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The Russian central bank has stated it is seeking compensation amounting to $230 billion from the financial institution Euroclear. This move constitutes a clear response by the Kremlin against proposals to use immobilized Russian sovereign funds to support Ukraine.

The Financial Lawsuit

Based on reports in Russian news outlets, the central bank filed a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

EU leaders are set to decide in the coming days regarding a plan to use around €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a substantial loan to finance its defence and financial stability.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the primary custodian for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

EU authorities have argued that their proposal is legally sound. Their position is based on the principle that title of the sovereign wealth still belongs to Russia, despite being it was frozen in EU countries shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has labeled any utilization of the funds as theft. It has warned of retaliatory actions, such as confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in diplomatic talks, wrote on X that Russia "will win in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

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

The clearing house refused to comment on the latest lawsuit. It has previously stated it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in European nations are not expected to recognize judgments from Russian courts, experts anticipate Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that such holdings can be identified," commented a lawyer from an NSP law firm.

European Safeguards

EU officials said they are working on measures to discourage other countries from assisting any Russian legal action against European entities. They are also designing safeguards to shield EU countries with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would issue an first €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 unaffected.

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

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails joint EU borrowing to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is equally important," she stated. "It also delivers a powerful message that when you cause all this destruction to another country, you must pay for the rebuilding."