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Russia's monetary authority has announced it is claiming damages amounting to $230 billion against the financial institution Euroclear. This legal step represents a direct response by the Kremlin against plans to use frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

Based on reports in Russian news outlets, the monetary authority initiated a claim last week for an estimated 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials are set to determine in the coming days on a proposal to leverage approximately €210 billion in immobilized Russian state funds. The proposal involves granting Ukraine with a substantial loan to finance its military and economic needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

EU authorities have argued that their plan is legally sound. Their position is based on the fact that title of the state assets remains with Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as theft. Authorities have warned of retaliatory actions, such as confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, who has taken on a key role in diplomatic talks, wrote on X that Russia "will prevail in court" and regain its funds. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

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

Euroclear refused to comment on the new lawsuit. It has previously noted it is facing more than 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While courts in European nations are unlikely to recognize rulings from Russian tribunals, experts anticipate Moscow to pursue implementation in nations with closer relations to the Kremlin.

"The Bank of Russia could try to enforce a Russian court's decision 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

EU officials said they are working on measures to deter other nations from aiding any Russian legal action against EU companies. They are also crafting protections to shield 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, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would remain unaffected.

Ukraine would only be required to return the loan if and when Russia agreed to pay compensation for the immense destruction caused during the ongoing war.

Other Funding Ideas

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

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

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it doesn't come from our public funds, which is also significant," she remarked. "It also delivers a clear message that when you do all this damage to another nation, you have to pay for the reparations."