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The Russian central bank has declared it is pursuing damages totaling $230 billion against the securities depository Euroclear. This action represents a direct response from the Kremlin regarding proposals to utilize frozen Russian state funds to support Ukraine.

The Substantial Demand

According to reports in Russian state media, the central bank filed a claim last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

European Union officials will determine in the coming days regarding a proposal to use around €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a large loan to finance its defence and economic stability.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Russian frozen sovereign wealth.

Divergent Legal Views

EU officials have argued that their proposal is legally sound. Their position rests on the fact that ownership of the sovereign wealth remains with Russia, even though it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, however, has labeled any utilization of the assets as illegal appropriation. It has warned of reciprocal measures, including confiscating EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, wrote on X that Russia "will win in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

With statements seen as an effort to create division between Europe and the United States, the official characterized the assets plan as "a severe assault on property rights and the international reserves system created by the United States."

Euroclear declined to provide a statement on the new lawsuit. It has in the past noted it is contending with over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are not expected to enforce judgments from Russian courts, analysts expect Moscow to pursue enforcement in countries with closer relations 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 friendly nations, provided that relevant holdings can be identified," commented a lawyer from an NSP law firm.

European Safeguards

EU officials said they are working on steps to discourage other nations from assisting any Russian legal action against EU companies. Additionally, they are designing safeguards to shield EU member states with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, using the cash earned from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the principal funds would stay untouched.

Ukraine would only be obligated to repay the loan if and when Russia consented to pay reparations for the immense damage inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for financing Ukraine. This involves joint EU borrowing to secure a loan, using unallocated funds within the EU budget.

Such a proposal, nevertheless, requires full agreement among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is also significant," she remarked. "It also sends a powerful signal that when you do all this damage to another nation, you have to pay for the rebuilding."