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Russia's monetary authority has declared it is claiming compensation totaling $230 billion from the securities depository Euroclear. This move constitutes a direct warning from the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

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

European Union officials are set to determine in the coming days on a proposal to leverage around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a large loan to finance its military and financial needs.

Most of these assets, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian frozen financial reserves.

A Clash Over Legality

EU authorities have maintained that their proposal is legally sound. They argue is based on the fact that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in European countries shortly after the 2022 invasion of Ukraine.

The Russian government, however, has labeled any use of the funds as theft. Authorities have threatened reciprocal measures, such as confiscating EU corporate assets within Russia.

Kirill Dmitriev, who has assumed a prominent role in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements interpreted as an attempt to create division between Europe and the United States, the official described the assets plan as "a vicious assault on the right to ownership and the global financial system established by the United States."

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

Enforcement Challenges

While judges in EU countries are not expected to recognize rulings from Russian courts, experts expect Moscow to pursue enforcement in countries with stronger relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that relevant assets can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are developing measures to deter other nations from aiding any Russian lawsuits against EU entities. Additionally, they are designing safeguards to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain untouched.

Ukraine would only be required to repay the loan if and when Russia consented to pay reparations for the immense destruction caused during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This entails common EU borrowing to secure a loan, backed by unused funds within the European budget.

Such a proposal, however, demands unanimity among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has previously signaled its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is also important," she stated. "It also sends a clear message that if you cause all this damage to another nation, you must pay for the reparations."