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

The Legal Claim

According to reports in Russian news outlets, the monetary authority initiated a claim last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials are set to determine later this week on a plan to use around €210 billion in immobilized Russian assets. This scheme involves providing Ukraine with a large loan to finance its defence and financial stability.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Russian frozen financial reserves.

Divergent Legal Views

EU officials have maintained that their proposal is on solid legal ground. They argue is based on the fact that ownership of the sovereign wealth still belongs to Russia, even though it was immobilized in European jurisdictions following the 2022 invasion of Ukraine.

The Russian government, however, has called any use of the assets as illegal appropriation. It has threatened reciprocal measures, including seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent position in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

With statements interpreted as an attempt 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 created by the United States."

Euroclear declined to provide a statement on the new legal action. It has previously stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although courts in European nations are unlikely to enforce judgments from Russian tribunals, experts expect Moscow to seek enforcement in nations with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," stated a legal expert from an international firm.

EU Countermeasures

European authorities indicated they are working on measures to discourage other countries from assisting any Russian lawsuits against EU companies. They are also designing protections to shield EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would solely be required to return the money in the event that Russia agreed to pay reparations for the immense destruction inflicted during the ongoing war.

Alternative Proposals

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

Such a proposal, however, demands full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also important," she stated. "Furthermore, it delivers a clear signal that when you cause all this destruction to another country, you must pay for the reparations."