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The Russian central bank has declared it is claiming damages amounting to $230 billion against the securities depository Euroclear. This move represents a clear response by the Kremlin against plans to use frozen Russian sovereign assets to aid Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion demand.

European Union officials will determine later this week on a plan to leverage approximately €210 billion in frozen Russian assets. This scheme entails granting Ukraine with a large loan to finance its military and financial needs.

Most of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the primary custodian for the Kremlin's frozen financial reserves.

Divergent Legal Views

EU officials have maintained that their proposal is legally sound. Their position rests on the principle that title of the sovereign wealth still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the full-scale military offensive of Ukraine.

The Russian government, however, has called any use of the funds as theft. It has warned of retaliatory actions, including seizing EU corporate assets within Russia.

Kirill Dmitriev, a figure who has taken on a prominent role in peace negotiations, wrote on X that Russia "will win in court" and retrieve its funds. He added that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments seen as an attempt to create division between Europe and the United States, Dmitriev described the assets plan as "a severe assault on the right to ownership and the international reserves system created by the United States."

The clearing house declined to provide a statement on the new lawsuit. The institution has previously noted it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in EU countries are unlikely to recognize judgments from Russian tribunals, experts anticipate Moscow to seek implementation in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be identified," commented a lawyer from an international firm.

EU Countermeasures

EU officials said they are working on measures to deter other countries from aiding any Russian legal action against EU companies. Additionally, they are designing safeguards to protect EU member states with investments in Russia from what they call "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. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

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

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for financing Ukraine. This involves common EU borrowing to fund a loan, using unallocated funds within the EU budget.

Such a proposal, nevertheless, requires full agreement among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already expressed its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible solution" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is equally important," she remarked. "It also delivers a powerful message that if you cause all this damage to another nation, you must pay for the reparations."