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Russia's monetary authority has declared it is claiming damages totaling $230 billion from the securities depository Euroclear. This move is a direct warning by the Kremlin against proposals to use frozen Russian state funds to aid Ukraine.

The Substantial Demand

Based on accounts in local news outlets, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion claim.

EU leaders will decide later this week on a proposal to leverage approximately €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a large loan to fund its military and economic stability.

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

Divergent Legal Views

EU officials have maintained that their plan is on solid legal ground. Their position rests on the fact that title of the state assets remains with Russia, even though it was frozen in EU countries following the full-scale military offensive of Ukraine.

Moscow, however, has called any use of the funds as theft. It has warned of retaliatory actions, including seizing EU corporate holdings within Russia.

Kirill Dmitriev, who has assumed a prominent position in peace negotiations, stated on X that Russia "will prevail in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements seen as an attempt to create division between Europe and the United States, the official characterized 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 comment on the new legal action. The institution has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While courts in EU countries are unlikely to enforce rulings from Russian courts, experts anticipate Moscow to seek implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing measures to discourage other countries from aiding any Russian legal action against EU companies. They are also designing safeguards to protect EU countries with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would provide an first €90 billion loan to Ukraine, using 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 required to return the loan in the event that Russia agreed to pay compensation for the immense damage inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for financing Ukraine. This entails joint EU debt issuance to secure a loan, backed by unused funds within the European budget.

This alternative move, however, demands unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the strongest option" for supporting 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 stated. "It also sends a clear signal that when you do all this damage to another country, you have to pay for the reparations."