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The Russian central bank has declared it is seeking compensation totaling $230 billion against the financial institution Euroclear. This move is a clear warning from the Kremlin against proposals to use immobilized Russian sovereign assets 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 figure corresponds to the stated $230 billion claim.

EU leaders are set to determine later this week regarding a plan to use around €210 billion in frozen Russian state funds. The proposal entails providing Ukraine with a large loan to fund its military and economic needs.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution serves as the main keeper for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

European Union officials have argued that their plan is legally sound. Their position is based on the principle that title of the sovereign wealth remains with Russia, despite being it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

Moscow, however, has called any use of the funds as illegal appropriation. It has warned of retaliatory measures, including seizing EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent position in peace negotiations, wrote on a social media platform that Russia "will win in court" and regain its assets. He warned that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, the official described the proposal as "a severe assault on the right to ownership and the global financial system created by the United States."

The clearing house refused to provide a statement on the new legal action. It has previously noted it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are unlikely to recognize judgments from Russian courts, experts expect Moscow to seek enforcement in nations with stronger ties to the Kremlin.

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

EU Countermeasures

EU officials said they are working on steps to deter other nations from assisting any Russian legal action against EU companies. They are also designing protections to protect EU member states with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed plan, the EU would provide an first €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would solely be obligated to repay the money if and when Russia consented to pay compensation for the vast destruction caused during the ongoing 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 involves joint EU borrowing to secure a loan, using unused funds within the EU budget.

Such a proposal, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the most credible option" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is equally significant," she remarked. "Furthermore, it sends a powerful signal that when you cause all this destruction to another country, you must pay for the rebuilding."