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The Russian central bank has declared it is seeking compensation totaling $230 billion from the securities depository Euroclear. This action represents a direct warning from the Kremlin regarding plans to use frozen Russian state funds to support Ukraine.

The Substantial Demand

According to accounts in local state media, the central bank filed a lawsuit last week for roughly 18 trillion roubles. This sum corresponds to the aforementioned $230 billion claim.

EU leaders will determine in the coming days on a proposal to use around €210 billion in immobilized Russian assets. The proposal involves providing Ukraine with a substantial loan to finance its military and financial needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the main custodian for the Russian frozen sovereign wealth.

A Clash Over Legality

EU authorities have argued that their plan is on solid legal ground. They argue is based on the fact that ownership of the state assets remains with Russia, even though it was immobilized in European jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any utilization of the assets as illegal appropriation. It has warned of reciprocal measures, such as seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in peace negotiations, stated on a social media platform that Russia "will win in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments seen as an effort to create division between Europe and the United States, the official described the proposal as "a vicious attack on property rights and the international reserves system established by the United States."

The clearing house refused to comment on the new legal action. It has in the past noted it is facing over 100 lawsuits in Russian courts.

Enforcement Challenges

While judges in EU countries are unlikely to recognize rulings from Russian courts, analysts anticipate Moscow to seek enforcement in nations with stronger ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that such assets can be located," stated a legal expert from an international firm.

EU Countermeasures

European authorities said they are developing measures to discourage other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing protections to shield EU countries with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the complex scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the principal funds would stay unaffected.

Ukraine would solely be obligated to repay the money in the event that Russia agreed to pay compensation for the immense destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This involves joint EU borrowing to secure a loan, using unused funds within the European budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, which means it doesn't come from our public funds, which is also significant," she remarked. "It also delivers a clear message that if you cause all this damage to another country, you must pay for the reparations."