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The Russian central bank has announced it is seeking damages amounting to $230 billion against the securities depository Euroclear. This move represents a direct response by the Kremlin regarding proposals to use immobilized Russian sovereign funds to support Ukraine.

The Financial Lawsuit

Based on reports in local news outlets, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide later this week regarding a proposal to leverage around €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to finance its defence and economic needs.

Most of these assets, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian immobilised financial reserves.

Dispute on Ownership

EU authorities have maintained that their proposal is legally sound. Their position rests on the fact that title of the state assets still belongs to Russia, despite being it was frozen in EU jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, however, has called any use of the assets as theft. It has warned of retaliatory measures, including seizing European private investors' holdings within Russia.

Kirill Dmitriev, a figure who has assumed a prominent role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Geopolitical Maneuvering

With statements seen as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a severe attack on property rights and the global financial system created by the United States."

Euroclear refused to provide a statement on the new legal action. The institution has previously noted it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in European nations are unlikely to enforce rulings from Russian courts, experts expect Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such assets can be located," commented a legal expert from an NSP law firm.

European Safeguards

EU officials indicated they are developing steps to deter other nations from assisting any Russian legal action against European companies. Additionally, they are crafting protections to protect EU countries with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the complex plan, the EU would provide an initial €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would only be required to repay the money in the event that Russia agreed to pay compensation for the vast destruction caused during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for funding Ukraine. This entails common EU debt issuance to secure a loan, using unallocated funds within the EU budget.

This alternative move, nevertheless, demands unanimity among all 27 member states. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is also important," she stated. "It also sends a powerful signal that if you cause all this destruction to another nation, you must pay for the reparations."