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The Russian central bank has declared it is pursuing compensation valued at $230 billion from the securities depository Euroclear. This action is a clear response from the Kremlin against proposals to use immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

According to reports in local state media, the central bank filed a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

EU leaders are set to decide later this week on a proposal to use approximately €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a substantial loan to fund its defence and economic needs.

The vast majority of these assets, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear acts as the primary custodian for the Russian immobilised financial reserves.

A Clash Over Legality

European Union officials have maintained that their proposal is on solid legal ground. They argue is based on the principle that ownership of the sovereign wealth remains with Russia, despite being it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, however, has labeled any utilization of the funds as illegal appropriation. It has threatened retaliatory measures, such as seizing European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent role in peace negotiations, stated on X that Russia "will win in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the global financial system created by the United States."

The clearing house refused to comment on the new legal action. The institution has previously stated it is facing over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although courts in EU countries are not expected to recognize judgments from Russian courts, experts anticipate Moscow to seek implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be identified," stated a lawyer from an international firm.

EU Countermeasures

European authorities said they are developing measures to deter other countries from assisting any Russian lawsuits against EU companies. Additionally, they are designing safeguards to shield EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

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

Ukraine would solely be required to return the loan if and when Russia agreed to pay reparations for the vast destruction inflicted during the ongoing 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 fund a loan, using unused funds within the European budget.

Such a proposal, nevertheless, demands unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is equally important," she stated. "It also delivers a clear message that when you cause all this destruction to another nation, you have to pay for the reparations."