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The Russian central bank has declared it is seeking damages totaling $230 billion from the securities depository Euroclear. This action is a clear response by the Kremlin regarding proposals to use immobilized Russian state funds to aid Ukraine.

The Substantial Demand

Based on reports in local news outlets, the central bank filed a lawsuit last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide in the coming days regarding a proposal to leverage approximately €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a substantial loan to fund its defence and financial needs.

Most of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear acts as the primary custodian for the Russian immobilised financial reserves.

A Clash Over Legality

European Union authorities have argued that their proposal is on solid legal ground. Their position rests on the fact that title of the state assets still belongs to Russia, despite being it was frozen in European countries shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the funds as illegal appropriation. Authorities have warned of retaliatory actions, such as seizing European corporate holdings within Russia.

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

Wider Implications

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe assault on property rights and the international reserves system established by the United States."

Euroclear declined to comment on the latest legal action. It has in the past noted it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

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

"Russian monetary authorities 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 relevant holdings can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are working on steps to deter other countries from aiding any Russian lawsuits against European companies. They are also designing safeguards to shield EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be obligated to return the loan in the event that Russia agreed to pay compensation for the vast destruction caused during the nearly four-year war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for funding Ukraine. This involves common EU debt issuance to fund a loan, using unused funds within the European budget.

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

Commenting on Monday, the EU foreign policy chief, a senior official, said the proposed loan scheme as "the strongest solution" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is also significant," she stated. "It also sends a powerful message that when you do all this destruction to another country, you have to pay for the reparations."