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The Russian central bank has declared it is claiming compensation amounting to $230 billion from the financial institution Euroclear. This legal step represents a direct response from the Kremlin against proposals to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on reports in local news outlets, the central bank initiated a claim last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials are set to decide later this week on a plan to leverage around €210 billion in frozen Russian assets. This scheme involves granting Ukraine with a substantial loan to finance its defence and financial needs.

Most of these assets, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the main keeper 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 is based on the fact that title of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the assets as illegal appropriation. It has warned of retaliatory measures, including seizing European corporate holdings within Russia.

Kirill Dmitriev, who has taken on a prominent position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the EU, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

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

The clearing house refused to comment on the new legal action. The institution has previously noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are unlikely to recognize rulings from Russian tribunals, experts expect Moscow to pursue implementation in nations with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be identified," commented a lawyer from an NSP law firm.

European Safeguards

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

How the Funding Would Work

According to the complex plan, 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 ownership claim on the underlying funds would stay unaffected.

Ukraine would solely be obligated to return the loan if and when Russia consented to pay reparations for the vast destruction caused during the ongoing war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for funding Ukraine. This entails common EU borrowing to secure a loan, backed by unallocated funds within the European budget.

Such a proposal, nevertheless, demands unanimity among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it is not drawn from our public funds, which is equally significant," she stated. "Furthermore, it sends a clear signal that when you do all this damage to another nation, you have to pay for the reparations."