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Russia's monetary authority has announced it is seeking compensation amounting to $230 billion from the securities depository Euroclear. This legal step is a direct response by the Kremlin against proposals to use frozen Russian state funds to support Ukraine.

The Legal Claim

According to reports in Russian news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

EU leaders are set to decide later this week on a plan to leverage around €210 billion in frozen Russian state funds. This scheme entails providing Ukraine with a large loan to fund its military and economic stability.

Most of these funds, totaling €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the primary keeper for the Russian frozen sovereign wealth.

Divergent Legal Views

EU authorities have maintained that their plan is legally sound. Their position rests on the fact that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in EU countries shortly after the 2022 invasion of Ukraine.

Moscow, however, has called any use of the funds as theft. Authorities have warned of reciprocal measures, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in diplomatic talks, wrote on X that Russia "will win in court" and regain its assets. He warned that the EU, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the assets plan as "a severe assault on property rights and the international reserves system established by the United States."

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

Legal Hurdles Ahead

While courts in EU countries are not expected to enforce judgments from Russian tribunals, analysts anticipate Moscow to pursue implementation in countries with closer ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if such holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing steps to deter other nations from assisting any Russian legal action against European companies. They are also crafting protections to shield EU countries with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would only be required to repay the money if and when Russia agreed to pay reparations for the vast damage caused during the ongoing conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for financing Ukraine. This entails joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU top diplomat, a senior official, described the proposed loan scheme as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it doesn't come from our public funds, which is also significant," she remarked. "Furthermore, it sends a clear message that when you cause all this damage to another country, you have to pay for the reparations."