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The Russian central bank has announced it is claiming compensation valued at $230 billion from the securities depository Euroclear. This legal step is a direct response by the Kremlin against proposals to use immobilized Russian state assets to support Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

European Union officials will determine later this week regarding a plan to leverage approximately €210 billion in frozen Russian state funds. This scheme entails providing Ukraine with a substantial loan to fund its military and economic needs.

Most of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the main custodian for the Russian frozen financial reserves.

A Clash Over Legality

European Union officials have argued that their plan is on solid legal ground. They argue rests on the fact that title of the sovereign wealth still belongs to Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

Moscow, however, has labeled any use of the assets as illegal appropriation. Authorities have threatened retaliatory measures, including confiscating European corporate assets within Russia.

Kirill Dmitriev, who has assumed a key position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

With statements interpreted as an attempt to create division between Europe and the United States, the official described the proposal as "a severe attack on the right to ownership and the global financial system established by the United States."

Euroclear refused to comment on the latest legal action. It has in the past noted it is contending with over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While judges in European nations are not expected to recognize judgments from Russian courts, analysts anticipate Moscow to pursue enforcement in countries with closer ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such assets can be identified," commented a legal expert from an NSP law firm.

European Safeguards

EU officials indicated they are working on steps to discourage other countries from aiding any Russian lawsuits against EU companies. Additionally, they are designing safeguards to shield EU countries with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, using the cash earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay unaffected.

Ukraine would only be required to return the money in the event that Russia consented to pay compensation for the vast damage inflicted during the ongoing war.

Alternative Proposals

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

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, a senior official, described the proposed loan scheme as "the most credible option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is also significant," she stated. "Furthermore, it delivers a powerful signal that when you cause all this destruction to another nation, you must pay for the rebuilding."