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Russia's monetary authority has announced it is pursuing damages totaling $230 billion from the securities depository Euroclear. This legal step constitutes a clear warning from the Kremlin against plans to use immobilized Russian state funds to support Ukraine.

The Legal Claim

According to accounts in local news outlets, the monetary authority filed a lawsuit last week for an estimated 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

European Union officials are set to decide later this week regarding a plan to use approximately €210 billion in frozen Russian state funds. This scheme entails granting Ukraine with a substantial loan to fund its defence and economic stability.

The vast majority of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

EU officials have maintained that their proposal is legally sound. They argue is based on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions following the 2022 invasion of Ukraine.

The Russian government, however, has called any use of the assets as theft. It has threatened retaliatory actions, including confiscating European private investors' holdings within Russia.

Kirill Dmitriev, who has assumed a key position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

With statements seen as an effort 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 created by the United States."

Euroclear declined to provide a statement on the new legal action. The institution has in the past stated it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in EU countries are not expected to recognize judgments from Russian courts, analysts expect Moscow to pursue implementation in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," commented a lawyer from an international firm.

EU Countermeasures

European authorities said they are developing steps to deter other nations from aiding any Russian lawsuits against European entities. Additionally, they are crafting protections to protect EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would issue an first €90 billion loan to Ukraine, using the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay untouched.

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

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This entails common EU debt issuance to fund a loan, using unallocated funds within the EU budget.

Such a proposal, however, demands full agreement among all 27 member states. The Hungarian government, viewed as aligned with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is also significant," she remarked. "It also delivers a clear message that if you cause all this damage to another country, you have to pay for the rebuilding."