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Russia's monetary authority has declared it is pursuing damages totaling $230 billion against the financial institution Euroclear. This action constitutes a direct response from the Kremlin against proposals to use immobilized Russian sovereign funds to support Ukraine.

The Financial Lawsuit

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

European Union officials are set to determine in the coming days on a plan to use approximately €210 billion in frozen Russian state funds. This scheme involves providing Ukraine with a substantial loan to finance its defence and economic stability.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Russian frozen sovereign wealth.

Dispute on Ownership

EU authorities have argued that their plan is legally sound. Their position is based on the fact that ownership of the state assets remains with Russia, even though it was immobilized in EU countries shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the funds as theft. It has warned of retaliatory measures, including seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key position in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the euro, and Euroclear "will face consequences" from the plan.

Strategic Positioning

In comments interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the international reserves system created by the United States."

Euroclear declined to comment on the latest legal action. It has previously noted it is facing more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

While judges in EU countries are not expected to recognize judgments from Russian tribunals, experts expect Moscow to seek implementation in countries with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be located," stated a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing measures to discourage other countries from aiding any Russian lawsuits against EU companies. They are also crafting safeguards to shield EU member states with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

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

Ukraine would solely be required to repay the money if and when Russia consented to pay reparations for the immense destruction caused during the ongoing war.

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 entails joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

This alternative move, however, requires unanimity among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it doesn't come from our public funds, which is equally important," she stated. "It also delivers a clear message that when you cause all this damage to another country, you must pay for the reparations."