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The Russian central bank has announced it is claiming compensation totaling $230 billion from the securities depository Euroclear. This legal step represents a direct response by the Kremlin regarding proposals to utilize frozen Russian state assets to support Ukraine.

The Legal Claim

Based on accounts in Russian state media, the central bank filed a lawsuit last week for roughly 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

European Union officials are set to decide in the coming days regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. The proposal involves providing Ukraine with a large loan to finance its military and financial stability.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the main keeper for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

European Union officials have maintained that their plan is on solid legal ground. Their position rests on the principle that title of the sovereign wealth remains with Russia, even though it was immobilized in EU jurisdictions following the full-scale invasion of Ukraine.

The Russian government, however, has called any use of the assets as illegal appropriation. It has warned of retaliatory actions, such as seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He warned that the EU, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

In comments seen as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on the right to ownership and the international reserves system created by the United States."

The clearing house refused to provide a statement on the new lawsuit. The institution has previously noted it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While judges in European nations are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to seek enforcement in countries with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such assets can be identified," commented a lawyer from an international firm.

EU Countermeasures

European authorities said they are developing steps to discourage other nations from aiding any Russian legal action against EU entities. Additionally, they are designing protections to protect EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

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

Kyiv would only be obligated to return the loan if and when Russia agreed to pay reparations for the immense damage caused during the ongoing war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an different method for funding Ukraine. This entails joint EU borrowing to fund a loan, using unallocated funds within the European budget.

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

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the most credible option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is equally important," she remarked. "Furthermore, it delivers a powerful signal that when you do all this destruction to another nation, you have to pay for the rebuilding."