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Russia's monetary authority has announced it is claiming compensation valued at $230 billion against the financial institution Euroclear. This legal step represents a direct response by the Kremlin against plans to use frozen Russian state funds to support Ukraine.

The Legal Claim

According to accounts in Russian state media, the central bank filed a lawsuit last week for an estimated 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

European Union officials are set to decide in the coming days regarding a proposal to leverage around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a substantial loan to finance its military and financial stability.

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

Dispute on Ownership

EU authorities have argued that their plan is on solid legal ground. Their position is based on the fact that ownership of the state assets remains with Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has called any utilization of the funds as illegal appropriation. It has warned of reciprocal actions, including seizing European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its funds. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a vicious attack on property rights and the international reserves system established by the United States."

The clearing house declined to provide a statement on the new legal action. The institution has in the past noted it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although courts in EU countries are not expected to recognize judgments from Russian tribunals, analysts anticipate Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing steps to deter other nations from assisting any Russian legal action against EU entities. Additionally, they are crafting protections to shield EU member states with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would issue an initial €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain unaffected.

Kyiv would only be obligated to return the money if and when Russia agreed to pay compensation for the immense destruction inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This involves joint EU borrowing to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, demands 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, Kaja Kallas, said the reparations loan as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our public funds, which is equally significant," she remarked. "It also delivers a powerful signal that when you do all this destruction to another country, you have to pay for the reparations."