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Russia's monetary authority has declared it is pursuing compensation totaling $230 billion against the securities depository Euroclear. This action represents a clear response by the Kremlin against proposals to use immobilized Russian state assets to support Ukraine.

The Legal Claim

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

EU leaders will decide later this week regarding a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a substantial loan to finance its military and financial stability.

The vast majority of these funds, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Kremlin's frozen sovereign wealth.

A Clash Over Legality

European Union officials have argued that their plan is legally sound. Their position is based on the principle that title of the state assets remains with Russia, despite being it was immobilized in EU countries shortly after the 2022 invasion of Ukraine.

Moscow, however, has called any use of the assets as theft. Authorities have warned of retaliatory actions, such as seizing EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments 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."

Euroclear refused to provide a statement on the new legal action. The institution has previously noted it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While judges in European nations are not expected to recognize judgments from Russian courts, analysts expect Moscow to seek enforcement 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 friendly nations, if such holdings can be identified," stated a legal expert from an international firm.

EU Countermeasures

EU officials indicated they are developing measures to discourage other nations from assisting any Russian lawsuits against European 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 detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Kyiv would only be required to repay the loan in the event that Russia consented to pay reparations for the vast destruction caused during the nearly four-year conflict.

Other Funding Ideas

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

This alternative move, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU top diplomat, a senior official, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is also important," she stated. "Furthermore, it sends a powerful message that if you do all this damage to another country, you must pay for the rebuilding."