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The Russian central bank has announced it is pursuing compensation amounting to $230 billion from the securities depository Euroclear. This legal step constitutes a direct warning by the Kremlin against proposals to use frozen Russian state funds to support Ukraine.

The Financial Lawsuit

According to accounts in local state media, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

European Union officials are set to decide in the coming days regarding a plan to leverage approximately €210 billion in frozen Russian state funds. The proposal entails providing 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 clearing house in Brussels. Euroclear serves as the main custodian for the Russian immobilised financial reserves.

A Clash Over Legality

EU officials have argued that their plan is on solid legal ground. They argue is based on the principle that title of the state assets remains with Russia, even though it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any utilization of the assets as illegal appropriation. It has threatened retaliatory actions, including seizing European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its funds. He added that the EU, the euro, and Euroclear "will face consequences" from the plan.

Strategic Positioning

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

The clearing house declined to comment on the latest legal action. It has in the past stated it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While courts in European nations are not expected to enforce judgments from Russian courts, experts expect Moscow to seek enforcement in nations with stronger ties to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if relevant holdings can be located," commented a lawyer from an international firm.

EU Countermeasures

European authorities said they are working on steps to discourage other nations from assisting any Russian legal action against EU companies. They are also designing 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 earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay unaffected.

Kyiv would solely be obligated to return the money in the event that Russia consented to pay compensation for the vast destruction caused during the ongoing conflict.

Other Funding Ideas

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

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest 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 equally important," she remarked. "It also sends a powerful signal that if you cause all this damage to another nation, you must pay for the rebuilding."