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The Russian central bank has announced it is claiming compensation valued at $230 billion against the financial institution Euroclear. This action constitutes a clear warning by the Kremlin against plans to use immobilized Russian state funds to support Ukraine.

The Legal Claim

According to accounts in Russian state media, the central bank initiated a claim last week for approximately 18 trillion roubles. This figure corresponds to the stated $230 billion demand.

EU leaders will determine later this week on a proposal to leverage approximately €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to finance its defence and economic needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. This institution serves as the main custodian for the Russian immobilised sovereign wealth.

Dispute on Ownership

European Union authorities have maintained that their proposal is legally sound. They argue is based on the fact that title of the sovereign wealth remains with Russia, despite being it was immobilized in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, however, has called any use of the assets as illegal appropriation. Authorities have warned of reciprocal actions, such as confiscating EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key role in diplomatic talks, wrote on X that Russia "will win in court" and regain its assets. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a vicious attack on property rights and the global financial system established by the United States."

Euroclear refused to comment on the new legal action. It has previously noted it is contending with over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While judges in EU countries are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to seek implementation in countries 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 friendly states, provided that relevant holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

European authorities said they are working on steps to discourage other countries from aiding any Russian legal action against EU entities. They are also designing protections to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be obligated to repay the money if and when Russia agreed to pay compensation for the vast damage caused during the nearly four-year war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for funding Ukraine. This entails joint EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the most credible option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is equally important," she remarked. "It also sends a clear signal that when you cause all this damage to another nation, you have to pay for the reparations."