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The Russian central bank has stated it is pursuing compensation totaling $230 billion against the financial institution Euroclear. This move constitutes a clear response by the Kremlin regarding proposals to use immobilized Russian sovereign funds to aid Ukraine.

The Legal Claim

Based on accounts in Russian state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

EU leaders will decide later this week on a proposal to use approximately €210 billion in frozen Russian state funds. This scheme entails granting Ukraine with a substantial loan to finance its military and economic stability.

Most of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the primary keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

EU authorities have maintained that their proposal is legally sound. Their position rests on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in European jurisdictions following the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any utilization of the funds as theft. It has threatened reciprocal measures, including seizing European private investors' assets within Russia.

Kirill Dmitriev, who has assumed a prominent role in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Strategic Positioning

In comments interpreted as an attempt to create division between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on the right to ownership and the international reserves system established by the United States."

Euroclear refused to provide a statement on the latest legal action. It has in the past noted it is facing over 100 legal cases in Russian courts.

Enforcement Challenges

While courts in EU countries are not expected to recognize rulings from Russian courts, experts expect Moscow to pursue implementation in nations with stronger relations to the Kremlin.

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

EU Countermeasures

EU officials said they are developing measures to deter other countries from assisting any Russian lawsuits against EU companies. They are also designing safeguards to protect EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would remain untouched.

Kyiv would only be required to repay the loan in the event that Russia consented to pay compensation for the vast damage caused during the nearly four-year war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for financing Ukraine. This entails common EU debt issuance to fund a loan, backed by unused funds within the EU budget.

This alternative move, however, demands full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible solution" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also significant," she stated. "It also sends a clear signal that when you cause all this damage to another nation, you have to pay for the reparations."