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The Russian central bank has stated it is claiming compensation amounting to $230 billion from the securities depository Euroclear. This legal step is a direct response by the Kremlin against proposals to utilize frozen Russian state funds to support Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank filed a claim last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

EU leaders will decide later this week on a plan to leverage around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a large loan to finance its military and financial stability.

Most of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. This institution serves as the main keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union officials have argued that their proposal is legally sound. They argue rests on the fact that title of the sovereign wealth still belongs to Russia, even though it was immobilized in European countries following the 2022 invasion of Ukraine.

Moscow, however, has labeled any use of the funds as theft. It has threatened reciprocal measures, such as confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, a figure who has assumed a prominent position in peace negotiations, wrote on X that Russia "will win in court" and regain its assets. He added that the EU, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on property rights and the international reserves system established by the United States."

Euroclear refused to comment on the new legal action. It has in the past noted it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in EU countries are not expected to enforce rulings from Russian courts, experts expect Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"Russian monetary authorities could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant assets can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing measures to discourage other countries from assisting any Russian legal action against EU companies. Additionally, they are crafting safeguards to shield EU member states with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be required to return the loan if and when Russia agreed to pay reparations for the vast damage inflicted during the nearly four-year war.

Alternative Proposals

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

This alternative move, however, demands unanimity among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the most credible solution" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it is not drawn from our public funds, which is equally significant," she stated. "It also delivers a powerful message that when you cause all this destruction to another nation, you have to pay for the reparations."