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The Russian central bank has declared it is pursuing compensation valued at $230 billion from the securities depository Euroclear. This move represents a clear warning by the Kremlin against proposals to utilize frozen Russian state funds to aid Ukraine.

The Substantial Demand

According to accounts in local news outlets, the central bank initiated a claim last week for an estimated 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

European Union officials will determine in the coming days regarding a plan to use approximately €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to finance its defence and economic stability.

The vast majority of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the primary custodian for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

European Union authorities have maintained that their proposal is legally sound. They argue is based on the principle that ownership of the sovereign wealth remains with Russia, even though it was immobilized in EU countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any use of the assets as illegal appropriation. It has warned of retaliatory actions, including confiscating European corporate assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key position in peace negotiations, wrote on X that Russia "will prevail in court" and retrieve its funds. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious attack on the right to ownership and the global financial system created by the United States."

The clearing house declined to provide a statement on the new lawsuit. It has in the past stated it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

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

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets can be located," commented a legal expert from an international firm.

EU Countermeasures

EU officials indicated they are working on steps to deter other countries from assisting any Russian lawsuits against EU companies. Additionally, they are designing protections to shield EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the complex plan, the EU would provide an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be obligated to repay the money in the event that Russia consented to pay compensation for the immense damage inflicted during the nearly four-year war.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for funding Ukraine. This involves common EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest solution" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it is not drawn from our public funds, which is also important," she remarked. "It also sends a powerful message that when you cause all this destruction to another nation, you must pay for the rebuilding."