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The Russian central bank has declared it is claiming compensation valued at $230 billion from the financial institution Euroclear. This move is a clear warning from the Kremlin against proposals to utilize frozen Russian state funds to support Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the monetary authority filed a claim last week for an estimated 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials will determine later this week on a proposal to leverage approximately €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a substantial loan to finance its military and financial needs.

Most of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. This institution acts as the main custodian for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

EU authorities have argued that their plan is on solid legal ground. Their position rests on the fact that ownership of the state assets remains with Russia, despite being it was frozen in European jurisdictions following the full-scale military offensive of Ukraine.

Moscow, in contrast, has labeled any use of the funds as theft. It has warned of retaliatory actions, including confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a prominent position in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and regain its funds. He warned that the EU, the euro, and Euroclear "will face consequences" from the plan.

Wider Implications

With statements interpreted as an attempt to create division between Europe and the United States, Dmitriev characterized the assets plan as "a vicious attack on property rights and the global financial system established by the United States."

The clearing house declined to provide a statement on the new lawsuit. It has previously stated it is facing more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are unlikely to recognize judgments from Russian tribunals, experts anticipate Moscow to pursue enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such holdings can be located," commented a legal expert from an international firm.

European Safeguards

EU officials said they are working on measures to discourage other countries from assisting any Russian legal action against EU companies. They are also crafting protections to shield EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain unaffected.

Kyiv would only be required to return the loan if and when Russia agreed to pay reparations for the vast destruction caused during the ongoing war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for funding Ukraine. This entails joint EU debt issuance to fund a loan, using unallocated funds within the European budget.

This alternative move, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our public funds, which is also important," she stated. "Furthermore, it delivers a powerful signal that if you cause all this damage to another nation, you must pay for the rebuilding."