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Russia's monetary authority has announced it is seeking compensation amounting to $230 billion from the securities depository Euroclear. This legal step constitutes a clear warning from the Kremlin regarding plans to use frozen Russian state funds to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the monetary authority filed a claim last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion claim.

European Union officials will decide in the coming days on a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a substantial loan to fund its military and economic stability.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution serves as the main custodian for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

EU authorities have argued that their plan is on solid legal ground. They argue rests on the fact that ownership of the sovereign wealth remains with Russia, even though it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, however, has called any use of the assets as theft. Authorities have threatened retaliatory measures, including seizing European corporate assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a prominent position in peace negotiations, wrote on a social media platform that Russia "will win in court" and regain its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements seen 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 international reserves system established by the United States."

The clearing house declined to comment on the new legal action. The institution has in the past noted it is facing more than 100 legal cases in Russian courts.

Enforcement Challenges

Although courts in European nations are not expected to enforce rulings from Russian tribunals, experts anticipate Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to enforce 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," commented a legal expert from an NSP law firm.

European Safeguards

European authorities indicated they are working on measures to discourage other countries from assisting any Russian legal action against European entities. Additionally, they are crafting protections to protect EU member states with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

According to the detailed plan, the EU would provide an first €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would remain untouched.

Ukraine would solely be required to repay the loan if and when Russia agreed to pay compensation for the immense damage inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unused funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is also important," she stated. "It also sends a powerful message that if you do all this damage to another country, you have to pay for the rebuilding."