Moscow Demands Significant Amount in Compensation against Clearing House over Frozen Assets

Russia's monetary authority has announced it is pursuing compensation valued at $230 billion from the securities depository Euroclear. This action is a clear response by the Kremlin regarding proposals to use frozen Russian state assets to aid Ukraine.

The Financial Lawsuit

According to reports in Russian state media, the monetary authority filed a lawsuit last week for an estimated 18 trillion roubles. This sum is equivalent to the stated $230 billion demand.

European Union officials are set to determine later this week regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a large loan to finance its defence and financial stability.

Most of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main keeper 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 remains with Russia, despite being it was frozen in EU jurisdictions shortly after the full-scale military offensive of Ukraine.

Moscow, in contrast, has called any utilization of the assets as illegal appropriation. Authorities have threatened retaliatory measures, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, the official described the assets plan 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 new lawsuit. It has previously noted it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While judges in EU countries are unlikely to recognize rulings from Russian courts, experts anticipate Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be located," stated a legal expert from an international firm.

European Safeguards

EU officials said they are developing steps to deter other countries from aiding any Russian lawsuits against European entities. They are also crafting protections to shield EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

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

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

Alternative Proposals

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

This alternative move, however, demands unanimity among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it doesn't come from our public funds, which is equally important," she stated. "Furthermore, it sends a clear message that if you do all this damage to another nation, you must pay for the rebuilding."