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The Russian central bank has declared it is claiming damages totaling $230 billion from the securities depository Euroclear. This move represents a direct response from the Kremlin against plans to use immobilized Russian state funds to aid Ukraine.

The Legal Claim

Based on accounts in local news outlets, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

EU leaders will decide later this week on a plan to leverage approximately €210 billion in immobilized Russian assets. This scheme entails providing Ukraine with a large loan to fund its military and financial needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the main keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union authorities have maintained that their plan is legally sound. Their position rests on the fact that title of the state assets still belongs to Russia, even though it was immobilized in European jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the assets as theft. It has warned of retaliatory measures, including seizing EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a key position in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a vicious attack on property rights and the international reserves system created by the United States."

Euroclear declined to comment on the latest legal action. It has in the past noted it is facing more than 100 lawsuits in Russian courts.

Enforcement Challenges

Although judges in EU countries are unlikely to recognize judgments from Russian courts, analysts anticipate Moscow to pursue implementation in nations with closer relations to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant holdings can be identified," commented a lawyer from an NSP law firm.

European Safeguards

European authorities indicated they are working on steps to discourage other nations from aiding any Russian lawsuits against European entities. Additionally, they are designing protections to shield EU member states with investments in Russia from what they term "unlawful expropriation."

How the Funding Would Work

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to return the loan if and when Russia consented to pay compensation for the immense damage caused during the ongoing war.

Alternative Proposals

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

This alternative move, however, requires unanimity among all 27 EU countries. Hungary's government, viewed as aligned with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is equally important," she remarked. "It also delivers a powerful signal that if you cause all this destruction to another country, you must pay for the reparations."