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The Russian central bank has declared it is pursuing damages amounting to $230 billion against the securities depository Euroclear. This action represents a direct warning by the Kremlin against proposals to use frozen Russian state assets to support Ukraine.

The Substantial Demand

Based on accounts in Russian news outlets, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

European Union officials will decide later this week regarding a proposal to leverage approximately €210 billion in frozen Russian assets. This scheme entails granting 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 clearing house in Brussels. This institution serves as the primary keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union authorities have maintained that their proposal is on solid legal ground. They argue rests on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions following the full-scale military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as theft. Authorities have threatened reciprocal actions, such as confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent role in diplomatic talks, stated on a social media platform that Russia "will win in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

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

Euroclear declined to comment on the new lawsuit. It has in the past noted it is facing over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While judges in European nations are not expected to enforce judgments from Russian courts, analysts expect Moscow to pursue 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 jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such holdings can be identified," stated a lawyer from an international firm.

EU Countermeasures

EU officials said they are working on steps to discourage other nations from assisting any Russian legal action against European companies. Additionally, they are crafting protections to shield EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

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

Ukraine would only be required to repay the money in the event that Russia consented to pay reparations for the immense destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails common EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, demands full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it is not drawn from our public funds, which is equally important," she stated. "Furthermore, it delivers a clear signal that if you do all this damage to another country, you must pay for the reparations."