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The Russian central bank has declared it is pursuing damages valued at $230 billion from the securities depository Euroclear. This action constitutes a direct response by the Kremlin regarding plans to use frozen Russian state assets to support Ukraine.

The Legal Claim

According to reports in Russian state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This amount is equivalent to the stated $230 billion claim.

European Union officials will decide in the coming days on a proposal to use around €210 billion in immobilized Russian assets. The proposal involves providing Ukraine with a large loan to finance its military and economic needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear acts as the primary keeper for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

EU authorities have argued that their proposal is legally sound. Their position is based on the principle that title of the state assets still belongs to Russia, even though it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the funds as illegal appropriation. Authorities have threatened reciprocal measures, such as confiscating European corporate assets within Russia.

Kirill Dmitriev, who has taken on a key position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

With statements interpreted 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 international reserves system created by the United States."

Euroclear refused to comment on the new lawsuit. It has previously noted it is contending with more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While judges in EU countries are unlikely to recognize judgments from Russian courts, analysts anticipate Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be identified," stated a legal expert from an international firm.

European Safeguards

European authorities said they are working on measures to deter other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing safeguards to shield EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the detailed plan, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Kyiv would solely be obligated to return the money in the event that Russia agreed to pay reparations for the vast destruction caused during the nearly four-year conflict.

Other Funding Ideas

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

Such a proposal, however, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally significant," she stated. "It also delivers a powerful message that if you do all this damage to another nation, you have to pay for the rebuilding."