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The Russian central bank has stated it is seeking compensation amounting to $230 billion against the securities depository Euroclear. This legal step represents a direct response by the Kremlin against plans to use frozen Russian sovereign funds to aid Ukraine.

The Legal Claim

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

EU leaders are set to determine later this week regarding a plan to use around €210 billion in frozen Russian assets. The proposal entails providing Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the main custodian for the Kremlin's frozen financial reserves.

Dispute on Ownership

EU authorities have argued that their plan is on solid legal ground. Their position is based on the principle that title of the sovereign wealth still belongs to Russia, even though it was immobilized in European jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the funds as theft. It has warned of retaliatory measures, such as seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Geopolitical Maneuvering

In comments interpreted as an attempt to create division between Europe and the United States, the official described the assets plan as "a severe assault on property rights and the global financial system established by the United States."

Euroclear declined to comment on the new lawsuit. It has in the past noted it is facing more than 100 lawsuits in Russian courts.

Enforcement Challenges

While courts in EU countries are not expected to enforce judgments from Russian courts, experts anticipate Moscow to pursue enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such holdings can be located," stated a lawyer from an international firm.

European Safeguards

EU officials indicated they are working on steps to deter other countries from aiding any Russian legal action against EU companies. Additionally, they are crafting protections to shield EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would solely be obligated to repay the money in the event that Russia consented to pay compensation for the vast damage inflicted during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This entails common EU debt issuance to fund a loan, using unallocated funds within the European budget.

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

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also significant," she stated. "Furthermore, it delivers a powerful message that when you cause all this destruction to another nation, you must pay for the reparations."