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The Russian central bank has declared it is pursuing damages amounting to $230 billion against the securities depository Euroclear. This move is a direct response by the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

According to reports in local state media, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion claim.

European Union officials will decide later this week regarding a plan to leverage around €210 billion in frozen Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its defence and financial needs.

Most of these assets, totaling €185 billion, are stored at the Euroclear depository in Brussels. This institution serves as the main custodian for the Russian frozen financial reserves.

Dispute on Ownership

European Union authorities have maintained that their proposal is on solid legal ground. They argue is based on the principle that title of the state assets still belongs to Russia, even though it was frozen in EU countries shortly after the full-scale invasion of Ukraine.

The Russian government, however, has labeled any use of the funds as theft. It has threatened retaliatory actions, such as confiscating European corporate holdings within Russia.

Kirill Dmitriev, who has assumed a key position in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the assets plan as "a severe assault on the right to ownership and the global financial system created by the United States."

Euroclear declined to comment on the latest lawsuit. It has in the past stated it is contending with more than 100 lawsuits in Russian courts.

Enforcement Challenges

Although courts in European nations are unlikely to enforce rulings from Russian courts, analysts expect Moscow to pursue enforcement in nations with stronger ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant assets can be located," stated a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing measures to discourage other nations from assisting any Russian legal action against EU companies. Additionally, they are designing protections to protect EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

Under the complex scheme, the EU would issue an first €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 remain unaffected.

Ukraine would only be required to repay the loan in the event that Russia agreed to pay compensation for the immense damage inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for financing Ukraine. This entails common EU debt issuance to fund a loan, using unallocated funds within the European budget.

This alternative move, nevertheless, demands full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is equally important," she remarked. "It also delivers a powerful message that if you cause all this damage to another country, you have to pay for the reparations."