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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 represents a clear response from the Kremlin regarding proposals to use immobilized Russian sovereign assets to aid Ukraine.

The Legal Claim

Based on accounts in local state media, the central bank filed a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

European Union officials are set to determine later this week regarding a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a substantial loan to fund its military and financial stability.

Most of these funds, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear acts as the primary keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

EU officials have maintained that their plan is on solid legal ground. They argue is based on the fact that ownership of the sovereign wealth still belongs to Russia, even though it was frozen in EU countries following the 2022 invasion of Ukraine.

Moscow, however, has labeled any utilization of the funds as illegal appropriation. It has warned of retaliatory measures, such as seizing European private investors' holdings within Russia.

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

Strategic Positioning

In comments seen as an effort to drive a wedge between Europe and the United States, the official described the proposal as "a vicious attack on the right to ownership and the international reserves system created by the United States."

The clearing house declined to comment on the new legal action. The institution has previously stated it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to recognize judgments from Russian tribunals, experts expect Moscow to seek implementation in countries with stronger relations to the Kremlin.

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

EU Countermeasures

European authorities said they are developing measures to discourage other countries from assisting any Russian lawsuits against EU companies. Additionally, they are crafting safeguards to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would solely be obligated to repay the money in the event that Russia agreed to pay reparations for the immense damage inflicted during the ongoing conflict.

Alternative Proposals

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

This alternative move, nevertheless, demands unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is equally significant," she remarked. "Furthermore, it delivers a powerful message that if you cause all this damage to another country, you have to pay for the rebuilding."