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Russia's monetary authority has stated it is claiming damages amounting to $230 billion against the securities depository Euroclear. This legal step is a direct response from the Kremlin against proposals to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on reports in Russian state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

EU leaders will decide in the coming days regarding a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a substantial loan to fund its defence and financial stability.

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

Divergent Legal Views

EU officials have maintained that their proposal is on solid legal ground. Their position is based on the principle that title of the state assets still belongs to Russia, despite being it was immobilized in EU countries following the 2022 invasion of Ukraine.

Moscow, in contrast, has called any utilization of the assets as illegal appropriation. It has threatened retaliatory actions, including confiscating European private investors' holdings within Russia.

Kirill Dmitriev, who has assumed a prominent position in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its funds. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

In comments interpreted as an attempt to create division between Europe and the United States, the official characterized the proposal as "a severe attack on property rights and the international reserves system created by the United States."

Euroclear refused to comment on the new legal action. It has previously stated it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

While judges in European nations are unlikely to recognize judgments from Russian courts, experts anticipate Moscow to pursue implementation in nations with stronger relations 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 sympathetic nations, provided that such holdings can be identified," commented a legal expert from an international firm.

EU Countermeasures

European authorities said they are working on steps to deter other countries from assisting any Russian legal action against European companies. Additionally, they are designing safeguards to protect EU countries with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would provide an initial €90 billion loan to Ukraine, using the cash earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay untouched.

Kyiv would only be obligated to return the loan if and when Russia agreed to pay compensation for the vast damage inflicted during the nearly four-year conflict.

Alternative Proposals

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

This alternative move, however, demands full agreement among all 27 EU countries. Hungary's government, viewed as aligned with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the most credible solution" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is also significant," she remarked. "Furthermore, it sends a powerful signal that if you cause all this damage to another country, you must pay for the reparations."