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The Russian central bank has declared it is pursuing damages totaling $230 billion against the securities depository Euroclear. This legal step constitutes a direct response by the Kremlin regarding plans to use frozen Russian state funds to aid Ukraine.

The Substantial Demand

Based on reports in Russian state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This sum is equivalent to the stated $230 billion demand.

European Union officials are set to determine in the coming days regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. The proposal involves providing Ukraine with a large loan to finance its defence and financial needs.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the primary keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union officials have maintained that their proposal is on solid legal ground. Their position rests on the principle that title of the sovereign wealth still belongs to Russia, despite being it was frozen in EU jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has called any use of the funds as theft. Authorities have warned of reciprocal actions, such as confiscating European corporate assets within Russia.

Kirill Dmitriev, a figure who has assumed a prominent role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and regain its funds. He added that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

In comments seen as an attempt to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious assault on property rights and the international reserves system created by the United States."

Euroclear declined to provide a statement on the new lawsuit. The institution has previously stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are not expected to recognize judgments from Russian tribunals, experts expect Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that such holdings can be located," commented a lawyer from an international firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other countries from assisting any Russian legal action against EU entities. Additionally, they are designing protections to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Kyiv would solely be obligated to return the loan if and when Russia agreed to pay compensation for the vast damage caused during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for financing Ukraine. This entails joint EU debt issuance to fund a loan, backed by unused funds within the EU budget.

This alternative move, however, requires unanimity among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it doesn't come from our public funds, which is also significant," she stated. "Furthermore, it delivers a powerful message that when you cause all this destruction to another nation, you have to pay for the reparations."