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The Russian central bank has stated it is claiming damages totaling $230 billion against the financial institution Euroclear. This move is a clear response from the Kremlin against proposals to utilize immobilized Russian state funds to support Ukraine.

The Substantial Demand

According to reports in local state media, the central bank filed a claim last week for roughly 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion demand.

EU leaders will determine later this week regarding a proposal to leverage around €210 billion in immobilized Russian assets. This scheme entails granting Ukraine with a substantial loan to finance its defence and economic needs.

Most of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. This institution serves as the main custodian for the Kremlin's frozen financial reserves.

Divergent Legal Views

EU authorities have maintained that their proposal is legally sound. Their position rests on the principle that title of the state assets remains with Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, however, has called any use of the funds as theft. Authorities have threatened reciprocal measures, including seizing European private investors' holdings within Russia.

Kirill Dmitriev, a figure who has taken on a prominent position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements seen as an attempt to create division between Europe and the United States, Dmitriev characterized the assets plan as "a severe assault on the right to ownership and the international reserves system established by the United States."

Euroclear refused to comment on the new lawsuit. It has in the past stated it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While judges in EU countries are not expected to enforce rulings from Russian tribunals, experts expect Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are developing steps to deter other nations from assisting any Russian lawsuits against EU entities. Additionally, they are designing safeguards to shield EU member states with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay unaffected.

Ukraine would solely be obligated to return the loan if and when Russia consented to pay reparations for the vast damage inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unallocated funds within the European budget.

This alternative move, nevertheless, requires full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also important," she remarked. "It also sends a clear message that when you cause all this destruction to another nation, you have to pay for the reparations."