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The Russian central bank has announced it is claiming compensation totaling $230 billion from the securities depository Euroclear. This legal step is a direct response from the Kremlin regarding proposals to utilize frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

According to accounts in Russian news outlets, the central bank filed a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

EU leaders will decide later this week on a proposal to leverage approximately €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a large loan to finance its defence and economic stability.

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

A Clash Over Legality

European Union authorities have maintained that their proposal is on solid legal ground. Their position rests on the fact that ownership of the state assets still belongs to Russia, despite being it was immobilized in EU jurisdictions following the 2022 invasion of Ukraine.

Moscow, however, has labeled any use of the assets as illegal appropriation. Authorities have warned of retaliatory measures, including seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key role in peace negotiations, wrote on X that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on property rights and the international reserves system created by the United States."

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

Legal Hurdles Ahead

While courts in EU countries are not expected to recognize judgments from Russian courts, analysts anticipate Moscow to seek implementation in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be identified," stated a legal expert from an international firm.

European Safeguards

European authorities said they are developing measures to discourage other countries from aiding any Russian legal action against EU companies. They are also crafting protections to protect EU member states with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed plan, the EU would issue an first €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

Kyiv would solely be obligated to return the loan in the event that Russia consented to pay compensation for the immense damage inflicted during the nearly four-year conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for funding Ukraine. This entails joint EU borrowing to fund a loan, backed by unallocated funds within the European budget.

This alternative move, nevertheless, requires full agreement among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is equally significant," she stated. "Furthermore, it sends a powerful message that if you do all this damage to another nation, you must pay for the reparations."