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The Russian central bank has announced it is seeking damages totaling $230 billion against the securities depository Euroclear. This legal step is a direct response by the Kremlin regarding proposals to utilize frozen Russian state assets to support Ukraine.

The Legal Claim

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

EU leaders are set to determine later this week on a proposal to leverage around €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a substantial loan to finance its military and economic stability.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution serves as the main keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

European Union authorities have maintained that their plan is on solid legal ground. They argue is based on the principle that title of the sovereign wealth remains with Russia, despite being it was frozen in EU countries following the full-scale invasion of Ukraine.

The Russian government, however, has called any use of the assets as illegal appropriation. Authorities have threatened retaliatory actions, such as seizing European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent role in diplomatic talks, 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 face consequences" from the proposal.

Wider Implications

In comments interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the international reserves system created by the United States."

The clearing house refused to comment on the new lawsuit. It has previously noted it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While judges in EU countries are unlikely to recognize judgments from Russian tribunals, analysts anticipate Moscow to pursue enforcement in nations with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such assets can be identified," stated a legal expert from an NSP law firm.

European Safeguards

European authorities indicated they are developing measures to deter other countries from assisting any Russian lawsuits against European entities. Additionally, they are designing safeguards to protect EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would only be obligated to return the money if and when Russia agreed to pay compensation for the vast destruction inflicted during the ongoing war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for financing Ukraine. This involves common EU borrowing to secure a loan, backed by unallocated funds within the European budget.

This alternative move, however, requires unanimity among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it is not drawn from our public funds, which is equally significant," she remarked. "Furthermore, it delivers a clear signal that if you do all this damage to another country, you must pay for the reparations."