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The Russian central bank has announced it is claiming compensation totaling $230 billion against the financial institution Euroclear. This legal step represents a clear response by the Kremlin against plans to use immobilized Russian sovereign funds to aid Ukraine.

The Legal Claim

Based on reports in Russian state media, the central bank initiated a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion claim.

European Union officials will determine later this week on a plan to use around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a substantial loan to finance its defence and economic needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the main custodian for the Russian frozen sovereign wealth.

A Clash Over Legality

European Union officials have argued that their plan is on solid legal ground. They argue rests on the fact that title of the sovereign wealth remains with Russia, despite being it was frozen in European jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has labeled any utilization of the funds as illegal appropriation. Authorities have warned of reciprocal measures, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in diplomatic talks, wrote 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 face consequences" from the proposal.

Strategic Positioning

With statements interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on property rights and the international reserves system established by the United States."

Euroclear declined to comment on the latest legal action. The institution has previously stated it is facing more than 100 lawsuits in Russian courts.

Enforcement Challenges

While courts in European nations are unlikely to enforce rulings from Russian tribunals, analysts anticipate Moscow to seek implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant assets can be identified," stated a legal expert from an international firm.

European Safeguards

European authorities said they are developing steps to deter other countries from aiding any Russian legal action against European companies. Additionally, they are designing protections to shield EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the complex plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to return the loan if and when Russia consented to pay compensation for the vast damage caused during the ongoing conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for funding Ukraine. This involves joint EU borrowing to fund a loan, using unused funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also important," she stated. "Furthermore, it sends a powerful message that when you cause all this destruction to another nation, you have to pay for the rebuilding."