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The Russian central bank has declared it is claiming compensation totaling $230 billion from the securities depository Euroclear. This move is a direct response by the Kremlin against plans to use frozen Russian state funds to support Ukraine.

The Substantial Demand

Based on reports in Russian news outlets, the central bank initiated a claim last week for roughly 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

EU leaders will determine later this week regarding a proposal to leverage approximately €210 billion in immobilized Russian assets. The proposal entails granting Ukraine with a large loan to fund its defence and economic needs.

Most of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the primary custodian for the Kremlin's immobilised financial reserves.

Dispute on Ownership

EU authorities have maintained that their proposal is on solid legal ground. Their position rests on the fact that title of the state assets remains with Russia, despite being it was immobilized in EU countries following the full-scale invasion of Ukraine.

The Russian government, however, has called any utilization of the assets as theft. Authorities have threatened reciprocal measures, including confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in peace negotiations, stated on X that Russia "will prevail in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev described the proposal as "a severe attack on the right to ownership and the global financial system created by the United States."

The clearing house refused to provide a statement on the new legal action. It has previously stated it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to seek implementation in nations with stronger ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if such assets can be located," commented a legal expert from an international firm.

European Safeguards

European authorities said they are working on measures to deter other countries from aiding any Russian lawsuits against EU companies. Additionally, they are designing protections to shield EU member states with investments in Russia from what they term "unlawful expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an first €90 billion loan to Ukraine, using the cash earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be required to repay the loan in the event that Russia consented to pay compensation for the vast damage inflicted during the nearly four-year war.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different method for funding Ukraine. This entails joint EU debt issuance to secure a loan, backed by unallocated funds within the European budget.

This alternative move, however, demands full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our public funds, which is equally important," she stated. "Furthermore, it sends a clear message that if you cause all this damage to another nation, you have to pay for the rebuilding."