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The Russian central bank has declared it is claiming compensation totaling $230 billion against the financial institution Euroclear. This action constitutes a clear response by the Kremlin against plans to use frozen Russian state assets to aid Ukraine.

The Legal Claim

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

European Union officials will decide later this week on a plan to leverage approximately €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a large loan to finance its defence and financial needs.

Most of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the main keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

European Union authorities have maintained that their proposal is on solid legal ground. Their position is based on the fact that title of the state assets remains with Russia, even though it was frozen in EU jurisdictions following the full-scale invasion of Ukraine.

Moscow, in contrast, has called any use of the assets as theft. It has warned of reciprocal actions, such as confiscating European corporate assets within Russia.

Kirill Dmitriev, who has assumed a prominent position in diplomatic talks, stated on X that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the euro, 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. It has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in EU countries are unlikely to enforce rulings from Russian courts, experts expect Moscow to pursue enforcement in nations with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such assets can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are working on measures to deter other nations from aiding any Russian lawsuits against European entities. Additionally, they are crafting safeguards to shield EU member states with investments in Russia from what they term "unlawful expropriation."

How the Funding Would Work

Under the detailed 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 ownership claim on the principal funds would remain untouched.

Kyiv would solely be obligated to repay the loan if and when Russia agreed to pay compensation for the vast destruction inflicted during the ongoing war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different method for funding Ukraine. This involves common EU borrowing to fund a loan, backed by unused funds within the European budget.

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

Speaking on Monday, the EU top diplomat, a senior official, described the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is equally important," she remarked. "Furthermore, it delivers a clear signal that if you cause all this damage to another nation, you have to pay for the rebuilding."