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Russia's monetary authority has announced it is claiming compensation amounting to $230 billion from the financial institution Euroclear. This legal step constitutes a direct response from the Kremlin against proposals to utilize immobilized Russian sovereign funds to support Ukraine.

The Legal Claim

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

European Union officials are set to decide later this week regarding a plan to leverage approximately €210 billion in frozen Russian assets. This scheme involves granting Ukraine with a substantial loan to finance its defence and financial needs.

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

Divergent Legal Views

EU authorities have maintained that their plan is on solid legal ground. They argue is based on the principle that ownership of the sovereign wealth still belongs to Russia, even though it was frozen in European countries shortly after the full-scale invasion of Ukraine.

Moscow, however, has called any utilization of the assets as theft. Authorities have threatened retaliatory actions, including confiscating EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a prominent role in peace negotiations, wrote on a social media platform that Russia "will win in court" and regain its assets. He warned that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

In comments interpreted as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a severe assault on the right to ownership and the international reserves system created by the United States."

Euroclear declined to comment on the latest legal action. It has in the past noted it is facing over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are not expected to enforce rulings from Russian tribunals, analysts expect Moscow to seek implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be located," stated a legal expert from an NSP law firm.

European Safeguards

European authorities said they are developing measures to deter other countries from assisting any Russian legal action against European entities. Additionally, they are designing safeguards to shield EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under 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. Importantly, Russia's legal claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to return the loan in the event that Russia consented to pay compensation for the immense damage caused during the ongoing conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for financing Ukraine. This involves common EU borrowing to secure a loan, backed by unused funds within the European budget.

Such a proposal, nevertheless, demands unanimity among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our public funds, which is also significant," she stated. "It also sends a clear message that if you do all this damage to another country, you must pay for the rebuilding."