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The Russian central bank has announced it is claiming damages valued at $230 billion from the securities depository Euroclear. This move constitutes a clear warning from the Kremlin regarding proposals to use immobilized Russian state assets to aid Ukraine.

The Substantial Demand

Based on reports in Russian news outlets, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

European Union officials are set to decide later this week regarding a plan to leverage around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a substantial loan to finance its military and financial needs.

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

A Clash Over Legality

EU officials have maintained that their proposal is on solid legal ground. They argue rests on the fact that ownership of the state assets remains with Russia, even though it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as illegal appropriation. It has threatened retaliatory actions, such as confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, who has taken on a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

In comments seen as an attempt to create division between Europe and the United States, the official described the assets plan as "a vicious attack on property rights and the global financial system established by the United States."

Euroclear declined to comment on the new lawsuit. The institution has previously stated it is contending with over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are not expected to enforce rulings from Russian tribunals, experts anticipate Moscow to pursue enforcement in countries with stronger ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be identified," stated a lawyer from an international firm.

European Safeguards

EU officials said they are working on steps to deter other nations from aiding any Russian lawsuits against European entities. Additionally, they are designing protections to protect EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Ukraine would solely be obligated to repay the loan if and when Russia consented to pay reparations for the immense destruction caused during the ongoing conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for funding Ukraine. This involves common EU borrowing to secure a loan, backed by unused funds within the European budget.

Such a proposal, however, requires full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is also important," she stated. "Furthermore, it sends a powerful message that if you do all this destruction to another nation, you have to pay for the rebuilding."