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The Russian central bank has announced it is claiming compensation amounting to $230 billion against the securities depository Euroclear. This action constitutes a clear response by the Kremlin regarding plans to utilize frozen Russian state funds to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

European Union officials will decide in the coming days regarding a plan to use around €210 billion in immobilized Russian state funds. The proposal entails providing Ukraine with a substantial loan to finance its military and financial needs.

The vast majority of these funds, totaling €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian frozen financial reserves.

Dispute on Ownership

European Union 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, despite being it was frozen in EU countries following the 2022 military offensive of Ukraine.

Moscow, however, has labeled any use of the assets as illegal appropriation. It has threatened reciprocal actions, such as seizing EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments interpreted as an effort to create division between Europe and the United States, the official described the proposal as "a severe assault on the right to ownership and the international reserves system created by the United States."

The clearing house declined to comment on the latest legal action. It has in the past noted it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are unlikely to recognize rulings from Russian courts, experts expect Moscow to seek implementation in nations with closer relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are working on measures to discourage other countries from aiding any Russian legal action against EU entities. They are also crafting protections to protect EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex plan, 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 principal funds would remain untouched.

Ukraine would solely be obligated to return the loan in the event that Russia agreed to pay reparations for the vast destruction caused during the ongoing conflict.

Alternative Proposals

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

This alternative move, nevertheless, demands full agreement among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also significant," she stated. "It also delivers a clear signal that when you cause all this destruction to another country, you must pay for the rebuilding."