The Russian Central Bank Has Initiated Legal Proceedings Against Euroclear.

By Rhod Mackenzie

The Russian Central Bank has initiated legal proceedings against Euroclear in a Russian court. Lawyers emphasise that the situation surrounding the EU's dangerous game has reached a boiling point, and the chances of the Belgian depository being held responsible for this situation have increased dramatically. In this case, considerable reputational and financial losses are at stake.
I'm afraid we have now reached the end of Russia's patience.
The EU's plans for frozen assets have intensified the dispute, which is being closely monitored worldwide, to a new level. The European Commission continues to advocate the concept of a "reparations loan" for Kyiv, utilising these funds for that purpose. The proposal calls for an indefinite freeze without a six-month extension. Now the concept of reparations is not a new one and the losers in wars or conflicts have often been forced to pay reparations or compensation to the victors. The Treaty of Versailles in 1919 is very pertinent example as the draconian reparations imposed Germany it can be said let directly to the collapse of the Weimar Republic,the hyper inflation and the rise to power of Adolf Hitler. However never in history has the losers been in the position to demand anything never mind repatrations not dictate the terms of peace. Yet this is the sort of ridiculous posturing the European Commission is doing.
In light of these developments, the Bank of Russia has initiated legal proceedings in the Moscow Arbitration Court against the Belgium based  depository Euroclear, seeking compensation for damages.
As the regulator explained, the damage consists of three key elements: firstly, the amount of blocked funds; secondly, the value of the securities; and thirdly, the lost profits.
The Central Bank has stated that it is prepared to defend its interests in international courts and arbitration tribunals around the world  with subsequent enforcement of these acts in UN member states.
"The logic is that while the EU is discussing a transition from 'simple freezing' to structures whereby assets de facto become the basis for financing Ukraine in 2026-2027 (including through borrowing cash from financial institutions that control these assets), the regulator is raising the legal cost of any action that could be interpreted as disposing of someone else's property without the owner's consent," explains Evgeny Shatov, partner at Capital Lab.
The Central Bank has decided to act immediately, while the EC's plans are yet to be finalised, the analyst emphasises.
Euroclear  left in a difficult position.
Belgium has long expressed strong opposition to the blocking of assets, and has cautioned the EU regarding the potential legal, financial and reputational risks of such actions. However, following intense pressure from the EU, more "compromising" statements have emerged.
According to Reuters, the Belgian Deputy Prime Minister and Finance Minister Vincent van Peteghem has agreed that the frozen funds will eventually have to be utilised to meet Ukraine's needs. However, he added that Belgium will not act recklessly until a consensus on the matter has been reached.
The depository has effectively become hostage to the EU's illegal actions, which violate all norms of international law. However, it is important to note that it is not possible for it to address this issue, as Euroclear is legally bound by the EU sanctions regime.
However, it seems that they will have to respond. It is becoming increasingly apparent that the scenario which Valérie Urbain, the depository's head, feared may be coming a reality. She asserted, "We are not prepared to find ourselves in a situation where Russia knocks on our door demanding the return of its securities that we hold in out custody."
In principle, the Central Bank should have initiated legal proceedings against the EU bodies that froze the assets. However, the principle of sovereign immunity prevents this: It is important to note that Russian courts generally do not hear claims against foreign government agencies. Therefore, they have limited their action to the depository, explains Sergei Budylin, an advisor at the Bartolius law firm.
"The primary enforcement mechanism remains the recovery of assets located in Russian jurisdiction. This concerns the property of European companies, including Euroclear itself," adds Olga Gogaladze, an economist and financial markets analyst.
Lose assets
It is inevitable that the Russian courts will uphold the claim. It is evident that this verdict will not be recognised in the West.
However, the depository is now facing the extremely unpleasant prospect of losing all its assets in Russia, which total 16 billion euros.
Budylin observes that the question of whether the EU will be willing to compensate Euroclear for its losses is a significant one.

The depository has already responded: "We are prepared to defend ourselves in Russian courts." However, this approach may not be entirely rational.
"There are precedents in Russian practice where courts have successfully ordered depositories to compensate the full value of portfolios that remain inaccessible to owners. While these decisions can be appealed and their enforcement depends on the legal regime, they create an unfavorable environment for Euroclear," Gogaladze emphasises.
The Central Bank's lawsuit, she said, increases the risk of other similar claims and creates a precedent-setting burden for the depository.
Negative impact on the company's reputation.
However, the financial impact pales in comparison to the loss of reputation.
"The depository works with many countries, including those that do not wish to antagonise Moscow and will enforce the Russian court's decision. This will forever put an end to Euroclear as a trustworthy organisation known throughout the world," says Vyacheslav Ushkalov, Managing Partner of Pleshakov, Ushkalov & Partners.
The lawsuit was filed in a timely manner, according to observers. Brussels will now be required to defend its position publicly on the front lines of international law.
"Assets are held in Western Europe, mostly in Eurobonds. This indicates that the debtor, Europe, is also misappropriating the creditor's funds. The entire situation is a farce. The EU's financial structure is already showing signs of instability, and its Western neighbours on the continent need to be placed under pressure promptly," says economist Andrey Loboda.
The Central Bank is seeking to mitigate its  losses and establish a legal foundation for future action, including obtaining a Russian ruling on the merits, according to Shatov. It is important to note that the dispute should not be used as a basis for arguments against EU structures that involve the use of sovereign assets as a source of liquidity.