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The Russian central bank has announced it is pursuing damages totaling $230 billion against the securities depository Euroclear. This move constitutes a clear warning by the Kremlin against plans to use frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank filed a claim last week for an estimated 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion claim.

EU leaders will decide in the coming days on a plan to leverage approximately €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to fund its military and economic needs.

The vast majority of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union officials have maintained that their proposal is legally sound. Their position is based on the fact that title of the state assets remains with Russia, even though it was immobilized in European jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the funds as illegal appropriation. Authorities have warned of retaliatory measures, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in peace negotiations, stated on a social media platform that Russia "will win in court" and regain its funds. He warned 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, the official characterized the assets plan as "a severe assault on property rights and the global financial system created by the United States."

The clearing house declined to comment on the new legal action. The institution has in the past noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in European nations are not expected to recognize judgments from Russian courts, experts anticipate Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be identified," stated a legal expert from an NSP law firm.

European Safeguards

European authorities said they are working on measures to discourage other nations from assisting any Russian legal action against European entities. They are also designing safeguards to protect EU countries with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain unaffected.

Ukraine would only be obligated to repay the loan in the event that Russia agreed to pay compensation for the immense damage caused during the ongoing war.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails joint EU debt issuance to fund a loan, using unallocated funds within the EU budget.

This alternative move, however, demands unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan 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 clear signal that if you cause all this destruction to another country, you have to pay for the reparations."