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The Russian central bank has announced it is seeking compensation totaling $230 billion from the securities depository Euroclear. This action is a direct response from the Kremlin against proposals to use immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the monetary authority filed a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion claim.

EU leaders are set to determine later this week on a proposal to use around €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a large loan to finance its military and financial stability.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the main custodian for the Russian immobilised financial reserves.

A Clash Over Legality

EU authorities have maintained that their proposal is on solid legal ground. Their position rests on the fact that ownership of the state assets remains with Russia, despite being it was immobilized in European countries following the 2022 military offensive of Ukraine.

Moscow, however, has labeled any use of the assets as illegal appropriation. It has warned of reciprocal actions, such as confiscating EU private investors' assets within Russia.

Kirill Dmitriev, a figure who has taken on a prominent position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious attack on the right to ownership and the international reserves system created by the United States."

Euroclear declined to provide a statement on the latest legal action. It has in the past stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are not expected to enforce judgments from Russian courts, analysts expect Moscow to pursue implementation in nations with closer relations to the Kremlin.

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

EU Countermeasures

European authorities indicated they are developing measures to discourage other nations from assisting any Russian legal action against EU entities. Additionally, they are designing safeguards to protect EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would only be obligated to repay the loan in the event that Russia consented to pay compensation for the immense destruction caused during the nearly four-year war.

Other Funding Ideas

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 borrowing to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is secured against 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 when you cause all this damage to another country, you have to pay for the rebuilding."