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The Russian central bank has announced it is claiming compensation totaling $230 billion against the securities depository Euroclear. This action is a direct response by the Kremlin against plans to use frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

Based on accounts in local state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This sum corresponds to the aforementioned $230 billion claim.

EU leaders will decide in the coming days regarding a plan to leverage around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a large loan to fund its defence and economic stability.

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

Divergent Legal Views

European Union officials have maintained that their proposal is legally sound. Their position rests on the principle that ownership of the sovereign wealth remains with Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the assets as theft. Authorities have warned of reciprocal measures, such as confiscating EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, stated on X that Russia "will prevail in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

In comments seen as an attempt to drive a wedge between Europe and the United States, the official described the assets plan as "a vicious assault on property rights and the international reserves system created by the United States."

The clearing house refused to comment on the new lawsuit. The institution has previously stated it is facing over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are not expected to enforce rulings from Russian courts, analysts anticipate Moscow to seek implementation in countries with closer relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such assets can be located," commented a legal expert from an international firm.

European Safeguards

EU officials said they are developing steps to discourage other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing protections to shield EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

Ukraine would solely be obligated to return the loan if and when Russia consented to pay compensation for the vast destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This involves common EU debt issuance to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, requires full agreement among all 27 member states. Hungary's government, considered friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also important," she remarked. "It also delivers a clear signal that if you do all this destruction to another country, you must pay for the reparations."