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The Russian central bank has announced it is seeking compensation amounting to $230 billion from the securities depository Euroclear. This legal step represents a direct response by the Kremlin regarding plans to use frozen Russian state assets to aid Ukraine.

The Legal Claim

According to reports in Russian state media, the central bank initiated a claim last week for an estimated 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

EU leaders are set to determine later this week on a plan to leverage approximately €210 billion in immobilized Russian assets. The proposal involves providing Ukraine with a large loan to fund its defence and economic needs.

Most of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Russian immobilised sovereign wealth.

A Clash Over Legality

European Union authorities have argued that their plan is legally sound. They argue is based on the fact that title of the sovereign wealth still belongs to Russia, even though it was immobilized in European countries following the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the funds as theft. It has threatened retaliatory actions, such as seizing European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent role in peace negotiations, stated on a social media platform that Russia "will prevail in court" and regain its assets. He warned that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments seen as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe attack on property rights and the international reserves system created by the United States."

The clearing house declined to provide a statement on the new legal action. It has previously stated it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While judges in European nations are not expected to recognize rulings from Russian courts, analysts anticipate Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant assets can be identified," stated a lawyer from an international firm.

EU Countermeasures

EU officials indicated they are developing steps to deter other nations from aiding any Russian legal action against European entities. They are also designing safeguards to protect EU countries with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would solely be obligated to repay the loan in the event that Russia consented to pay compensation for the vast destruction inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for funding Ukraine. This entails common EU debt issuance to fund a loan, backed by unused funds within the EU budget.

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

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also important," she remarked. "Furthermore, it delivers a powerful signal that when you do all this destruction to another nation, you must pay for the rebuilding."