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The Russian central bank has announced it is pursuing compensation totaling $230 billion against the securities depository Euroclear. This legal step represents a clear warning from the Kremlin against plans to use frozen Russian state funds to aid Ukraine.

The Legal Claim

Based on accounts in Russian state media, the monetary authority filed a claim last week for roughly 18 trillion roubles. This figure corresponds to the stated $230 billion demand.

European Union officials will determine in the coming days on a proposal to use around €210 billion in immobilized Russian assets. This scheme involves providing Ukraine with a substantial loan to finance its military and financial stability.

Most of these assets, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the primary keeper for the Kremlin's frozen financial reserves.

Divergent Legal Views

European Union authorities have maintained that their proposal is on solid legal ground. They argue is based on the fact that title of the state assets still belongs to Russia, despite being it was immobilized in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as illegal appropriation. It has threatened reciprocal actions, such as seizing European private investors' holdings within Russia.

Kirill Dmitriev, a figure who has assumed a key position in peace negotiations, wrote on X that Russia "will prevail in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments interpreted as an effort to drive a wedge between Europe and the United States, the official described the assets plan as "a severe attack on the right to ownership and the global financial system created by the United States."

Euroclear declined to provide a statement on the new legal action. It has in the past noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in European nations are not expected to enforce judgments from Russian courts, experts anticipate Moscow to pursue implementation in nations with closer 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, provided that relevant assets can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities said they are working on steps to discourage other countries from assisting any Russian legal action against EU entities. They are also designing safeguards to shield EU member states with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay untouched.

Ukraine would solely be required to return the money if and when Russia agreed to pay reparations for the immense damage caused during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for financing Ukraine. This involves joint EU debt issuance to secure a loan, using unallocated funds within the EU budget.

This alternative move, however, requires unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it is not drawn from our public funds, which is equally significant," she stated. "Furthermore, it sends a clear message that if you do all this destruction to another country, you must pay for the rebuilding."