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The Russian central bank has announced it is claiming compensation valued at $230 billion against the securities depository Euroclear. This legal step is a clear warning by the Kremlin against plans to utilize immobilized Russian state funds to support Ukraine.

The Substantial Demand

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

EU leaders will determine later this week regarding a proposal to use approximately €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a large loan to fund its military and financial needs.

Most of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Kremlin's frozen sovereign wealth.

Dispute on Ownership

European Union officials have maintained that their proposal is legally sound. Their position rests on the principle that title of the state assets still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the assets as theft. Authorities have warned of reciprocal actions, such as confiscating EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on 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 plan.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the global financial system created by the United States."

Euroclear refused to provide a statement on the latest lawsuit. It has in the past noted it is contending with more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in European nations are unlikely to recognize rulings from Russian tribunals, experts expect Moscow to seek implementation in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant holdings can be located," commented a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to discourage other nations from aiding any Russian lawsuits against EU entities. They are also 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 issue an first €90 billion loan to Ukraine, using the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be obligated to repay the loan in the event that Russia agreed to pay reparations for the vast damage caused during the ongoing conflict.

Other Funding Ideas

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

This alternative move, however, demands unanimity among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is also significant," she remarked. "Furthermore, it delivers a powerful message that if you do all this destruction to another nation, you have to pay for the rebuilding."