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The Russian central bank has announced it is claiming damages amounting to $230 billion from the securities depository Euroclear. This action is a direct response by the Kremlin against proposals to utilize immobilized Russian state assets to support Ukraine.

The Legal Claim

According to accounts in local state media, the central bank initiated a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

EU leaders are set to determine in the coming days regarding a plan to use approximately €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a large loan to fund its military and financial needs.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the primary keeper for the Russian immobilised financial reserves.

A Clash Over Legality

EU authorities have maintained that their plan is legally sound. Their position is based on the principle that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in European jurisdictions following the 2022 invasion of Ukraine.

The Russian government, however, has called any utilization of the assets as illegal appropriation. It has warned of retaliatory actions, such as seizing European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in diplomatic talks, wrote on X that Russia "will prevail in court" and regain its funds. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements seen as an attempt to create division between Europe and the United States, Dmitriev described the proposal as "a severe assault on property rights and the global financial system created by the United States."

The clearing house declined to provide a statement on the new legal action. The institution has previously stated it is contending with more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are not expected to recognize judgments from Russian courts, analysts expect Moscow to pursue enforcement in nations with stronger ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be identified," commented a lawyer from an NSP law firm.

European Safeguards

European authorities indicated they are working on steps to discourage other countries from aiding any Russian lawsuits against EU entities. Additionally, they are crafting protections to protect EU member states with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an first €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay untouched.

Ukraine would only be obligated to repay the money in the event that Russia consented to pay compensation for the vast destruction inflicted during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for funding Ukraine. This involves common EU borrowing to secure a loan, using unused funds within the EU budget.

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

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is also important," she stated. "Furthermore, it sends a clear message that if you cause all this damage to another nation, you must pay for the rebuilding."