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Russia's monetary authority has announced it is pursuing compensation totaling $230 billion against the securities depository Euroclear. This action represents a clear response from the Kremlin against plans to use immobilized Russian sovereign assets to support Ukraine.

The Legal Claim

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

European Union officials are set to decide later this week on a proposal to leverage approximately €210 billion in frozen Russian state funds. This scheme entails granting Ukraine with a large loan to finance its defence and economic stability.

Most of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the primary custodian for the Russian immobilised financial reserves.

Dispute on Ownership

EU officials have argued that their proposal is legally sound. Their position rests on the principle that title of the sovereign wealth still belongs to Russia, even though it was immobilized in European countries following the 2022 invasion of Ukraine.

The Russian government, however, has called any utilization of the funds as illegal appropriation. It has threatened reciprocal measures, including confiscating EU private investors' assets within Russia.

Kirill Dmitriev, a figure who has assumed a prominent role in diplomatic talks, stated on X that Russia "will prevail in court" and regain its assets. He added that the EU, the euro, and Euroclear "will face consequences" from the plan.

Strategic Positioning

In comments seen as an attempt to create division between Europe and the United States, Dmitriev characterized the proposal as "a severe assault on property rights and the global financial system created by the United States."

Euroclear refused to comment on the latest lawsuit. The institution has previously noted it is facing more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are not expected to recognize judgments from Russian tribunals, experts expect Moscow to pursue enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," stated a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are working on measures to discourage other nations from assisting any Russian lawsuits against EU companies. Additionally, they are designing safeguards to shield EU member states with investments 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 earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would only be obligated to repay the loan in the event that Russia consented to pay compensation for the vast damage caused during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for funding Ukraine. This involves joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, demands unanimity among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also significant," she stated. "It also sends a clear signal that if you cause all this destruction to another country, you have to pay for the rebuilding."