Moscow Demands Significant Sum in Compensation from Clearing House Regarding Frozen Funds

Russia's monetary authority has declared it is seeking damages valued at $230 billion against the financial institution Euroclear. This legal step represents a clear response by the Kremlin against plans to use immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on accounts in local news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

EU leaders are set to decide in the coming days regarding a proposal to leverage around €210 billion in frozen Russian state funds. This scheme involves providing Ukraine with a large loan to fund its defence and financial stability.

Most of these funds, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

EU officials have argued that their proposal is legally sound. Their position rests on the fact that title of the sovereign wealth still belongs to Russia, even though it was immobilized in European jurisdictions following the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as theft. Authorities have warned of retaliatory measures, such as seizing EU corporate assets 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 regain its funds. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments interpreted as an effort to create division 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 provide a statement on the latest legal action. It has previously stated it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are unlikely to recognize judgments from Russian courts, analysts expect Moscow to pursue implementation in nations with closer relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing measures to discourage other nations from aiding any Russian lawsuits against EU companies. Additionally, they are designing safeguards to protect EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the cash earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

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

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different approach for funding Ukraine. This involves common EU debt issuance to secure a loan, backed by unused funds within the European budget.

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

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, meaning it is not drawn from our public funds, which is also important," she stated. "Furthermore, it delivers a powerful signal that if you do all this destruction to another nation, you must pay for the reparations."