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The Russian central bank has stated it is seeking compensation totaling $230 billion from the securities depository Euroclear. This legal step constitutes a direct response from the Kremlin regarding proposals to utilize immobilized Russian state assets to aid Ukraine.

The Substantial Demand

According to accounts in local state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

European Union officials are set to decide in the coming days regarding a proposal to leverage approximately €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a large loan to finance its defence and economic stability.

Most of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Russian immobilised financial reserves.

A Clash Over Legality

European Union authorities have argued that their proposal is on solid legal ground. Their position is based on the principle that title of the state assets still belongs to Russia, despite being it was immobilized in European jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any utilization of the funds as theft. Authorities have warned of retaliatory measures, such as confiscating European corporate assets within Russia.

Kirill Dmitriev, who has assumed a prominent position in peace negotiations, wrote on a social media platform that Russia "will win in court" and regain its funds. He added that the European Union, the euro, and Euroclear "will suffer" from the plan.

Wider Implications

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

Euroclear declined to provide a statement on the latest legal action. It has in the past noted it is facing more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

While judges in EU countries are not expected to recognize rulings from Russian courts, experts expect Moscow to seek implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly states, if such assets can be located," stated a lawyer from an international firm.

EU Countermeasures

European authorities indicated they are developing measures to discourage other nations from assisting any Russian legal action against European companies. Additionally, they are crafting safeguards to protect EU countries with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

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

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

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This entails joint EU borrowing to secure a loan, backed by unused funds within the European budget.

This alternative move, nevertheless, demands unanimity among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has previously signaled 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, meaning it doesn't come from our public funds, which is also significant," she stated. "Furthermore, it delivers a powerful signal that when you do all this destruction to another nation, you have to pay for the reparations."