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The Russian central bank has announced it is pursuing compensation amounting to $230 billion against the financial institution Euroclear. This move constitutes a direct warning from the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

According to accounts in local news outlets, the central bank filed a claim last week for an estimated 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials will determine later this week on a proposal to use around €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a large loan to fund its defence and economic needs.

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

Dispute on Ownership

EU authorities have maintained that their plan is on solid legal ground. They argue rests on the principle that ownership 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 utilization of the funds as illegal appropriation. Authorities have threatened retaliatory measures, including seizing European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, stated on X that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

In comments seen as an effort to create division between Europe and the United States, Dmitriev characterized the assets plan as "a severe assault on property rights and the global financial system created by the United States."

The clearing house refused to comment on the latest legal action. It has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to recognize rulings from Russian tribunals, experts expect Moscow to pursue enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing steps to discourage other nations from aiding any Russian lawsuits against European entities. Additionally, they are designing protections to protect EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the complex scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would remain untouched.

Ukraine would solely be required to return the loan if and when Russia consented to pay compensation for the immense damage inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different approach for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our public funds, which is also important," she remarked. "It also delivers a clear signal that when you cause all this destruction to another country, you must pay for the rebuilding."