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The Russian central bank has declared it is claiming damages amounting to $230 billion against the securities depository Euroclear. This action constitutes a direct response by the Kremlin regarding proposals to use frozen Russian state funds to support Ukraine.

The Financial Lawsuit

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

European Union officials are set to decide later this week regarding a proposal to use around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a substantial loan to fund its military and economic stability.

The vast majority of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

EU authorities have argued that their proposal is legally sound. Their position rests on the fact that title of the state assets still belongs to Russia, despite being it was immobilized in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, however, has labeled any utilization of the assets as theft. Authorities have warned of reciprocal measures, including confiscating EU private investors' assets within Russia.

Kirill Dmitriev, who has assumed a prominent position in diplomatic talks, stated on a social media platform that Russia "will win in court" and retrieve its assets. He added that the European Union, the euro, and Euroclear "will face consequences" from the plan.

Geopolitical Maneuvering

In comments seen as an attempt to create division between Europe and the United States, the official described the proposal as "a vicious attack on property rights and the global financial system established by the United States."

Euroclear refused to provide a statement on the latest legal action. The institution has in the past noted it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to enforce judgments from Russian courts, experts expect Moscow to pursue implementation in nations with stronger ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such assets can be located," commented a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on measures to discourage other nations from aiding any Russian legal action against EU entities. Additionally, they are crafting safeguards to protect EU countries with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the complex plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain untouched.

Kyiv would solely be required to return the loan in the event that Russia consented to pay reparations for the vast 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 approach for funding Ukraine. This entails joint EU borrowing to fund a loan, using unused funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest solution" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it is not drawn from our public funds, which is also significant," she remarked. "Furthermore, it delivers a clear signal that when you cause all this destruction to another country, you must pay for the rebuilding."