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The Russian central bank has declared it is claiming damages valued at $230 billion against the securities depository Euroclear. This legal step represents a direct response by the Kremlin against proposals to utilize immobilized Russian state funds to support Ukraine.

The Legal Claim

According to accounts in local state media, the monetary authority initiated a claim last week for an estimated 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion demand.

EU leaders will decide in the coming days regarding a plan to use approximately €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a large loan to fund its military and financial needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

EU officials have argued that their plan is legally sound. Their position is based on the fact that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in EU countries following the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the assets as illegal appropriation. It has threatened retaliatory actions, such as confiscating European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, stated on a social media platform that Russia "will win in court" and regain its funds. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an effort to create division between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on property rights and the international reserves system established by the United States."

Euroclear declined to comment on the new legal action. The institution has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While courts in European nations are unlikely to enforce rulings from Russian courts, analysts anticipate Moscow to seek enforcement in nations with stronger ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be identified," stated a lawyer from an international firm.

EU Countermeasures

EU officials said they are developing measures to deter other countries from assisting any Russian legal action against European entities. Additionally, they are designing safeguards to shield EU countries with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the complex scheme, the EU would issue an first €90 billion loan to Ukraine, using the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain untouched.

Ukraine would solely be obligated to repay the money in the event that Russia consented to pay compensation for the vast damage caused during the ongoing conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different method for funding Ukraine. This involves joint EU borrowing to fund a loan, using unallocated funds within the European budget.

Such a proposal, however, requires unanimity among all 27 member states. Hungary's government, considered aligned with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it is not drawn from our public funds, which is equally significant," she stated. "It also delivers a powerful message that when you cause all this destruction to another country, you have to pay for the rebuilding."