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The Russian central bank has announced it is seeking compensation valued at $230 billion against the financial institution Euroclear. This move constitutes a direct response by the Kremlin against proposals to use frozen Russian state funds to aid Ukraine.

The Substantial Demand

According to reports in Russian news outlets, the central bank initiated a claim last week for an estimated 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

EU leaders are set to decide in the coming days on a proposal to use approximately €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a large loan to finance its defence and economic needs.

The vast majority of these assets, totaling €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 on solid legal ground. Their position rests on the fact that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in EU jurisdictions following the full-scale military offensive of Ukraine.

Moscow, however, has called any utilization of the funds as theft. Authorities have warned of retaliatory actions, such as confiscating European private investors' assets within Russia.

Kirill Dmitriev, who has taken on a prominent role in diplomatic talks, wrote on X that Russia "will win in court" and regain its assets. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

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

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

Legal Hurdles Ahead

Although courts in European nations are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to pursue enforcement in countries with closer relations 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 friendly states, provided that relevant holdings can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing steps to discourage other countries from aiding any Russian legal action against EU companies. Additionally, they are designing safeguards to protect 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 issue an first €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Ukraine would only be obligated to repay the money in the event that Russia agreed to pay compensation for the vast damage inflicted during the nearly four-year conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for funding Ukraine. This involves common EU borrowing to fund a loan, using unallocated funds within the European budget.

This alternative move, however, requires unanimity among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally significant," she remarked. "It also delivers a powerful signal that when you do all this destruction to another nation, you have to pay for the rebuilding."