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The Russian central bank has declared it is pursuing damages totaling $230 billion against the financial institution Euroclear. This legal step constitutes a clear response from the Kremlin regarding proposals to use frozen Russian sovereign assets to support Ukraine.

The Financial Lawsuit

Based on reports in local news outlets, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

EU leaders will determine later this week on a plan to use approximately €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a large loan to fund its military and financial needs.

Most of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Russian immobilised financial reserves.

A Clash Over Legality

EU authorities have argued that their plan is legally sound. They argue is based on the principle that ownership of the state assets still belongs to Russia, despite being it was immobilized in European countries following the full-scale military offensive of Ukraine.

Moscow, however, has called any use of the funds as theft. Authorities have warned of retaliatory actions, including seizing EU private investors' holdings within Russia.

Kirill Dmitriev, who has taken on a prominent position in diplomatic talks, stated on X that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe attack on the right to ownership and the global financial system created by the United States."

Euroclear declined to comment on the new legal action. It has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Enforcement Challenges

While courts in European nations are not expected to enforce judgments from Russian tribunals, analysts expect Moscow to pursue implementation in nations 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 assets can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are working on steps to discourage other nations from aiding any Russian lawsuits against EU entities. Additionally, they are crafting safeguards to protect EU member states with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the complex plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain unaffected.

Ukraine would solely be required to return the money if and when Russia consented to pay reparations for the vast damage caused during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different method for financing Ukraine. This entails joint EU debt issuance to fund a loan, backed by unallocated funds within the European budget.

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is equally important," she remarked. "It also sends a powerful message that when you do all this damage to another country, you have to pay for the reparations."