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Russia's monetary authority has announced it is claiming compensation amounting to $230 billion against the securities depository Euroclear. This action represents a direct warning by the Kremlin against proposals to use frozen Russian state funds to support Ukraine.

The Legal Claim

According to reports in Russian state media, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

EU leaders will decide in the coming days on a plan to leverage approximately €210 billion in immobilized Russian assets. The proposal involves granting Ukraine with a large loan to fund its defence and economic stability.

Most of these assets, totaling €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian frozen sovereign wealth.

Dispute on Ownership

EU officials have argued that their plan is on solid legal ground. Their position rests on the fact that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, in contrast, has called any use of the assets as illegal appropriation. It has warned of reciprocal actions, such as seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in peace negotiations, stated on X that Russia "will prevail in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, the official characterized the proposal as "a severe attack on property rights and the global financial system created by the United States."

The clearing house declined to comment on the latest legal action. It has previously stated it is facing more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although courts in EU countries are unlikely to recognize rulings from Russian tribunals, experts expect Moscow to pursue enforcement in nations with closer relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such assets can be located," stated a lawyer from an international firm.

European Safeguards

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

The Proposed Loan Mechanism

According to the complex plan, 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 remain untouched.

Kyiv would only be required to repay the money in the event that Russia agreed to pay compensation for the immense damage inflicted during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported 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 EU budget.

This alternative move, however, demands full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is equally significant," she stated. "Furthermore, it sends a clear message that when you cause all this destruction to another nation, you have to pay for the reparations."