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The Russian central bank has declared it is claiming damages totaling $230 billion from the securities depository Euroclear. This legal step is a clear warning by the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

According to reports in local state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

EU leaders will decide later this week on a plan to leverage approximately €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a large loan to fund its military and economic stability.

The vast majority 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 financial reserves.

Dispute on Ownership

EU authorities have argued that their plan is on solid legal ground. Their position rests on the principle that ownership of the sovereign wealth remains with Russia, even though it was immobilized in European countries shortly after the full-scale military offensive of Ukraine.

The Russian government, however, has called any use of the assets as theft. Authorities have warned of retaliatory actions, including seizing EU private investors' assets within Russia.

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

Geopolitical Maneuvering

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

Euroclear declined to comment on the latest lawsuit. It has in the past stated it is facing over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in EU countries are not expected to enforce rulings from Russian courts, analysts anticipate Moscow to pursue 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, provided that such assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are working on measures 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 term "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be obligated to repay the money in the event that Russia agreed to pay compensation for the vast damage inflicted during the ongoing conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for funding Ukraine. This involves common EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, requires unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also significant," she stated. "It also sends a clear message that if you do all this damage to another nation, you must pay for the rebuilding."