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The Russian central bank has stated it is pursuing compensation totaling $230 billion against the financial institution Euroclear. This move constitutes a direct response from the Kremlin against proposals to utilize frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

According to accounts in Russian news outlets, the central bank initiated a claim last week for roughly 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

EU leaders will decide in the coming days on a plan to use around €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a large loan to finance its defence and financial needs.

The vast majority of these assets, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian immobilised sovereign wealth.

Dispute on Ownership

European Union officials have maintained that their plan is on solid legal ground. They argue is based on the principle that title of the state assets still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the assets as theft. It has warned of reciprocal actions, including confiscating EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a key role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a severe assault on the right to ownership and the international reserves system created by the United States."

The clearing house declined to comment on the new legal action. It has in the past noted it is contending with over 100 lawsuits in Russian courts.

Enforcement Challenges

Although judges in EU countries are unlikely to recognize rulings from Russian courts, analysts expect Moscow to pursue implementation in countries 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 friendly nations, if such holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are working on measures to deter other nations from assisting any Russian lawsuits against European entities. Additionally, they are crafting protections to protect EU member states with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

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

Ukraine would only be required to repay the loan in the event that Russia consented to pay reparations for the immense destruction inflicted during the ongoing war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different method for financing Ukraine. This entails joint EU borrowing to fund a loan, backed by unallocated funds within the European budget.

This alternative move, nevertheless, requires unanimity among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also important," she stated. "It also sends a clear message that if you cause all this destruction to another country, you have to pay for the reparations."