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The Russian central bank has announced it is pursuing compensation valued at $230 billion against the securities depository Euroclear. This move represents a clear response from the Kremlin against proposals to use immobilized Russian state funds to aid Ukraine.

The Substantial Demand

According to reports in local news outlets, the central bank filed a claim last week for approximately 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

EU leaders will decide in the coming days on a proposal to leverage approximately €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to fund its defence and economic needs.

Most of these assets, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. Their position rests on the fact that title of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the assets as theft. Authorities have threatened retaliatory measures, such as seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev 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 provide a statement on the latest legal action. It has in the past stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to recognize judgments from Russian tribunals, experts expect Moscow to pursue implementation in nations with closer ties 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 states, provided that such holdings can be identified," stated a legal expert from an international firm.

EU Countermeasures

EU officials said they are developing measures to deter other nations from assisting any Russian lawsuits against European entities. Additionally, they are designing safeguards to protect 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, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the principal funds would remain unaffected.

Ukraine would only be required to return the money in the event that Russia agreed to pay compensation for the immense destruction inflicted during the ongoing war.

Alternative Proposals

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

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is equally important," she stated. "Furthermore, it delivers a powerful signal that when you cause all this damage to another country, you have to pay for the rebuilding."