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

The Legal Claim

According to reports in Russian news outlets, the central bank filed a claim last week for roughly 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

EU leaders are set to determine later this week on a plan to use around €210 billion in immobilized Russian assets. This scheme involves providing Ukraine with a large loan to fund its defence and economic stability.

Most of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the main custodian for the Russian frozen financial reserves.

Dispute on Ownership

EU officials have argued that their plan is on solid legal ground. They argue rests on the principle that ownership of the state assets remains with Russia, even though it was immobilized in European countries shortly after the 2022 invasion of Ukraine.

The Russian government, however, has labeled any use of the assets as theft. Authorities have threatened retaliatory actions, including seizing EU corporate assets within Russia.

Kirill Dmitriev, who has taken on a key position in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, the official characterized the assets plan as "a severe assault on property rights and the global financial system established by the United States."

Euroclear declined to comment on the new legal action. It has previously stated it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in EU countries are unlikely to recognize judgments from Russian courts, analysts anticipate Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to discourage other nations from assisting any Russian legal action against EU entities. Additionally, they are designing safeguards to shield EU member states with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain unaffected.

Kyiv would only be required to return the money if and when Russia consented to pay reparations for the immense damage inflicted during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for financing Ukraine. This involves joint EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 member states. The Hungarian government, viewed as aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, meaning it is not drawn from our public funds, which is also significant," she remarked. "It also delivers a powerful message that if you do all this damage to another nation, you have to pay for the rebuilding."