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The Russian central bank has announced it is claiming compensation valued at $230 billion against the financial institution Euroclear. This action is a clear warning from the Kremlin against plans to use frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the central bank filed a lawsuit last week for approximately 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion demand.

European Union officials will decide later this week on a proposal to use approximately €210 billion in frozen Russian assets. The proposal involves providing Ukraine with a substantial loan to fund its defence and financial stability.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Kremlin's frozen sovereign wealth.

A Clash Over Legality

EU authorities have maintained that their proposal is on solid legal ground. They argue is based on the fact that ownership of the sovereign wealth remains with Russia, despite being it was frozen in EU jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, in contrast, has labeled any utilization of the funds as theft. It has warned of reciprocal actions, including confiscating European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in peace negotiations, wrote 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.

Geopolitical Maneuvering

In comments interpreted as an attempt 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 global financial system established by the United States."

Euroclear declined to comment on the new lawsuit. It has previously noted it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in European nations are unlikely to enforce judgments from Russian tribunals, experts anticipate Moscow to seek enforcement in nations with stronger ties 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 nations, provided that relevant holdings can be located," stated a lawyer from an international firm.

EU Countermeasures

European authorities said they are developing steps to deter other nations from assisting any Russian legal action against European companies. Additionally, they are crafting protections to protect EU countries with assets in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be required to return the money if and when Russia agreed to pay reparations for the immense damage inflicted during the ongoing war.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for funding Ukraine. This involves common EU borrowing to secure a loan, using unused funds within the European budget.

Such a proposal, nevertheless, requires unanimity among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is equally important," she remarked. "Furthermore, it delivers a powerful signal that if you do all this damage to another nation, you have to pay for the reparations."