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The Russian central bank has declared it is seeking compensation valued at $230 billion from the securities depository Euroclear. This legal step is a direct warning from the Kremlin regarding plans to utilize frozen Russian state assets to support Ukraine.

The Financial Lawsuit

Based on accounts in Russian state media, the monetary authority filed a lawsuit last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

EU leaders will decide later this week regarding a proposal to use around €210 billion in immobilized Russian assets. This scheme involves granting Ukraine with a large loan to finance its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Russian frozen sovereign wealth.

A Clash Over Legality

EU authorities have maintained that their proposal is on solid legal ground. They argue rests on the principle that ownership of the state assets still belongs to Russia, despite being it was frozen in EU jurisdictions following the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any utilization of the assets as theft. Authorities have threatened reciprocal measures, including confiscating EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in peace negotiations, wrote on X that Russia "will win in court" and regain its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Geopolitical Maneuvering

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

Euroclear refused to comment on the new lawsuit. It has previously stated it is facing over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are not expected to enforce judgments from Russian courts, experts expect Moscow to pursue enforcement in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such holdings can be located," stated a legal expert from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to discourage other countries from assisting any Russian legal action against European companies. Additionally, they are crafting safeguards to protect EU countries with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

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

Kyiv would solely be obligated to repay the loan if and when Russia consented to pay reparations for the vast destruction inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for financing Ukraine. This entails joint EU debt issuance to fund a loan, using unallocated funds within the EU budget.

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

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest solution" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is equally significant," she remarked. "Furthermore, it delivers a clear message that when you cause all this destruction to another country, you must pay for the reparations."