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The Russian central bank has declared it is claiming damages valued at $230 billion from the securities depository Euroclear. This legal step represents a clear warning by the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

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

European Union officials are set to determine later this week regarding a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a large loan to fund its defence and economic needs.

Most of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the primary custodian for the Russian frozen sovereign wealth.

Dispute on Ownership

European Union officials have maintained that their proposal is on solid legal ground. Their position is based on the fact that title of the sovereign wealth remains with Russia, even though it was frozen in EU jurisdictions following the 2022 military offensive of Ukraine.

Moscow, however, has called any utilization of the assets as illegal appropriation. Authorities have warned of reciprocal measures, including confiscating EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, wrote on a social media platform 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 proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, the official described the proposal as "a vicious attack on property rights and the global financial system created by the United States."

Euroclear refused to provide a statement on the new lawsuit. The institution has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

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

"Russian monetary authorities 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 assets can be located," commented a lawyer from an international firm.

EU Countermeasures

EU officials said they are developing measures to deter other nations from assisting any Russian legal action against European entities. Additionally, they are crafting protections to shield EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be required to repay the loan if and when Russia consented to pay reparations for the immense damage caused during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different approach for financing Ukraine. This involves common EU debt issuance to secure a loan, backed by unused funds within the EU budget.

This alternative move, however, demands unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is equally significant," she remarked. "Furthermore, it sends a powerful signal that when you cause all this destruction to another country, you must pay for the reparations."