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The Russian central bank has declared it is seeking compensation amounting to $230 billion against the financial institution Euroclear. This legal step is a direct warning by the Kremlin against proposals to utilize immobilized Russian state funds to support Ukraine.

The Legal Claim

Based on reports in local state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

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

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the primary custodian for the Russian frozen sovereign wealth.

Divergent Legal Views

European Union authorities have maintained that their plan is legally sound. Their position rests on the principle that ownership of the state assets still belongs to Russia, even though it was immobilized in EU countries following the 2022 invasion of Ukraine.

Moscow, however, has labeled any utilization of the funds as illegal appropriation. Authorities have warned of retaliatory actions, such as seizing EU corporate assets within Russia.

Kirill Dmitriev, who has taken on a prominent position in peace negotiations, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a vicious attack on the right to ownership and the international reserves system created by the United States."

Euroclear declined to comment on the latest legal action. The institution has in the past stated it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in EU countries are not expected to enforce judgments from Russian courts, experts expect Moscow to seek implementation in nations with stronger ties to the Kremlin.

"The Bank of Russia 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 holdings can be identified," stated a lawyer from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other countries from assisting any Russian legal action against EU companies. Additionally, they are designing protections to protect EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the cash earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay untouched.

Kyiv would only be required to return the money in the event that Russia consented to pay compensation for the immense destruction inflicted during the nearly four-year conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for financing Ukraine. This entails common EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously signaled its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is also important," she stated. "It also sends a clear signal that if you cause all this destruction to another country, you must pay for the reparations."