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Russia's monetary authority has stated it is pursuing damages amounting to $230 billion from the securities depository Euroclear. This move represents a clear response from the Kremlin against proposals to utilize immobilized Russian sovereign funds to aid Ukraine.

The Substantial Demand

According to reports in Russian news outlets, the monetary authority initiated a lawsuit last week for an estimated 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion claim.

European Union officials are set to decide later this week regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. The proposal involves providing Ukraine with a substantial loan to finance its defence and economic stability.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the main custodian for the Kremlin's frozen sovereign wealth.

A Clash Over Legality

European Union officials have argued that their plan is legally sound. They argue rests on the fact that ownership of the state assets remains with Russia, even though it was immobilized in European countries following the full-scale invasion of Ukraine.

Moscow, in contrast, has labeled any use of the assets as theft. Authorities have threatened reciprocal actions, including confiscating European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and regain its assets. He warned that the EU, the euro, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments seen as an attempt to create division between Europe and the United States, the official characterized the proposal as "a severe assault on the right to ownership and the global financial system created by the United States."

Euroclear declined to comment on the new legal action. The institution has in the past stated it is contending with over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

While judges in European nations are not expected to recognize rulings from Russian tribunals, experts expect Moscow to pursue implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be located," commented a lawyer from an NSP law firm.

European Safeguards

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

How the Funding Would Work

According to the complex plan, the EU would issue 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.

Kyiv would solely be obligated to repay the loan in the event that Russia agreed to pay compensation for the vast destruction inflicted during the nearly four-year conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for financing Ukraine. This entails joint EU debt issuance to secure a loan, using unused funds within the European budget.

Such a proposal, however, demands unanimity among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has already expressed its objection.

Speaking on Monday, the EU top diplomat, a senior official, described the proposed loan scheme as "the most credible 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 significant," she stated. "Furthermore, it delivers a clear signal that when you do all this damage to another country, you must pay for the reparations."