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Russia's monetary authority has stated it is pursuing compensation totaling $230 billion from the securities depository Euroclear. This action constitutes a clear warning from the Kremlin against plans to utilize immobilized Russian state assets to aid Ukraine.

The Substantial Demand

According to accounts in Russian state media, the central bank filed a claim last week for approximately 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

European Union officials will decide later this week regarding a plan to leverage around €210 billion in frozen Russian assets. This scheme entails granting Ukraine with a large loan to finance its military and economic stability.

Most of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Russian frozen financial reserves.

A Clash Over Legality

European Union authorities have maintained that their proposal is legally sound. They argue is based on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions shortly after the full-scale military offensive of Ukraine.

Moscow, in contrast, has called any use of the funds as illegal appropriation. Authorities have warned of retaliatory measures, including confiscating EU corporate assets within Russia.

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

Wider Implications

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a vicious assault on the right to ownership and the global financial system created by the United States."

Euroclear refused to provide a statement on the latest lawsuit. It has previously stated it is facing more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are not expected to recognize judgments from Russian courts, experts expect Moscow to seek enforcement in countries with closer ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant assets can be located," commented a legal expert from an NSP law firm.

European Safeguards

European authorities said they are working on steps to discourage other nations from aiding any Russian legal action against European companies. Additionally, they are crafting safeguards to shield EU member states with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would only be obligated to return the money if and when Russia consented to pay reparations for the immense damage caused during the nearly four-year war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves common EU debt issuance to fund a loan, backed by unused funds within the European budget.

This alternative move, however, demands full agreement among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is equally important," she remarked. "Furthermore, it sends a powerful message that when you cause all this destruction to another nation, you must pay for the rebuilding."