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

The Legal Claim

Based on accounts in Russian news outlets, the central bank initiated a claim last week for approximately 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion demand.

European Union officials are set to decide in the coming days on a proposal to leverage approximately €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a large loan to finance its defence and economic stability.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

European Union officials have argued that their plan is on solid legal ground. They argue is based on the fact that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, however, has labeled any use of the funds as illegal appropriation. It has warned of reciprocal measures, including seizing European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, the official described the proposal as "a severe attack on the right to ownership and the global financial system established by the United States."

Euroclear refused to comment on the latest lawsuit. It has previously noted it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in European nations are unlikely to enforce judgments from Russian tribunals, experts expect Moscow to pursue implementation in countries with stronger ties 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 nations, provided that relevant holdings can be located," stated a lawyer from an NSP law firm.

European Safeguards

European authorities indicated they are working on measures to discourage other countries from aiding any Russian legal action against EU companies. They are also crafting protections to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay untouched.

Ukraine would only be obligated to return the loan if and when Russia agreed to pay reparations for the immense damage caused during the ongoing conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails joint EU borrowing to fund a loan, using unallocated funds within the European budget.

This alternative move, however, demands full agreement among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the most credible option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is equally important," she remarked. "It also delivers a powerful message that when you do all this destruction to another nation, you must pay for the rebuilding."