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Russia's monetary authority has stated it is seeking compensation amounting to $230 billion from the securities depository Euroclear. This move is a clear warning from the Kremlin against plans to utilize frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

Based on reports in Russian state media, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

European Union officials will decide later this week on a proposal to leverage around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a large loan to fund its defence and economic needs.

Most of these funds, totaling €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the main keeper for the Russian frozen financial reserves.

Dispute on Ownership

European Union officials have maintained that their proposal is legally sound. Their position is based on the principle that ownership of the state assets remains with Russia, despite being it was frozen in European countries shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has labeled any utilization of the assets as illegal appropriation. It has warned of reciprocal measures, including seizing European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in peace negotiations, stated on X that Russia "will win in court" and regain its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

With statements interpreted as an attempt to drive a wedge between Europe and the United States, the official described the assets plan as "a vicious attack on property rights and the global financial system established by the United States."

Euroclear refused to provide a statement on the latest lawsuit. It has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are not expected to enforce judgments from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with stronger ties 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," stated a legal expert from an international firm.

European Safeguards

EU officials said they are developing steps to deter other countries from assisting any Russian legal action against European companies. Additionally, they are designing safeguards to protect EU member states with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay untouched.

Ukraine would only be required to return the money if and when Russia agreed to pay reparations for the immense destruction caused during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for funding Ukraine. This entails common EU borrowing to secure a loan, backed by unused funds within the European budget.

This alternative move, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is equally significant," she stated. "Furthermore, it delivers a clear signal that if you do all this damage to another country, you have to pay for the rebuilding."