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The Russian central bank has declared it is seeking damages totaling $230 billion from the securities depository Euroclear. This action represents a clear response from the Kremlin regarding plans to use frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

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

EU leaders are set to determine in the coming days regarding a plan to leverage around €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a large loan to fund its military and financial stability.

Most of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Russian frozen sovereign wealth.

A Clash Over Legality

European Union authorities have argued that their proposal is legally sound. They argue rests on the principle that ownership of the state assets still belongs to Russia, despite being it was frozen in EU countries following the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any utilization of the assets as illegal appropriation. It has warned of retaliatory measures, including seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in peace negotiations, stated on X that Russia "will win in court" and retrieve its assets. He warned that the EU, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, Dmitriev described the proposal as "a severe assault on the right to ownership and the international reserves system established by the United States."

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

Legal Hurdles Ahead

While judges in EU countries are not expected to recognize judgments from Russian tribunals, analysts expect Moscow to seek implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision 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 NSP law firm.

European Safeguards

EU officials indicated they are working on steps to discourage other countries from aiding any Russian lawsuits against EU companies. They are also designing protections to protect EU countries with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the complex scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would only be required to repay the loan if and when Russia agreed to pay compensation for the immense damage inflicted during the nearly four-year war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for funding Ukraine. This involves joint EU debt issuance to fund a loan, using unallocated funds within the European budget.

This alternative move, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, viewed as aligned with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also important," she remarked. "Furthermore, it sends a clear signal that if you do all this destruction to another nation, you must pay for the reparations."