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The Russian central bank has announced it is pursuing damages totaling $230 billion against the securities depository Euroclear. This legal step constitutes a clear warning from the Kremlin regarding proposals to use immobilized Russian state assets to aid Ukraine.

The Financial Lawsuit

Based on reports in local state media, the monetary authority filed a lawsuit last week for an estimated 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

EU leaders are set to decide in the coming days regarding a plan to use around €210 billion in frozen Russian state funds. This scheme involves providing Ukraine with a substantial loan to finance its military and economic stability.

Most of these assets, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the primary keeper for the Kremlin's immobilised financial reserves.

A Clash Over Legality

European Union authorities have maintained that their plan is legally sound. They argue rests on the principle that ownership of the sovereign wealth remains with Russia, even though it was immobilized in European jurisdictions following the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any utilization of the assets as theft. Authorities have threatened reciprocal measures, such as seizing European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, 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 plan.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious attack on the right to ownership and the international reserves system established by the United States."

Euroclear declined to provide a statement on the new lawsuit. It has previously noted it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to seek enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant holdings can be identified," stated a lawyer from an NSP law firm.

EU Countermeasures

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

The Proposed Loan Mechanism

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

Kyiv would only be obligated to return the loan if and when Russia agreed to pay compensation for the vast damage inflicted during the ongoing war.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unallocated funds within the European budget.

Such a proposal, nevertheless, requires full agreement among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally significant," she stated. "Furthermore, it sends a clear message that when you cause all this damage to another nation, you must pay for the reparations."