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The Russian central bank has declared it is claiming compensation amounting to $230 billion from the securities depository Euroclear. This move represents a direct response by the Kremlin against plans to use frozen Russian state assets to aid Ukraine.

The Substantial Demand

According to accounts in Russian state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

European Union officials will determine later this week on a plan to use around €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a substantial loan to fund its defence and financial stability.

The vast majority of these assets, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear acts as the main keeper for the Kremlin's frozen financial reserves.

Divergent Legal Views

European Union authorities have maintained that their proposal is on solid legal ground. They argue rests on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in European countries following the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the funds as illegal appropriation. It has threatened retaliatory measures, including seizing EU corporate assets within Russia.

Kirill Dmitriev, a figure who has taken on a key role in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Strategic Positioning

With statements interpreted as an attempt to drive a wedge between Europe and the United States, the official characterized the proposal as "a severe attack on property rights and the international reserves system created by the United States."

Euroclear refused to comment on the new lawsuit. It has in the past noted it is facing over 100 lawsuits in Russian courts.

Enforcement Challenges

While judges in European nations are unlikely to enforce judgments from Russian courts, analysts anticipate Moscow to pursue implementation in countries with closer ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such holdings can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other countries from aiding any Russian legal action against EU companies. Additionally, they are designing safeguards to protect EU member states with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain untouched.

Kyiv would solely be required to repay the loan in the event that Russia agreed to pay compensation for the vast damage caused during the ongoing war.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for financing Ukraine. This entails common EU debt issuance to secure a loan, backed by unallocated funds within the European budget.

This alternative move, however, demands unanimity among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also significant," she stated. "It also sends a powerful message that when you do all this destruction to another nation, you have to pay for the reparations."