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The Russian central bank has announced it is claiming damages amounting to $230 billion from the securities depository Euroclear. This legal step constitutes a direct warning from the Kremlin against proposals to use immobilized Russian state assets to support Ukraine.

The Legal Claim

Based on reports in Russian 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 plan to leverage approximately €210 billion in frozen Russian assets. This scheme involves granting Ukraine with a substantial loan to fund its defence and financial needs.

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 Russian frozen sovereign wealth.

A Clash Over Legality

EU officials have maintained that their plan is legally sound. They argue rests on the principle that ownership of the sovereign wealth remains with Russia, despite being it was frozen in EU jurisdictions following the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any utilization of the funds as illegal appropriation. It has warned of retaliatory actions, such as confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, who has assumed a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

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

Euroclear refused to comment on the new lawsuit. It has in the past noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are not expected to recognize judgments from Russian tribunals, experts anticipate Moscow to seek implementation in nations with stronger ties to the Kremlin.

"Russian monetary authorities could try 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 located," stated a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to discourage other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing safeguards to shield EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Ukraine would only be required to return the money in the event that Russia agreed to pay reparations for the immense damage inflicted during the ongoing conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible solution" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, which means it is not drawn from our public funds, which is also significant," she remarked. "Furthermore, it delivers a clear signal that when you do all this destruction to another nation, you must pay for the rebuilding."