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The Russian central bank has announced it is seeking compensation amounting to $230 billion from the securities depository Euroclear. This action is a clear response from the Kremlin against plans to utilize frozen Russian state funds to support Ukraine.

The Legal Claim

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

European Union officials are set to determine in the coming days on a plan to leverage around €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a large loan to fund its defence and financial stability.

The vast majority of these assets, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union authorities have maintained that their plan is on solid legal ground. Their position is based on the principle that title of the state assets still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the full-scale military offensive of Ukraine.

The Russian government, however, has labeled any use of the assets as illegal appropriation. It has warned of reciprocal actions, including confiscating European private investors' assets within Russia.

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

Geopolitical Maneuvering

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe attack on property rights and the global financial system created by the United States."

The clearing house refused to comment on the new legal action. It has in the past noted it is facing over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are unlikely to recognize rulings from Russian tribunals, analysts anticipate Moscow to pursue implementation in nations with stronger ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be located," stated a lawyer from an international firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other nations from assisting any Russian legal action against European entities. Additionally, they are crafting safeguards to shield EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to repay the loan if and when Russia agreed to pay compensation for the vast damage caused during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for funding Ukraine. This involves common EU debt issuance to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, requires full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the most credible option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it is not drawn from our public funds, which is also significant," she stated. "It also delivers a clear signal that when you do all this damage to another nation, you have to pay for the reparations."