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Russia's monetary authority has declared it is pursuing compensation valued at $230 billion from the securities depository Euroclear. This move constitutes a clear response by the Kremlin against proposals to utilize immobilized Russian state funds to support Ukraine.

The Legal Claim

Based on reports in local state media, the central bank initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide in the coming days regarding a proposal to leverage approximately €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a substantial loan to finance its defence and economic needs.

Most of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear acts as the main keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union officials have argued that their proposal is legally sound. Their position rests on the fact that ownership of the state assets still belongs to Russia, despite being it was immobilized in European 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 measures, including confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in peace negotiations, stated on a social media platform that Russia "will win in court" and regain its funds. He added that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments interpreted as an effort to drive a wedge between Europe and the United States, the official characterized the proposal as "a vicious attack on the right to ownership and the global financial system established by the United States."

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

Legal Hurdles Ahead

While courts in European nations are unlikely to recognize judgments from Russian courts, analysts expect Moscow to pursue enforcement in nations with closer ties to the Kremlin.

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

European Safeguards

European authorities said they are working on steps to discourage other nations from aiding any Russian legal action against EU companies. They are also designing protections to shield EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would provide an initial €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

Kyiv would only be required to repay the loan in the event that Russia agreed to pay compensation for the immense damage inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for financing Ukraine. This involves joint EU debt issuance to secure a loan, using unallocated funds within the European budget.

Such a proposal, however, requires full agreement among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is also important," she remarked. "It also sends a powerful message that when you cause all this damage to another country, you must pay for the rebuilding."