Russia Seeks Substantial Sum in Compensation from Clearing House over Frozen Assets

The Russian central bank has announced it is pursuing compensation totaling $230 billion from the securities depository Euroclear. This legal step represents a clear response by the Kremlin against proposals to use frozen Russian state funds to support Ukraine.

The Legal Claim

According to reports in Russian state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion claim.

European Union officials will decide later this week on a plan to leverage around €210 billion in frozen Russian state funds. The proposal entails providing Ukraine with a large loan to fund its defence and financial stability.

Most of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

EU officials have maintained that their plan is on solid legal ground. They argue rests on the principle that title of the state assets still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, in contrast, has labeled any utilization of the assets as illegal appropriation. It has threatened retaliatory actions, such as confiscating EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in peace negotiations, wrote on X that Russia "will prevail in court" and retrieve its funds. He added that the EU, the euro, and Euroclear "will suffer" from the plan.

Strategic Positioning

With statements interpreted as an effort to create division between Europe and the United States, the official characterized the proposal as "a severe assault on the right to ownership and the global financial system created by the United States."

Euroclear refused to provide a statement on the latest legal action. It has in the past noted it is facing over 100 legal cases in Russian courts.

Enforcement Challenges

Although courts in European nations are unlikely to recognize judgments from Russian tribunals, experts anticipate Moscow to seek 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 nations, provided that such holdings can be located," commented a lawyer from an international firm.

EU Countermeasures

European authorities indicated they are working on measures to discourage other nations from aiding any Russian legal action against European companies. They are also crafting safeguards to shield EU countries with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would only be obligated to return the loan in the event that Russia agreed to pay compensation for the vast destruction caused during the nearly four-year conflict.

Alternative Proposals

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

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, described the proposed loan scheme as "the most credible option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also significant," she stated. "It also delivers a clear message that when you cause all this destruction to another country, you have to pay for the rebuilding."