Moscow Demands Substantial Amount in Compensation from Clearing House over Frozen Funds

The Russian central bank has declared it is seeking compensation totaling $230 billion against the financial institution Euroclear. This action constitutes a direct warning by the Kremlin regarding proposals to use frozen Russian state assets to support Ukraine.

The Substantial Demand

Based on accounts in local news outlets, the central bank initiated a claim last week for an estimated 18 trillion roubles. This sum corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide later this week regarding a proposal to use approximately €210 billion in immobilized Russian assets. This scheme entails providing Ukraine with a large loan to finance its military and economic needs.

The vast majority of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main keeper for the Kremlin's frozen sovereign wealth.

Divergent Legal Views

European Union authorities have argued that their proposal is legally sound. They argue rests on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in EU jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any utilization of the funds as theft. It has threatened retaliatory measures, including seizing European private investors' assets within Russia.

Kirill Dmitriev, a figure who has taken on a key role in peace negotiations, wrote on X that Russia "will win in court" and regain its assets. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments interpreted 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 created by the United States."

Euroclear refused to comment on the latest legal action. It has in the past stated it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although courts in European nations are unlikely to recognize rulings from Russian tribunals, analysts anticipate Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant assets can be identified," commented a lawyer from an NSP law firm.

European Safeguards

European authorities indicated they are developing measures to deter other nations from aiding any Russian lawsuits against European companies. They are also designing safeguards to shield EU countries with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay untouched.

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

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails joint EU debt issuance to fund a loan, using unused funds within the European budget.

This alternative move, however, demands full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally significant," she remarked. "It also delivers a clear signal that if you do all this damage to another country, you must pay for the reparations."