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The Russian central bank has announced it is seeking damages amounting to $230 billion from the financial institution Euroclear. This legal step is a clear response from the Kremlin regarding proposals to use immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on reports in Russian state media, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

EU leaders will decide later this week on a plan to leverage around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a large loan to finance its military and economic needs.

Most of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear acts as the primary keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union authorities have maintained that their proposal is on solid legal ground. Their position is based on the fact that ownership of the state assets still belongs to Russia, despite being it was immobilized in European countries following the full-scale invasion of Ukraine.

Moscow, however, has labeled any utilization of the funds as theft. It has warned of reciprocal actions, such as seizing EU private investors' holdings within Russia.

Kirill Dmitriev, a figure who has taken on a key position in peace negotiations, wrote on X that Russia "will prevail in court" and regain its funds. He warned that the European Union, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, the official described the assets plan as "a vicious attack on the right to ownership and the international reserves system established by the United States."

Euroclear refused to provide a statement on the new legal action. The institution has in the past stated it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

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

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," commented a lawyer from an international firm.

European Safeguards

European authorities said they are developing steps to deter other countries from assisting any Russian lawsuits against European companies. Additionally, they are crafting protections to protect EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain unaffected.

Kyiv would solely be obligated to repay the money in the event that Russia consented to pay reparations for the immense damage caused during the nearly four-year war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different method for financing Ukraine. This involves joint EU borrowing to fund a loan, using unallocated funds within the EU budget.

This alternative move, nevertheless, demands unanimity among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the most credible option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is equally important," she stated. "It also delivers a clear signal that when you cause all this damage to another nation, you must pay for the rebuilding."