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The Russian central bank has declared it is claiming damages amounting to $230 billion from the securities depository Euroclear. This move represents a direct warning from the Kremlin regarding proposals to use frozen Russian state funds to aid Ukraine.

The Legal Claim

According to reports in local state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

European Union officials will decide later this week on a plan to use around €210 billion in frozen Russian assets. The proposal entails providing Ukraine with a substantial loan to finance its defence and economic stability.

The vast majority of these assets, totaling €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the primary custodian for the Kremlin's immobilised sovereign wealth.

Divergent Legal Views

EU officials have argued that their proposal is legally sound. They argue is based on the principle that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in European jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, in contrast, has called any use of the assets as illegal appropriation. Authorities have threatened retaliatory measures, such as seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, stated on X that Russia "will win in court" and retrieve its assets. He warned that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

In comments seen as an effort to drive a wedge between Europe and the United States, the official characterized the proposal as "a vicious assault on property rights and the international reserves system created by the United States."

Euroclear refused to provide a statement on the latest legal action. The institution has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While judges in European nations are not expected to enforce rulings from Russian courts, analysts anticipate Moscow to pursue implementation in nations with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities said they are developing steps to discourage other countries from aiding any Russian legal action against European companies. Additionally, they are crafting safeguards to shield EU countries with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Critically, Russia's ownership claim on the principal funds would remain untouched.

Ukraine would solely be required to repay the money in the event that Russia agreed to pay reparations for the immense damage caused during the nearly four-year conflict.

Alternative Proposals

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

Such a proposal, nevertheless, demands full agreement among all 27 member states. Hungary's government, considered friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU top diplomat, a senior official, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it is not drawn from our public funds, which is also important," she remarked. "Furthermore, it delivers a clear message that if you do all this damage to another country, you have to pay for the reparations."