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The Russian central bank has announced it is pursuing compensation valued at $230 billion against the financial institution Euroclear. This move represents a direct response by the Kremlin against plans to use immobilized Russian state funds to aid Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the monetary authority filed a lawsuit last week for an estimated 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials will determine later this week on a proposal to leverage around €210 billion in frozen Russian assets. This scheme involves granting Ukraine with a substantial loan to finance its defence and economic stability.

Most of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution 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. Their position rests on the fact that ownership of the state assets still belongs to Russia, even though it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, in contrast, has called any use of the assets as illegal appropriation. It has warned of reciprocal measures, such as seizing EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent role in peace negotiations, stated on X that Russia "will prevail in court" and regain its funds. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

With statements seen as an effort to create division 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."

Euroclear refused to provide a statement on the new legal action. It has previously noted it is contending with over 100 legal cases in Russian courts.

Enforcement Challenges

While courts in European nations are not expected to enforce judgments from Russian courts, experts anticipate Moscow to pursue implementation in countries with closer ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be identified," commented a lawyer from an international firm.

EU Countermeasures

EU officials indicated they are working on steps to discourage other nations from aiding any Russian lawsuits against EU entities. Additionally, they are crafting protections to protect EU countries with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would only be required to repay the loan if and when Russia consented to pay reparations for the vast destruction caused during the ongoing war.

Other Funding Ideas

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

Such a proposal, however, demands unanimity among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is also significant," she stated. "It also sends a powerful signal that when you do all this destruction to another country, you have to pay for the reparations."