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The Russian central bank has announced it is seeking compensation valued at $230 billion from the securities depository Euroclear. This action constitutes a direct response by the Kremlin regarding proposals to utilize frozen Russian sovereign funds to support Ukraine.

The Legal Claim

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

EU leaders will decide later this week on a plan to leverage approximately €210 billion in frozen Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its defence and economic stability.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear acts as the primary custodian for the Russian immobilised financial reserves.

Dispute on Ownership

European Union authorities have argued that their plan is legally sound. Their position rests on the principle that ownership of the sovereign wealth remains with Russia, even though it was frozen in European countries following the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the funds as illegal appropriation. It has warned of reciprocal measures, such as seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in diplomatic talks, wrote on X that Russia "will win in court" and regain its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments seen as an effort to create division between Europe and the United States, the official characterized the assets plan as "a severe attack on property rights and the global financial system established by the United States."

Euroclear declined to provide a statement on the new legal action. The institution has in the past noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are not expected to recognize rulings from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be identified," commented a legal expert from an NSP law firm.

European Safeguards

EU officials indicated they are working on steps to deter other countries from assisting any Russian lawsuits against EU entities. They are also designing protections to shield EU member states with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain untouched.

Ukraine would solely be required to return the money in the event that Russia agreed to pay compensation for the vast destruction inflicted during the nearly four-year war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves common EU borrowing to fund a loan, using unallocated funds within the European budget.

Such a proposal, nevertheless, requires full agreement among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is equally important," she stated. "Furthermore, it delivers a powerful message that if you cause all this destruction to another nation, you have to pay for the reparations."