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Russia's monetary authority has declared it is seeking damages totaling $230 billion against the securities depository Euroclear. This move represents a clear warning from the Kremlin against proposals to utilize frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

According to reports in Russian news outlets, the central bank initiated a claim last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion demand.

EU leaders will determine later this week on a proposal to use around €210 billion in immobilized Russian state funds. The proposal involves granting Ukraine with a large loan to fund its military and economic needs.

The vast majority of these assets, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. This institution serves as the main custodian for the Russian immobilised sovereign wealth.

Divergent Legal Views

European Union officials have argued that their proposal is on solid legal ground. They argue rests on the principle that title of the state assets remains with Russia, even though it was immobilized in EU countries following the full-scale military offensive of Ukraine.

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

The head of Russia's sovereign wealth fund, who has taken on a key role in peace negotiations, wrote on a social media platform that Russia "will prevail in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

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

The clearing house declined to provide a statement on the new legal action. It has previously stated it is contending with more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are not expected to recognize rulings from Russian courts, experts expect Moscow to seek enforcement in countries with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such holdings can be located," stated a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are working on measures to discourage other countries from aiding any Russian legal action against European entities. They are also designing safeguards to protect EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay unaffected.

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

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This involves joint EU debt issuance to secure a loan, backed by unused funds within the EU budget.

This alternative move, nevertheless, requires full agreement among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the most credible option" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it doesn't come from our taxpayers' money, which is also important," she remarked. "Furthermore, it delivers a clear message that if you do all this damage to another country, you must pay for the reparations."