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Russia's monetary authority has declared it is claiming damages amounting to $230 billion against the financial institution Euroclear. This move is a clear response by the Kremlin regarding plans to utilize immobilized Russian sovereign assets to aid Ukraine.

The Legal Claim

Based on reports in local news outlets, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

European Union officials will determine in the coming days regarding a plan to use approximately €210 billion in immobilized Russian state funds. The proposal involves granting Ukraine with a large loan to finance its defence and economic needs.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the primary custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

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

The Russian government, in contrast, has called any use of the assets as illegal appropriation. It has threatened retaliatory actions, such as seizing European private investors' assets within Russia.

Kirill Dmitriev, who has assumed a key role in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev characterized the assets plan as "a severe attack on property rights and the global financial system established by the United States."

Euroclear declined to provide a statement on the latest legal action. The institution has in the past stated it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While judges in EU countries are unlikely to recognize rulings from Russian courts, experts expect Moscow to pursue enforcement in nations with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are working on measures to discourage other countries from assisting any Russian legal action against European companies. They are also designing safeguards to shield EU member states with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

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

Kyiv would only be obligated to repay the loan in the event that Russia agreed to pay compensation for the vast destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different method for funding Ukraine. This involves common EU debt issuance to fund a loan, backed by unused funds within the EU budget.

Such a proposal, however, demands unanimity among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also important," she remarked. "Furthermore, it delivers a powerful signal that if you do all this damage to another country, you have to pay for the rebuilding."