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

The Legal Claim

Based on 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 determine later this week regarding a plan to use around €210 billion in frozen Russian assets. The proposal entails providing Ukraine with a large loan to finance its military and financial stability.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the main custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

EU authorities have argued that their plan is legally sound. Their position is based on the fact that title of the sovereign wealth still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the 2022 invasion of Ukraine.

Moscow, in contrast, has labeled any use of the funds as theft. Authorities have warned of retaliatory actions, such as seizing European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in peace negotiations, stated on a social media platform that Russia "will prevail in court" and regain its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments seen as an effort to drive a wedge between Europe and the United States, the official characterized the proposal as "a vicious attack on the right to ownership and the international reserves system established by the United States."

Euroclear declined to comment on the new lawsuit. It has in the past noted it is facing more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While courts in EU countries are not expected to recognize rulings from Russian tribunals, analysts expect Moscow to seek enforcement in countries with closer relations to the Kremlin.

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

European Safeguards

EU officials said they are working on measures to discourage other nations from aiding any Russian lawsuits against European entities. Additionally, they are designing safeguards to protect EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would remain unaffected.

Kyiv would solely be required to repay the money in the event that Russia agreed to pay reparations for the immense damage caused during the ongoing war.

Other Funding Ideas

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

This alternative move, however, demands unanimity among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the most credible solution" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is equally significant," she stated. "It also delivers a powerful signal that if you do all this destruction to another nation, you have to pay for the rebuilding."