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The Russian central bank has declared it is pursuing damages valued at $230 billion from the securities depository Euroclear. This action represents a clear warning by the Kremlin against plans to utilize frozen Russian state funds to aid Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This amount is equivalent to the stated $230 billion claim.

European Union officials will determine in the coming days on a plan to use around €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a substantial loan to fund its defence and financial stability.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the primary keeper for the Russian immobilised sovereign wealth.

Dispute on Ownership

EU authorities have argued that their proposal is legally sound. They argue is based on the principle that title of the state assets remains with Russia, even though it was immobilized in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the assets as theft. Authorities have threatened reciprocal measures, such as seizing European corporate assets within Russia.

Kirill Dmitriev, who has taken on a key role in peace negotiations, wrote on X that Russia "will win in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements seen as an attempt to create division between Europe and the United States, Dmitriev characterized the assets plan as "a severe assault on property rights and the global financial system established by the United States."

The clearing house refused to provide a statement on the new lawsuit. The institution has in the past stated it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to recognize rulings from Russian courts, experts expect Moscow to seek enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are working on measures to discourage other nations from aiding any Russian lawsuits against EU companies. They are also designing protections to protect EU member states with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

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

Kyiv would only be required to repay the money if and when Russia consented to pay compensation for the immense destruction caused during the ongoing conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for funding Ukraine. This involves common EU debt issuance to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, requires full agreement among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our public funds, which is equally important," she stated. "Furthermore, it sends a powerful message that if you cause all this destruction to another country, you must pay for the reparations."