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The Russian central bank has announced it is claiming compensation valued at $230 billion against the securities depository Euroclear. This legal step constitutes a clear warning from the Kremlin against proposals to use frozen Russian state assets to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

EU leaders are set to determine later this week regarding a proposal to leverage around €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a substantial loan to fund its defence and financial needs.

Most of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution serves as the main keeper for the Kremlin's frozen sovereign wealth.

Divergent Legal Views

European Union officials have maintained that their plan is on solid legal ground. Their position is based on the fact that ownership of the state assets remains with Russia, despite being it was immobilized in EU jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as theft. Authorities have warned of reciprocal actions, such as seizing EU private investors' assets within Russia.

Kirill Dmitriev, a figure who has taken on a key role in peace negotiations, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the plan.

Strategic Positioning

With statements seen as an effort to drive a wedge between Europe and the United States, the official described the assets plan as "a severe attack on property rights and the global financial system established by the United States."

Euroclear declined to comment on the latest legal action. The institution has in the past noted it is contending with more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in European nations are unlikely to recognize rulings from Russian courts, analysts anticipate Moscow to pursue implementation in nations with closer relations to the Kremlin.

"Russian monetary authorities could try to implement 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.

European Safeguards

EU officials said they are developing steps to discourage other countries from aiding any Russian legal action against European companies. Additionally, they are crafting safeguards to protect EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be obligated to return the money if and when Russia agreed to pay compensation for the vast damage inflicted during the ongoing conflict.

Alternative Proposals

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

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also important," she stated. "Furthermore, it delivers a clear message that if you do all this damage to another country, you must pay for the rebuilding."