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Russia's monetary authority has stated it is pursuing compensation amounting to $230 billion from the financial institution Euroclear. This action is a clear warning by the Kremlin against plans to utilize frozen Russian sovereign funds to support Ukraine.

The Legal Claim

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

European Union officials are set to decide later this week on a plan to use around €210 billion in frozen Russian assets. This scheme involves granting Ukraine with a large loan to finance its defence and financial needs.

The vast majority of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union officials have maintained that their proposal is on solid legal ground. They argue is based on the principle that ownership of the state assets remains with Russia, despite being it was immobilized in European countries following the 2022 invasion of Ukraine.

The Russian government, in contrast, has called any use of the assets as theft. It has warned of retaliatory actions, such as seizing European corporate assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent role in diplomatic talks, stated on a social media platform that Russia "will win in court" and retrieve its funds. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments interpreted as an effort to drive a wedge between Europe and the United States, the official described the assets plan as "a vicious assault on the right to ownership and the international reserves system created by the United States."

Euroclear declined to comment on the new legal action. It has previously noted it is facing more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in European nations are not expected to enforce judgments from Russian courts, analysts anticipate Moscow to seek enforcement in countries with closer relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be located," commented a lawyer from an international firm.

EU Countermeasures

European authorities said they are working on measures to discourage other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing protections to shield EU member states with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

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

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for funding Ukraine. This involves joint EU debt issuance to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, however, demands unanimity among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it doesn't come from our public funds, which is also significant," she remarked. "It also sends a powerful message that if you do all this damage to another nation, you must pay for the reparations."