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The Russian central bank has declared it is seeking compensation amounting to $230 billion against the securities depository Euroclear. This move represents a clear warning from the Kremlin regarding plans to use frozen Russian sovereign assets to aid Ukraine.

The Legal Claim

According to accounts in Russian news outlets, the monetary authority initiated a lawsuit last week for an estimated 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion demand.

European Union officials are set to determine in the coming days regarding a proposal to use around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a substantial loan to finance its military and economic stability.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the primary custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

European Union authorities have argued that their plan is on solid legal ground. Their position is based on the principle that title of the sovereign wealth remains with Russia, despite being it was immobilized in EU countries following the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the funds as theft. It has warned of reciprocal measures, including confiscating EU private investors' assets within Russia.

Kirill Dmitriev, a figure who has assumed a key position in peace negotiations, wrote on a social media platform that Russia "will win in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Strategic Positioning

In comments seen as an effort to create division between Europe and the United States, the official described the assets plan as "a severe assault on the right to ownership and the global financial system created by the United States."

Euroclear declined to comment on the new legal action. The institution has previously stated it is contending with over 100 lawsuits in Russian courts.

Enforcement Challenges

While courts in EU countries are not expected to recognize judgments from Russian courts, experts expect Moscow to seek enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are developing measures to discourage other countries from aiding any Russian lawsuits against European companies. They are also crafting protections to protect EU countries with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an initial €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay untouched.

Kyiv would solely be required to repay the loan in the event that Russia agreed to pay reparations for the immense damage caused during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves joint EU debt issuance to secure a loan, using unused funds within the EU budget.

Such a proposal, nevertheless, demands unanimity among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally important," she remarked. "It also delivers a clear signal that if you do all this destruction to another nation, you have to pay for the rebuilding."