulings from Russian courts, analysts expect Moscow to pursue implementation in nations with closer relations to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that relevant assets can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other nations from assisting any Russian legal action against European entities. They are also crafting safeguards to protect EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Ukraine would solely be obligated to return the money if and when Russia agreed to pay reparations for the immense destruction inflicted during the nearly four-year conflict.

Alternative Proposals

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

This alternative move, nevertheless, demands unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is also important," she stated. "It also delivers a powerful signal that when you cause all this destruction to another country, you must pay for the rebuilding."