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The Russian central bank has stated it is pursuing damages valued at $230 billion against the securities depository Euroclear. This legal step is a clear warning by the Kremlin regarding proposals to utilize immobilized Russian sovereign assets to aid Ukraine.

The Financial Lawsuit

According to accounts in Russian state media, the central bank initiated a claim last week for approximately 18 trillion roubles. This sum corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide later this week on a plan to use approximately €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a large loan to fund its defence and economic stability.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian immobilised sovereign wealth.

Dispute on Ownership

EU officials have argued that their plan is on solid legal ground. They argue is based on the fact that ownership of the sovereign wealth still belongs to Russia, even though it was immobilized in European jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as illegal appropriation. Authorities have threatened retaliatory measures, including confiscating European private investors' assets within Russia.

Kirill Dmitriev, a figure who has assumed a key role in diplomatic talks, stated on X that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a severe assault on the right to ownership and the global financial system established by the United States."

Euroclear refused to provide a statement on the latest lawsuit. It has previously noted it is facing more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are not expected to recognize rulings from Russian courts, experts expect Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such assets can be identified," commented a legal expert from an NSP law firm.

European Safeguards

EU officials said they are developing steps to discourage other countries from assisting any Russian legal action against European entities. They are also designing safeguards to protect EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain untouched.

Kyiv would only be required to repay the loan in the event that Russia agreed to pay reparations for the vast destruction inflicted during the nearly four-year conflict.

Alternative Proposals

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

Such a proposal, however, requires unanimity among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is equally important," she remarked. "It also sends a clear signal that when you cause all this damage to another nation, you have to pay for the rebuilding."