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The Russian central bank has declared it is pursuing compensation totaling $230 billion from the securities depository Euroclear. This legal step constitutes a clear response from the Kremlin regarding plans to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

EU leaders are set to determine later this week regarding a plan to leverage around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a substantial loan to finance its defence and financial stability.

The vast majority of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union officials have maintained that their proposal is legally sound. Their position is based on the fact that ownership of the state assets still belongs to Russia, even though it was frozen in European countries following the full-scale invasion of Ukraine.

Moscow, however, has labeled any use of the funds as illegal appropriation. It has threatened reciprocal actions, such as seizing EU private investors' holdings within Russia.

Kirill Dmitriev, who has assumed a prominent role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the EU, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements seen as an effort to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe assault on property rights and the global financial system established by the United States."

Euroclear refused to provide a statement on the new legal action. The institution has in the past stated it is facing over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although courts in EU countries are not expected to enforce judgments from Russian courts, experts expect Moscow to seek implementation in nations with stronger ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such assets can be identified," commented a legal expert from an international firm.

European Safeguards

European authorities indicated they are working on steps to deter other countries from aiding any Russian legal action against European entities. They are also designing safeguards to shield EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

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

Ukraine would only be obligated to repay the money if and when Russia consented to pay reparations for the vast damage caused during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for funding Ukraine. This entails common EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, requires full agreement among all 27 member states. Hungary's government, considered aligned with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is equally significant," she stated. "Furthermore, it delivers a powerful signal that when you cause all this destruction to another country, you have to pay for the rebuilding."