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The Russian central bank has declared it is pursuing compensation amounting to $230 billion from the financial institution Euroclear. This move represents a clear response by the Kremlin against proposals to use frozen Russian state funds to aid Ukraine.

The Legal Claim

According to accounts in Russian state media, the monetary authority filed a claim last week for roughly 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

European Union officials are set to decide later this week on a plan to use approximately €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a substantial loan to finance its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union authorities have argued that their plan is legally sound. Their position rests on the fact that title of the state assets still belongs to Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

Moscow, however, has labeled any use of the funds as illegal appropriation. Authorities have warned of retaliatory measures, including seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments 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 refused to comment on the latest legal action. It has previously stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to recognize rulings from Russian courts, analysts anticipate Moscow to pursue enforcement in nations with closer ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such assets can be located," stated a lawyer from an NSP law firm.

European Safeguards

EU officials indicated they are working on steps to discourage other countries from assisting any Russian lawsuits against European entities. They are also crafting safeguards to protect EU member states with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would only be obligated to return the money if and when Russia agreed to pay reparations for the vast damage caused during the ongoing war.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for financing Ukraine. This entails joint EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally important," she stated. "It also sends a clear message that if you cause all this damage to another nation, you must pay for the reparations."