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The Russian central bank has announced it is seeking damages totaling $230 billion against the securities depository Euroclear. This move represents a clear warning by the Kremlin regarding plans to utilize frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

According to accounts in local state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This figure is equivalent to the stated $230 billion demand.

European Union officials will decide later this week regarding a plan to leverage approximately €210 billion in immobilized Russian state funds. This scheme involves granting Ukraine with a large loan to finance its military and economic stability.

Most of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian frozen financial reserves.

Dispute on Ownership

EU officials have maintained that their proposal is legally sound. Their position rests on the principle that title of the sovereign wealth remains with Russia, despite being it was immobilized in EU countries following the 2022 invasion of Ukraine.

Moscow, however, has called any use of the funds as illegal appropriation. It has threatened reciprocal measures, including confiscating EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a prominent role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Geopolitical Maneuvering

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

Euroclear refused to comment on the new legal action. The institution has previously stated it is facing more than 100 lawsuits in Russian courts.

Enforcement Challenges

Although judges in EU countries are not expected to enforce judgments from Russian courts, analysts anticipate Moscow to seek implementation in countries with closer ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such holdings can be identified," commented a lawyer from an international firm.

EU Countermeasures

European authorities said they are developing measures to discourage other nations from assisting any Russian lawsuits against European entities. Additionally, they are designing safeguards to protect EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an first €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would only be required to repay the loan if and when Russia consented to pay compensation for the vast damage inflicted during the ongoing war.

Other Funding Ideas

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

Such a proposal, nevertheless, requires unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is also important," she stated. "Furthermore, it sends a powerful message that if you do all this destruction to another country, you have to pay for the reparations."