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Russia's monetary authority has stated it is seeking damages totaling $230 billion from the securities depository Euroclear. This action represents a direct warning by the Kremlin against proposals to use immobilized Russian sovereign assets to aid Ukraine.

The Legal Claim

According to reports in Russian state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

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

The vast majority of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the main keeper for the Russian frozen financial reserves.

Divergent Legal Views

EU authorities have argued that their proposal is legally sound. Their position is based on the fact that ownership of the sovereign wealth remains with Russia, despite being it was frozen in European countries shortly after the full-scale invasion of Ukraine.

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

Kirill Dmitriev, who has assumed a key role in peace negotiations, stated on X that Russia "will win in court" and retrieve its funds. He added that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a vicious attack on property rights and the global financial system created by the United States."

The clearing house refused to comment on the new legal action. It has in the past stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in European nations are unlikely to recognize rulings from Russian tribunals, analysts anticipate Moscow to seek implementation in countries with closer ties to the Kremlin.

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

EU Countermeasures

European authorities said they are developing steps to discourage other nations from assisting any Russian legal action against EU entities. Additionally, they are crafting safeguards to protect EU countries with assets in Russia from what they term "illegal expropriation."

How the Funding Would Work

According to the detailed plan, the EU would provide an initial €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain untouched.

Kyiv would solely be required to return the loan in the event that Russia agreed to pay reparations for the immense damage inflicted during the ongoing war.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for funding Ukraine. This involves common EU borrowing to fund a loan, using unallocated funds within the EU budget.

Such a proposal, however, demands full agreement among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is also important," she remarked. "It also delivers a powerful message that if you do all this damage to another country, you must pay for the rebuilding."