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Russia's monetary authority has declared it is seeking damages valued at $230 billion from the securities depository Euroclear. This move represents a direct response by the Kremlin against plans to use frozen Russian sovereign funds to aid Ukraine.

The Legal Claim

According to accounts in Russian state media, the monetary authority filed a lawsuit last week for roughly 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

EU leaders are set to decide later this week on a proposal to use approximately €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a substantial loan to fund its defence and financial needs.

The vast majority of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. This institution acts as the main custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

European Union authorities have argued that their proposal is legally sound. They argue 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 full-scale military offensive of Ukraine.

Moscow, in contrast, has called any use of the assets as illegal appropriation. It has warned of retaliatory actions, including seizing EU corporate assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a key role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

In comments seen as an effort to create division between Europe and the United States, the official described the proposal as "a severe attack on property rights and the global financial system established by the United States."

Euroclear declined to provide a statement on the latest lawsuit. The institution has in the past noted it is facing more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in European nations are unlikely to enforce judgments from Russian courts, experts expect Moscow to seek implementation in nations with closer ties to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such assets can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials indicated they are developing measures to deter other countries from aiding any Russian legal action against EU companies. Additionally, they are crafting safeguards to shield EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain unaffected.

Ukraine would solely be obligated to return the loan in the event that Russia consented to pay reparations for the immense damage caused 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 funding Ukraine. This entails common EU borrowing to fund a loan, using unused funds within the European budget.

Such a proposal, nevertheless, demands unanimity among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it is not drawn from our public funds, which is also important," she remarked. "It also delivers a clear signal that when you do all this destruction to another nation, you must pay for the rebuilding."