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Russia's monetary authority has announced it is seeking compensation totaling $230 billion from the financial institution Euroclear. This action represents a direct response by the Kremlin regarding proposals to utilize immobilized Russian state assets to aid Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

European Union officials will determine later this week on a proposal to leverage approximately €210 billion in immobilized Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its defence and financial needs.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the primary custodian for the Russian immobilised sovereign wealth.

A Clash Over Legality

EU authorities have maintained that their plan is on solid legal ground. They argue rests on the fact that ownership of the state assets remains with Russia, even though it was immobilized in European countries following the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the funds as illegal appropriation. Authorities have warned of reciprocal measures, including confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the EU, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

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

Euroclear declined to comment on the new legal action. It has previously stated it is contending with more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While judges in EU countries are not expected to enforce rulings from Russian tribunals, analysts anticipate Moscow to pursue enforcement in nations with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such assets can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are working on measures to discourage other nations from assisting any Russian legal action against European companies. They are also designing protections to shield EU member states with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the detailed plan, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would remain unaffected.

Ukraine would solely be required to return the money if and when Russia consented to pay compensation for the immense destruction inflicted during the ongoing conflict.

Alternative Proposals

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

Such a proposal, however, requires full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is equally significant," she remarked. "Furthermore, it sends a powerful message that when you cause all this damage to another country, you have to pay for the reparations."