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The Russian central bank has declared it is pursuing compensation amounting to $230 billion from the financial institution Euroclear. This action constitutes a clear response from the Kremlin regarding plans to utilize immobilized Russian sovereign assets to support Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the central bank filed a claim last week for approximately 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion claim.

EU leaders are set to decide later this week regarding a proposal to use around €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a large loan to fund its defence and economic stability.

Most of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the main custodian for the Russian immobilised sovereign wealth.

A Clash Over Legality

EU officials have maintained that their plan is legally sound. They argue is based on the fact that title of the state assets remains with Russia, even though it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any utilization of the assets as illegal appropriation. Authorities have warned of retaliatory actions, including confiscating European private investors' assets within Russia.

Kirill Dmitriev, a figure who has assumed a prominent role in diplomatic talks, stated on a social media platform that Russia "will win in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments seen as an attempt to create division between Europe and the United States, the official described 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 noted it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to enforce rulings from Russian tribunals, analysts anticipate Moscow to pursue implementation in countries with stronger relations 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 sympathetic nations, if relevant assets can be located," stated a lawyer from an NSP law firm.

European Safeguards

European authorities said they are developing measures to discourage other countries from assisting any Russian legal action against European entities. Additionally, they are crafting safeguards to shield EU countries with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

Ukraine would only be required to return the money if and when Russia consented to pay compensation for the immense damage inflicted during the nearly four-year war.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This involves common EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, demands full agreement among all 27 member states. Hungary's government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is equally significant," she stated. "Furthermore, it sends a clear signal that when you cause all this destruction to another nation, you must pay for the reparations."