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

The Legal Claim

Based on accounts in Russian state media, the central bank filed a claim last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

EU leaders are set to decide later this week regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a large loan to fund its defence and financial stability.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the primary custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

EU authorities have argued that their plan is legally sound. Their position rests on the fact that title of the sovereign wealth still belongs to Russia, despite being it was immobilized in European countries shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as theft. Authorities have warned of reciprocal measures, such as confiscating EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a key position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev described the proposal as "a severe attack on property rights and the global financial system created by the United States."

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

Enforcement Challenges

While judges in EU countries are unlikely to enforce rulings from Russian courts, analysts anticipate Moscow to seek implementation in countries with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such assets can be located," commented a lawyer from an NSP law firm.

European Safeguards

European authorities indicated they are working on steps to discourage other countries from assisting any Russian legal action against European entities. Additionally, they are designing safeguards to protect EU countries with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an first €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to return the money in the event that Russia agreed to pay compensation for the immense destruction caused during the ongoing war.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for financing Ukraine. This entails joint EU borrowing to secure a loan, backed by unallocated funds within the European budget.

This alternative move, nevertheless, demands full agreement among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is also significant," she stated. "It also sends a powerful signal that if you cause all this damage to another country, you must pay for the reparations."