Russia Seeks Significant Sum in Damages against Clearing House over Frozen Assets

The Russian central bank has announced it is seeking compensation amounting to $230 billion against the securities depository Euroclear. This action constitutes a direct warning from the Kremlin against proposals to use frozen Russian state assets to aid Ukraine.

The Financial Lawsuit

According to accounts in Russian news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

European Union officials are set to decide in the coming days regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a substantial loan to finance its defence and economic stability.

Most of these assets, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution serves as the primary keeper for the Russian frozen sovereign wealth.

Divergent Legal Views

EU officials have argued that their plan is on solid legal ground. Their position rests on the principle that title of the sovereign wealth still belongs to Russia, despite being it was immobilized in EU jurisdictions following the full-scale military offensive of Ukraine.

Moscow, however, has labeled any utilization of the funds as theft. Authorities have threatened reciprocal actions, such as seizing EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe assault on property rights and the international reserves system established by the United States."

The clearing house declined to provide a statement on the new lawsuit. It has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

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

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be identified," stated a lawyer from an international firm.

EU Countermeasures

EU officials said they are working on steps to deter other nations from aiding any Russian lawsuits against European companies. Additionally, they are designing safeguards to shield EU countries with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would provide an first €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would only be required to repay the money in the event that Russia consented to pay compensation for the vast destruction inflicted during the nearly four-year conflict.

Alternative Proposals

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

Such a proposal, however, demands full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest solution" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is also significant," she stated. "It also delivers a clear message that if you cause all this damage to another nation, you must pay for the reparations."