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Russia's monetary authority has announced it is seeking compensation amounting to $230 billion from the securities depository Euroclear. This action is a direct warning from the Kremlin regarding proposals to utilize frozen Russian sovereign assets to support Ukraine.

The Legal Claim

Based on accounts in Russian news outlets, the central bank initiated a claim last week for roughly 18 trillion roubles. This figure is equivalent to the stated $230 billion demand.

EU leaders will decide later this week regarding a plan to use around €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to finance its defence and economic needs.

Most of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Russian immobilised sovereign wealth.

Dispute on Ownership

EU officials have maintained that their plan is legally sound. Their position rests on the fact that ownership of the sovereign wealth still belongs to Russia, even though it was frozen in EU jurisdictions following the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the assets as illegal appropriation. It has warned of reciprocal actions, such as seizing EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in peace negotiations, wrote on a social media platform that Russia "will win in court" and regain its funds. He added that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Strategic Positioning

In comments seen as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a vicious attack on property rights and the global financial system created by the United States."

Euroclear refused to provide a statement on the new lawsuit. The institution has in the past stated it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While judges in European nations are unlikely to recognize rulings from Russian tribunals, analysts expect Moscow to seek implementation in nations with stronger ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant holdings can be identified," stated a legal expert from an international firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other nations from assisting any Russian legal action against EU entities. Additionally, they are designing protections to shield EU countries with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the complex scheme, the EU would issue an first €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay unaffected.

Kyiv would only be required to return the loan if and when Russia consented to pay compensation for the immense damage caused during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different approach for funding Ukraine. This involves common EU borrowing to fund a loan, backed by unallocated funds within the European budget.

This alternative move, however, requires full agreement among all 27 member states. The Hungarian government, viewed as aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the most credible option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it doesn't come from our taxpayers' money, which is also significant," she remarked. "Furthermore, it sends a clear signal that when you cause all this destruction to another country, you must pay for the rebuilding."