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The Russian central bank has declared it is claiming compensation amounting to $230 billion from the securities depository Euroclear. This move constitutes a clear response by the Kremlin against plans to use frozen Russian sovereign assets to support Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the central bank initiated a claim last week for an estimated 18 trillion roubles. This amount is equivalent to the stated $230 billion claim.

EU leaders will determine later this week on a proposal to leverage approximately €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a large loan to finance its military and economic stability.

Most of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

EU authorities have argued that their proposal is legally sound. Their position rests on the fact that ownership of the sovereign wealth remains with Russia, even though it was immobilized in EU countries shortly after the 2022 military offensive of Ukraine.

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

Kirill Dmitriev, who has taken on a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

With statements seen as an effort to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a vicious assault on property rights and the global financial system created by the United States."

The clearing house declined to provide a statement on the latest lawsuit. The institution has in the past stated it is contending with over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in EU countries are unlikely to recognize judgments from Russian courts, analysts 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 countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be located," stated a lawyer from an NSP law firm.

European Safeguards

European authorities said they are working on measures to deter other countries from aiding any Russian legal action against European entities. They are also designing protections to protect EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash generated 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 if and when Russia agreed to pay reparations for the vast damage inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different method for financing Ukraine. This entails common EU debt issuance to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, demands unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our public funds, which is equally important," she stated. "It also delivers a powerful message that if you cause all this damage to another nation, you must pay for the reparations."