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Russia's monetary authority has declared it is seeking damages amounting to $230 billion from the financial institution Euroclear. This action is a clear response from the Kremlin regarding proposals to use immobilized Russian sovereign assets to support Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

European Union officials are set to determine in the coming days on a plan to leverage approximately €210 billion in immobilized Russian assets. This scheme involves granting Ukraine with a large loan to finance its defence and financial needs.

Most of these assets, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian frozen financial reserves.

A Clash Over Legality

European Union authorities have maintained that their proposal is legally sound. They argue rests on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in EU countries shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has labeled any use of the assets as theft. It has threatened retaliatory measures, such as confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in diplomatic talks, stated on X that Russia "will win in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments seen as an effort to create division between Europe and the United States, Dmitriev described the proposal as "a severe assault on the right to ownership and the global financial system established by the United States."

Euroclear declined to comment on the latest legal action. The institution has previously stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are unlikely to recognize rulings from Russian tribunals, analysts expect Moscow to seek implementation in countries with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if relevant holdings can be identified," stated a lawyer from an international firm.

European Safeguards

EU officials said they are working on measures to deter other nations from aiding any Russian lawsuits against European companies. Additionally, they are crafting safeguards to protect EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would provide an first €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would solely be obligated to repay the loan in the event that Russia agreed to pay reparations for the immense damage inflicted during the ongoing war.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for financing Ukraine. This involves common EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, requires full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is equally important," she stated. "It also sends a clear signal that when you do all this damage to another nation, you must pay for the reparations."