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Russia's monetary authority has stated it is claiming damages totaling $230 billion against the securities depository Euroclear. This legal step is a clear warning by the Kremlin against proposals to use frozen Russian sovereign assets to aid Ukraine.

The Substantial Demand

Based on accounts in local state media, the central bank filed a claim last week for an estimated 18 trillion roubles. This sum is equivalent to the stated $230 billion demand.

European Union officials will determine in the coming days on a proposal to leverage approximately €210 billion in immobilized Russian assets. The proposal entails granting Ukraine with a large loan to fund its military and financial needs.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Kremlin's immobilised financial reserves.

Dispute on Ownership

EU authorities have maintained that their proposal is on solid legal ground. Their position is based on the principle that title of the state assets remains with Russia, despite being it was immobilized in EU countries following the full-scale invasion of Ukraine.

Moscow, however, has called any use of the funds as theft. It has warned of retaliatory actions, including confiscating European private investors' holdings within Russia.

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

Strategic Positioning

In comments seen as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the assets plan as "a severe attack on the right to ownership and the global financial system created by the United States."

The clearing house refused to provide a statement on the latest lawsuit. It has previously stated it is contending with over 100 lawsuits in Russian courts.

Enforcement Challenges

Although judges in European nations are not expected to recognize judgments from Russian tribunals, 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 sympathetic states, if such holdings can be located," stated a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing measures to discourage other nations from aiding any Russian lawsuits against European companies. Additionally, they are crafting protections to shield EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the complex plan, the EU would provide an first €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would remain unaffected.

Ukraine would solely be obligated to repay the loan if and when Russia consented to pay compensation for the vast destruction inflicted during the ongoing conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves common EU debt issuance to fund a loan, using unused funds within the EU budget.

This alternative move, however, demands unanimity among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also important," she stated. "Furthermore, it delivers a clear signal that if you cause all this destruction to another nation, you have to pay for the rebuilding."