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The Russian central bank has declared it is pursuing compensation totaling $230 billion against the securities depository Euroclear. This action is a clear response by the Kremlin against plans to use frozen Russian state funds to support Ukraine.

The Legal Claim

Based on accounts in Russian state media, the monetary authority initiated a lawsuit last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

European Union officials will determine in the coming days regarding a plan to use approximately €210 billion in immobilized Russian assets. The proposal involves providing Ukraine with a large loan to finance its defence and financial stability.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear acts as the main keeper for the Kremlin's frozen financial reserves.

Divergent Legal Views

EU authorities have argued that their plan is legally sound. Their position is based on the principle that title of the sovereign wealth remains with Russia, even though it was immobilized in EU jurisdictions 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 measures, such as confiscating EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements interpreted as an attempt to drive a wedge between Europe and the United States, the official characterized 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 new lawsuit. It has in the past noted it is contending with more than 100 legal cases in Russian courts.

Enforcement Challenges

While courts in EU countries are unlikely to recognize rulings from Russian courts, experts expect Moscow to seek enforcement in countries with stronger ties to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant assets can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are working on steps to deter other nations from assisting any Russian legal action against EU companies. Additionally, they are designing safeguards to shield EU member states with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain unaffected.

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

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for funding Ukraine. This involves joint EU debt issuance to secure a loan, using unused funds within the European budget.

Such a proposal, nevertheless, requires unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is equally important," she stated. "Furthermore, it delivers a powerful message that when you cause all this damage to another nation, you must pay for the reparations."