Russia Seeks Significant Amount in Compensation against Clearing House over Frozen Funds

Russia's monetary authority has declared it is claiming compensation totaling $230 billion from the securities depository Euroclear. This action constitutes a clear warning by the Kremlin regarding plans to use immobilized Russian state funds to aid Ukraine.

The Financial Lawsuit

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

European Union officials are set to decide in the coming days regarding a proposal to use around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a substantial loan to fund its defence and economic stability.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the primary custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

European Union authorities have argued that their proposal is on solid legal ground. They argue is based on the principle that title of the sovereign wealth still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, however, has called any utilization of the funds as illegal appropriation. Authorities have warned of retaliatory actions, such as seizing European private investors' holdings within Russia.

Kirill Dmitriev, a figure who has taken on a key position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

With statements seen as an effort to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe assault 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 stated it is facing more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are unlikely to enforce judgments from Russian courts, experts expect Moscow to seek enforcement in nations with stronger ties to the Kremlin.

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

EU Countermeasures

EU officials said they are developing measures to discourage other countries from assisting any Russian lawsuits against European entities. Additionally, they are designing safeguards to shield EU member states with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would provide an first €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay untouched.

Kyiv would solely be required to repay the loan in the event that Russia consented to pay compensation for the vast destruction inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for financing Ukraine. This entails joint EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, 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 public funds, which is also important," she stated. "It also delivers a clear signal that when you cause all this damage to another country, you have to pay for the reparations."