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Russia's monetary authority has announced it is pursuing damages totaling $230 billion against the securities depository Euroclear. This legal step is a clear warning by the Kremlin against plans to use frozen Russian state funds to support Ukraine.

The Substantial Demand

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

EU leaders will decide in the coming days on a plan to use approximately €210 billion in frozen Russian state funds. The proposal entails providing Ukraine with a substantial loan to finance its defence and economic needs.

Most of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

EU officials have argued that their proposal is legally sound. Their position is based on the principle that ownership of the sovereign wealth still belongs to Russia, even though it was immobilized in EU countries shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the assets as theft. Authorities have warned of retaliatory actions, including confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, a figure who has taken on a prominent position in peace negotiations, wrote on X 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 seen as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the assets plan as "a vicious attack on the right to ownership and the international reserves system created by the United States."

Euroclear refused to provide a statement on the latest legal action. It has in the past stated it is facing over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are not expected to recognize judgments from Russian courts, analysts 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 countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant assets can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing measures to deter other nations from assisting any Russian lawsuits against European entities. Additionally, they are crafting protections to shield EU countries with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to repay the loan in the event that Russia agreed to pay compensation for the vast destruction caused during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for funding Ukraine. This involves common EU debt issuance to fund a loan, using unused funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the most credible option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is equally important," she stated. "It also sends a clear message that if you do all this damage to another nation, you must pay for the rebuilding."