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Russia's monetary authority has declared it is seeking damages totaling $230 billion from the securities depository Euroclear. This legal step represents a direct warning by the Kremlin against plans to use frozen Russian sovereign assets to support Ukraine.

The Legal Claim

Based on reports in local news outlets, the monetary authority filed a claim last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion demand.

EU leaders are set to determine later this week regarding a proposal to use around €210 billion in immobilized Russian state funds. The proposal entails providing Ukraine with a substantial loan to fund its defence and economic needs.

The vast majority of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Russian immobilised financial reserves.

A Clash Over Legality

EU authorities have maintained that their proposal is legally sound. They argue rests on the fact that title of the sovereign wealth remains with Russia, even though it was frozen in EU countries following the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the assets as theft. It has warned of reciprocal measures, including seizing European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a key role in peace negotiations, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements interpreted as an effort to create division between Europe and the United States, the official characterized the proposal as "a severe assault on property rights and the global financial system established by the United States."

The clearing house refused to provide a statement on the latest legal action. It has in the past stated it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although courts in EU countries are not expected to enforce rulings from Russian courts, experts anticipate Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities could try to implement a Russian legal ruling 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 NSP law firm.

European Safeguards

EU officials indicated they are developing measures to discourage other nations from aiding any Russian legal action against EU entities. Additionally, they are crafting safeguards to shield EU countries with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would only be required to return the money if and when Russia agreed to pay reparations for the vast damage inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for funding Ukraine. This involves joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, demands unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is equally significant," she stated. "It also sends a powerful signal that when you cause all this damage to another country, you must pay for the rebuilding."