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Russia's monetary authority has announced it is claiming damages totaling $230 billion against the securities depository Euroclear. This action represents a direct response by the Kremlin against proposals to utilize frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

Based on reports in Russian news outlets, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This sum corresponds to the aforementioned $230 billion claim.

EU leaders will determine in the coming days regarding a plan to use around €210 billion in immobilized Russian state funds. The proposal entails providing Ukraine with a substantial loan to fund its defence and financial needs.

Most of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution acts as the primary custodian for the Kremlin's immobilised sovereign wealth.

Divergent Legal Views

European Union authorities have argued that their plan is on solid legal ground. They argue is based on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in European countries shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as illegal appropriation. Authorities have threatened retaliatory measures, including confiscating EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key position in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will face consequences" from the plan.

Geopolitical Maneuvering

With statements 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 international reserves system established by the United States."

Euroclear declined to provide a statement on the latest lawsuit. It has in the past noted it is facing more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are unlikely to recognize rulings from Russian tribunals, analysts anticipate Moscow to seek implementation in countries with stronger relations to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant assets can be located," stated a legal expert from an international firm.

EU Countermeasures

European authorities said they are working on steps to deter other nations from aiding any Russian lawsuits against European companies. They are also designing safeguards to shield EU member states with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

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

Ukraine would solely be obligated to return the loan if and when Russia consented to pay compensation for the immense destruction inflicted during the nearly four-year war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for financing Ukraine. This involves common EU borrowing to secure a loan, backed by unallocated funds within the European budget.

This alternative move, however, demands unanimity among all 27 member states. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, described the reparations loan as "the most credible solution" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it is not drawn from our public funds, which is also important," she stated. "It also delivers a powerful message that when you cause all this destruction to another country, you must pay for the reparations."