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The Russian central bank has declared it is pursuing damages totaling $230 billion against the financial institution Euroclear. This move represents a clear response from the Kremlin against plans to utilize immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on reports in Russian state media, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide later this week on a plan to leverage approximately €210 billion in immobilized Russian state funds. The proposal involves granting Ukraine with a large loan to fund its military and financial stability.

The vast majority 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 sovereign wealth.

Dispute on Ownership

EU authorities have argued that their plan is legally sound. Their position rests on the principle that ownership of the sovereign wealth remains with Russia, even though it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the funds as illegal appropriation. Authorities have warned of reciprocal actions, such as confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a key position in diplomatic talks, wrote on X 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 proposal.

Strategic Positioning

With statements seen as an effort to drive a wedge between Europe and the United States, the official described the proposal as "a vicious attack on the right to ownership and the international reserves system created by the United States."

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

Enforcement Challenges

Although judges in EU countries are not expected to enforce judgments from Russian courts, analysts expect Moscow to pursue enforcement in nations with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant assets can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

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

The Proposed Loan Mechanism

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

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

Other Funding Ideas

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

This alternative move, nevertheless, demands unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has previously signaled its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally significant," she stated. "Furthermore, it delivers a clear signal that if you cause all this damage to another country, you must pay for the rebuilding."