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The Russian central bank has stated it is claiming damages valued at $230 billion against the securities depository Euroclear. This move constitutes a clear response by the Kremlin regarding plans to utilize immobilized Russian sovereign funds to aid Ukraine.

The Legal Claim

According to accounts in local state media, the central bank initiated a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

EU leaders will decide in the coming days on a plan to leverage around €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a large loan to fund its defence and financial stability.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Russian immobilised sovereign wealth.

Dispute on Ownership

European Union officials have maintained that their plan is on solid legal ground. Their position is based on the fact that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in EU countries following the 2022 invasion of Ukraine.

Moscow, however, has labeled any use of the funds as illegal appropriation. It has warned of reciprocal actions, including confiscating EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in diplomatic talks, stated on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious assault on the right to ownership and the global financial system created by the United States."

The clearing house declined to provide a statement on the new lawsuit. It has previously noted it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are unlikely to recognize rulings from Russian tribunals, experts anticipate Moscow to seek enforcement in countries with stronger ties to the Kremlin.

"Russian monetary authorities could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that such assets can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing steps to deter other nations from assisting any Russian lawsuits against EU entities. They are also crafting safeguards to shield EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

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

Ukraine would solely be required to repay the loan in the event that Russia consented to pay compensation for the immense destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This involves joint 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, viewed as aligned with the Kremlin, has already expressed 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 secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally important," she remarked. "Furthermore, it sends a clear signal that if you do all this damage to another nation, you must pay for the reparations."