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The Russian central bank has declared it is seeking compensation valued at $230 billion against the securities depository Euroclear. This legal step represents a direct response by the Kremlin regarding proposals to use frozen Russian state funds to support Ukraine.

The Substantial Demand

Based on reports in local news outlets, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

EU leaders will decide later this week on a proposal to leverage approximately €210 billion in frozen Russian state funds. This scheme entails providing Ukraine with a substantial loan to finance its defence and financial stability.

Most of these funds, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the primary custodian for the Russian immobilised financial reserves.

Dispute on Ownership

EU authorities have argued that their proposal is on solid legal ground. Their position is based on the fact that title of the sovereign wealth remains with Russia, even though it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, however, has called any use of the assets as theft. Authorities have warned of retaliatory measures, such as seizing European corporate assets within Russia.

Kirill Dmitriev, a figure who has taken on a prominent role in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its funds. He warned that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

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

Euroclear refused to comment on the latest legal action. It has previously noted it is contending with more than 100 lawsuits in Russian courts.

Enforcement Challenges

While judges in European nations are unlikely to enforce rulings from Russian tribunals, experts anticipate Moscow to seek implementation in countries with closer ties to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant assets can be identified," commented a lawyer from an international firm.

EU Countermeasures

European authorities said they are working on steps to deter other countries from aiding any Russian lawsuits against European companies. They are also designing protections to shield EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

According to the detailed plan, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain unaffected.

Ukraine would only be obligated to return the money in the event that Russia agreed to pay compensation for the immense damage inflicted during the nearly four-year war.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This entails joint EU debt issuance to secure a loan, using unallocated funds within the EU budget.

Such a proposal, however, requires unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally significant," she remarked. "It also sends a clear message that when you do all this destruction to another country, you must pay for the rebuilding."