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The Russian central bank has announced it is pursuing damages totaling $230 billion against the securities depository Euroclear. This move is a direct response from the Kremlin against proposals to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the monetary authority filed a claim last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

EU leaders will determine later this week regarding a plan to use around €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a substantial loan to finance its military and economic stability.

Most of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the primary keeper for the Kremlin's immobilised financial reserves.

A Clash Over Legality

European Union officials have argued that their proposal is legally sound. They argue is based on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in EU countries shortly after the 2022 invasion of Ukraine.

Moscow, however, has called any utilization of the funds as theft. Authorities have threatened retaliatory measures, including confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe assault on property rights and the global financial system established by the United States."

The clearing house declined to provide a statement on the latest legal action. It has in the past noted it is contending with more than 100 legal cases in Russian courts.

Enforcement Challenges

While courts in European nations are unlikely to recognize rulings from Russian courts, experts expect Moscow to pursue implementation in countries with closer 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 nations, provided that such holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

European authorities said they are developing measures to discourage other nations from aiding any Russian lawsuits against European entities. Additionally, they are designing safeguards to protect EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would remain untouched.

Ukraine would only be obligated to repay the loan in the event that Russia agreed to pay compensation for the vast damage caused during the ongoing conflict.

Other Funding Ideas

Belgium, 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, backed by unallocated 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 signaled its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is equally important," she remarked. "Furthermore, it delivers a powerful signal that if you cause all this damage to another nation, you must pay for the rebuilding."