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The Russian central bank has announced it is seeking compensation totaling $230 billion from the financial institution Euroclear. This move constitutes a direct response from the Kremlin regarding plans to use immobilized Russian state assets to support Ukraine.

The Legal Claim

Based on accounts in local news outlets, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

EU leaders are set to determine later this week regarding a proposal to use approximately €210 billion in frozen Russian assets. This scheme entails providing Ukraine with a large loan to finance its military and financial needs.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear acts as the primary custodian for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

EU officials have maintained that their plan is legally sound. They argue is based on the fact that title of the state assets remains with Russia, even though it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the assets as theft. It has warned of reciprocal actions, such as seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in peace negotiations, stated on X that Russia "will win in court" and retrieve its assets. He warned that the EU, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

With statements seen as an attempt to create division between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the international reserves system created by the United States."

The clearing house declined to provide a statement on the latest lawsuit. It has previously stated it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in European nations are not expected to recognize rulings from Russian courts, experts expect Moscow to pursue enforcement in nations with closer ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be located," stated a lawyer from an NSP law firm.

European Safeguards

EU officials said they are working on steps to deter other countries from aiding any Russian legal action against European entities. They are also crafting safeguards to shield EU countries with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

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

Ukraine would only be required to return the money in the event that Russia consented to pay compensation for the vast damage inflicted during the nearly four-year war.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for financing Ukraine. This entails common EU debt issuance to secure a loan, using unused funds within the EU budget.

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, said the proposed loan scheme as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally significant," she stated. "It also delivers a clear message that when you do all this damage to another country, you have to pay for the rebuilding."