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The Russian central bank has announced it is claiming compensation valued at $230 billion from the securities depository Euroclear. This move is a direct response from the Kremlin regarding proposals to utilize immobilized Russian state funds to support Ukraine.

The Substantial Demand

According to reports in Russian news outlets, the monetary authority initiated a claim last week for roughly 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide in the coming days on a proposal to use approximately €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a large loan to finance its military and financial stability.

The vast majority of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the main custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

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, even though it was frozen in EU jurisdictions shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as illegal appropriation. It has threatened reciprocal measures, such as seizing European corporate holdings within Russia.

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

Strategic Positioning

In comments interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe assault on property rights and the global financial system established by the United States."

Euroclear refused to provide a statement on the latest legal action. It has in the past noted it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in European nations are not expected to recognize judgments from Russian courts, analysts expect Moscow to pursue implementation in nations with closer ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant assets can be located," stated a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to deter other countries from assisting any Russian legal action against EU companies. Additionally, they are crafting safeguards to protect EU member states with assets in Russia from what they term "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 earned 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 loan if and when Russia agreed to pay compensation for the vast destruction inflicted during the ongoing war.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for funding Ukraine. This entails joint EU debt issuance to secure a loan, using unallocated funds within the European budget.

This alternative move, however, demands full agreement among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is equally significant," she remarked. "Furthermore, it sends a clear message that if you do all this destruction to another nation, you must pay for the reparations."