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The Russian central bank has announced it is claiming damages totaling $230 billion from the securities depository Euroclear. This move constitutes a direct warning by the Kremlin against proposals to use immobilized Russian state funds to support Ukraine.

The Substantial Demand

According to accounts in Russian news outlets, the monetary authority filed a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

European Union officials will decide later this week regarding a plan to use around €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a substantial loan to finance its defence and economic stability.

The vast majority of these assets, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main keeper for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

EU officials have maintained that their proposal is legally sound. They argue is based on the principle that title of the state assets still belongs to Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as illegal appropriation. It has threatened retaliatory actions, such as confiscating European corporate holdings within Russia.

Kirill Dmitriev, who has assumed a key role in diplomatic talks, stated on X that Russia "will win in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements interpreted as an attempt to drive a wedge between Europe and the United States, the official described the proposal as "a severe assault on property rights and the global financial system established by the United States."

Euroclear declined to comment on the latest legal action. It has previously stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in European nations are unlikely to enforce rulings from Russian tribunals, experts expect Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia may attempt to enforce 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," commented a lawyer from an NSP law firm.

European Safeguards

EU officials said they are working on measures to deter other countries from assisting any Russian lawsuits against EU companies. They are also designing safeguards to shield EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be required to repay the loan if and when Russia agreed to pay reparations for the vast damage inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This involves common EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously expressed its opposition.

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