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The Russian central bank has announced it is claiming compensation amounting to $230 billion from the securities depository Euroclear. This move represents a direct response by the Kremlin regarding plans to utilize frozen Russian sovereign funds to support Ukraine.

The Financial Lawsuit

Based on accounts in local state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

European Union officials will determine later this week on a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a large loan to finance its defence and economic needs.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear acts as the main keeper for the Russian frozen sovereign wealth.

Dispute on Ownership

European Union officials have argued that their proposal is legally sound. They argue is based on the fact that title of the state assets still belongs to Russia, even though it was immobilized in European countries following the 2022 invasion of Ukraine.

Moscow, in contrast, has labeled any use of the assets as theft. Authorities have warned of retaliatory measures, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a prominent role in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

With statements seen as an effort to create division between Europe and the United States, Dmitriev characterized the assets plan as "a vicious attack on property rights and the international reserves system established by the United States."

Euroclear declined to provide a statement on the new lawsuit. It has previously noted it is contending with more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are unlikely to enforce rulings from Russian courts, experts anticipate Moscow to pursue implementation in nations with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that relevant assets can be located," stated a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to discourage other countries from aiding any Russian legal action against EU companies. They are also designing protections to protect EU countries with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would provide an first €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain untouched.

Kyiv would only be obligated to return the money if and when Russia consented to pay reparations for the immense destruction caused during the nearly four-year conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This entails common EU borrowing to fund a loan, using unused funds within the EU budget.

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

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the most credible option" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is also significant," she remarked. "Furthermore, it delivers a clear message that when you do all this destruction to another nation, you must pay for the rebuilding."