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The Russian central bank has announced it is pursuing damages valued at $230 billion from the securities depository Euroclear. This legal step is a clear warning by the Kremlin regarding proposals to use frozen Russian state funds to aid Ukraine.

The Legal Claim

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

EU leaders are set to determine in the coming days on a proposal to leverage around €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to fund its military and economic stability.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Russian immobilised sovereign wealth.

Divergent Legal Views

EU officials have argued that their proposal is legally sound. Their position is based on the fact that ownership of the sovereign wealth still belongs to Russia, even though it was immobilized in European countries shortly after the full-scale military offensive of Ukraine.

The Russian government, however, has called any utilization of the assets as illegal appropriation. It has threatened retaliatory measures, including confiscating European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent role in peace negotiations, wrote on X that Russia "will win in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on property rights and the global financial system created by the United States."

Euroclear refused to comment on the latest legal action. It has previously stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While judges in EU countries are not expected to enforce judgments from Russian courts, analysts expect Moscow to pursue implementation in countries with stronger 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 nations, if such holdings can be identified," stated a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are developing measures to deter other nations from aiding any Russian legal action against EU entities. Additionally, they are crafting protections to shield EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

Ukraine would only be required to repay the money if and when Russia agreed to pay compensation for the immense damage inflicted during the ongoing war.

Other Funding Ideas

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

Such a proposal, however, requires full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has already expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also important," she remarked. "It also sends a powerful message that when you cause all this damage to another nation, you have to pay for the rebuilding."