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The Russian central bank has announced it is claiming compensation amounting to $230 billion against the financial institution Euroclear. This move constitutes a clear response by the Kremlin against proposals to utilize immobilized Russian state assets to aid Ukraine.

The Substantial Demand

Based on accounts in local state media, the central bank filed a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the stated $230 billion demand.

EU leaders will determine later this week regarding a plan to use around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a substantial loan to finance its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear acts as the primary custodian for the Russian frozen sovereign wealth.

A Clash Over Legality

European Union authorities have argued that their proposal is on solid legal ground. Their position rests on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any use of the assets as illegal appropriation. It has warned of reciprocal measures, including seizing EU private investors' holdings within Russia.

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

Strategic Positioning

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev characterized the proposal as "a severe attack on the right to ownership and the global financial system created by the United States."

The clearing house refused to comment on the latest lawsuit. The institution has in the past stated it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are unlikely to enforce judgments from Russian tribunals, analysts anticipate Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets can be located," commented a legal expert from an international firm.

European Safeguards

EU officials said they are working on steps to deter other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing protections to protect EU countries with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would only be required to return the loan in the event that Russia consented to pay compensation for the immense destruction caused during the ongoing conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for funding Ukraine. This entails common EU borrowing to fund a loan, backed by unused funds within the EU budget.

Such a proposal, however, requires full agreement among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also significant," she remarked. "It also sends a powerful signal that if you cause all this destruction to another nation, you must pay for the reparations."