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The Russian central bank has stated it is seeking damages amounting to $230 billion from the securities depository Euroclear. This move is a direct response by the Kremlin against proposals to use frozen Russian state funds to aid Ukraine.

The Legal Claim

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

European Union officials are set to decide later this week on a proposal to leverage around €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a large loan to finance its military and financial needs.

Most of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian immobilised financial reserves.

Dispute on Ownership

European Union officials have maintained that their proposal is legally sound. Their position is based on the principle that ownership of the sovereign wealth remains with Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any use of the assets as illegal appropriation. It has threatened reciprocal actions, such as seizing European private investors' assets within Russia.

Kirill Dmitriev, who has taken on a prominent role in peace negotiations, stated on X that Russia "will win in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

With statements 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."

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

Enforcement Challenges

Although judges in EU countries are not expected to enforce rulings from Russian tribunals, experts expect Moscow to seek implementation in nations with closer ties to the Kremlin.

"The Bank of Russia 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 holdings can be identified," commented a lawyer from an NSP law firm.

European Safeguards

EU officials said they are developing measures to deter other nations from aiding any Russian legal action against EU companies. They are also designing protections to shield EU member states with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

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

Kyiv would only be obligated to repay the loan in the event that Russia agreed to pay reparations for the vast damage inflicted during the ongoing conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for funding Ukraine. This entails joint EU debt issuance to secure a loan, using unallocated funds within the European budget.

This alternative move, however, demands full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the most credible option" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it doesn't come from our public funds, which is equally important," she stated. "It also delivers a powerful signal that when you cause all this damage to another country, you must pay for the rebuilding."