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

The Financial Lawsuit

According to reports in Russian news outlets, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide in the coming days on a plan to use around €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to fund its defence and financial stability.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the main keeper for the Kremlin's immobilised financial reserves.

Divergent Legal Views

EU authorities have argued that their plan is on solid legal ground. They argue is based on the fact that ownership of the state assets still belongs to Russia, even though it was immobilized in European jurisdictions following the 2022 military offensive of Ukraine.

Moscow, however, has called any utilization of the funds as theft. Authorities have warned of retaliatory measures, such as confiscating EU corporate assets within Russia.

Kirill Dmitriev, who has assumed a prominent position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

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

The clearing house declined to comment on the latest legal action. The institution has previously noted it is contending with over 100 legal cases in Russian courts.

Enforcement Challenges

Although judges in European nations are not expected to recognize rulings from Russian tribunals, experts expect Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

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

The Proposed Loan Mechanism

According to the complex scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain untouched.

Kyiv would solely be required to return the loan if and when Russia agreed to pay compensation for the immense destruction caused during the nearly four-year war.

Alternative Proposals

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

Such a proposal, nevertheless, demands unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has already expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it doesn't come from our public funds, which is also important," she remarked. "It also delivers a powerful signal that if you cause all this damage to another country, you must pay for the reparations."