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The Russian central bank has declared it is pursuing damages amounting to $230 billion against the securities depository Euroclear. This action is a direct warning from the Kremlin against proposals to utilize frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

According to accounts in Russian news outlets, the central bank initiated a claim last week for approximately 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

EU leaders will determine in the coming days on a plan to use around €210 billion in immobilized Russian assets. This scheme involves providing Ukraine with a large loan to finance its defence and financial needs.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the main custodian for the Kremlin's immobilised sovereign wealth.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. They argue rests on the fact that ownership of the state assets still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has called any use of the assets as theft. Authorities have threatened retaliatory actions, such as confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, a figure who has taken on a prominent role in peace negotiations, stated on X that Russia "will prevail in court" and regain its assets. He added that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments seen as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe attack on property rights and the global financial system established by the United States."

Euroclear refused to comment on the new lawsuit. The institution has in the past noted it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While judges in European nations are unlikely to recognize judgments from Russian tribunals, experts expect Moscow to seek enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be identified," commented a lawyer from an international firm.

EU Countermeasures

EU officials indicated they are working on steps to deter other countries from assisting any Russian legal action against EU entities. Additionally, they are crafting safeguards to protect EU member states with investments in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the detailed plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Kyiv would only be obligated to repay the loan if and when Russia consented to pay reparations for the immense damage caused during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different method for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unused funds within the European budget.

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

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible solution" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our public funds, which is also important," she stated. "It also delivers a clear message that when you cause all this damage to another nation, you must pay for the rebuilding."