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The Russian central bank has declared it is seeking damages totaling $230 billion against the securities depository Euroclear. This action constitutes a direct warning from the Kremlin regarding proposals to utilize immobilized Russian state assets to support Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

EU leaders are set to determine later this week regarding a proposal to leverage approximately €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a substantial loan to finance its military and economic stability.

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

Dispute on Ownership

EU officials have argued that their plan is on solid legal ground. They argue is based on the principle that ownership of the state assets still belongs to Russia, despite being it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, however, has called any use of the funds as illegal appropriation. It has warned of reciprocal actions, such as confiscating EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on property rights and the global financial system created by the United States."

The clearing house declined to comment on the new legal action. It has previously noted it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

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

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets can be identified," commented a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on steps to discourage other countries from aiding any Russian legal action against EU entities. Additionally, they are designing safeguards to protect EU countries with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, using the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would only be obligated to repay the money in the event that Russia consented to pay compensation for the vast destruction caused during the nearly four-year war.

Alternative Proposals

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

This alternative move, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is also significant," she remarked. "It also sends a powerful signal that if you do all this destruction to another country, you must pay for the reparations."