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Russia's monetary authority has announced it is seeking compensation amounting to $230 billion against the financial institution Euroclear. This move is a clear warning from the Kremlin against plans to utilize frozen Russian state assets to support Ukraine.

The Legal Claim

Based on reports in local state media, the central bank filed a claim last week for roughly 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials are set to decide in the coming days regarding a proposal to use around €210 billion in immobilized Russian state funds. The proposal involves granting Ukraine with a substantial loan to finance its defence and economic stability.

The vast majority of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear acts as the main keeper for the Russian immobilised financial reserves.

Dispute on Ownership

EU authorities have argued that their proposal is legally sound. They argue rests on the principle that title of the sovereign wealth still belongs to Russia, even though it was frozen in European countries following the full-scale military offensive of Ukraine.

The Russian government, however, has called any use of the funds as illegal appropriation. It has warned of reciprocal measures, including confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an effort to drive a wedge between Europe and the United States, the official described the assets plan as "a severe attack on property rights and the global financial system established by the United States."

Euroclear refused to comment on the new legal action. The institution has in the past stated it is facing more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are not expected to enforce judgments from Russian courts, experts anticipate Moscow to pursue enforcement in countries with closer ties to the Kremlin.

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

EU Countermeasures

European authorities indicated they are working on measures to deter other nations from aiding any Russian lawsuits against EU companies. They are also designing safeguards to protect EU countries with investments 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 proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Kyiv would solely be obligated to repay the money in the event that Russia consented to pay reparations for the immense destruction caused during the nearly four-year conflict.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This involves common EU borrowing to fund 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 aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is also significant," she stated. "It also delivers a powerful message that when you do all this damage to another nation, you must pay for the rebuilding."