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The Russian central bank has declared it is seeking compensation amounting to $230 billion against the securities depository Euroclear. This action constitutes a direct response from the Kremlin regarding plans to utilize frozen Russian state funds to aid Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the monetary authority filed a lawsuit last week for approximately 18 trillion roubles. This figure is equivalent to the stated $230 billion demand.

European Union officials are set to determine in the coming days on a plan to use around €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a substantial loan to fund its defence and financial stability.

Most of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the main keeper for the Kremlin's immobilised sovereign wealth.

Dispute on Ownership

European Union authorities have argued that their proposal is legally sound. They argue rests on the principle that title of the sovereign wealth remains with Russia, despite being it was frozen in European jurisdictions following the full-scale military offensive of Ukraine.

Moscow, however, has called any use of the funds as illegal appropriation. It has warned of retaliatory actions, including confiscating EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, stated on X that Russia "will win in court" and regain its funds. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements seen as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe assault on property rights and the international reserves system created by the United States."

Euroclear refused to comment on the latest legal action. The institution has in the past noted it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to seek enforcement in countries with stronger ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant assets can be located," stated a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are working on measures to discourage other countries from assisting any Russian lawsuits against EU entities. They are also designing protections to shield EU countries with assets in Russia from what they term "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. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

Ukraine would only be obligated to return the money in the event that Russia consented to pay compensation for the immense destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for funding Ukraine. This entails joint EU borrowing to fund a loan, using unused funds within the European budget.

Such a proposal, however, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has previously expressed its objection.

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 frozen assets, which means it doesn't come from our taxpayers' money, which is also important," she stated. "Furthermore, it sends a clear message that when you do all this damage to another country, you have to pay for the reparations."