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Russia's monetary authority has declared it is seeking compensation valued at $230 billion from the financial institution Euroclear. This action represents a clear response from the Kremlin regarding proposals to use immobilized Russian sovereign assets to support Ukraine.

The Substantial Demand

Based on reports in Russian state media, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This sum corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide later this week regarding a proposal to use approximately €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a substantial loan to fund its defence and economic needs.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian frozen financial reserves.

A Clash Over Legality

EU authorities have argued that their proposal is legally sound. They argue is based on the fact that ownership of the sovereign wealth remains with Russia, even though it was immobilized in EU jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as theft. It has warned of retaliatory measures, such as seizing European private investors' assets within Russia.

Kirill Dmitriev, who has assumed a prominent position in diplomatic talks, stated on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

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

The clearing house declined to comment on the new legal action. It has in the past stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are not expected to enforce rulings from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with closer ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities said they are developing measures to discourage other nations from aiding any Russian legal action against EU companies. They are also crafting 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 scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to repay the loan if and when Russia agreed to pay reparations for the immense destruction caused during the ongoing conflict.

Alternative Proposals

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

Such a proposal, however, demands unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, said the proposed loan scheme as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our public funds, which is equally important," she stated. "It also sends a clear signal that when you do all this destruction to another country, you must pay for the rebuilding."