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Russia's monetary authority has declared it is seeking compensation totaling $230 billion against the securities depository Euroclear. This legal step constitutes a direct response by the Kremlin regarding proposals to utilize immobilized Russian sovereign assets to aid Ukraine.

The Substantial Demand

According to reports in local state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials are set to decide later this week regarding a proposal to use approximately €210 billion in frozen Russian state funds. This scheme entails providing Ukraine with a large loan to fund its military and financial needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the main custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

EU authorities have maintained that their plan is legally sound. They argue is based on the principle that ownership of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions following the 2022 invasion of Ukraine.

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

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in peace negotiations, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements seen as an attempt 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."

The clearing house declined to comment on the new lawsuit. It has in the past stated it is facing over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are unlikely to recognize judgments from Russian tribunals, analysts expect Moscow to pursue enforcement in countries with closer relations 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 friendly nations, if relevant assets can be located," stated a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are working on steps to discourage other countries from assisting any Russian legal action against European entities. Additionally, they are designing safeguards to shield EU member states with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed plan, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain unaffected.

Kyiv would solely be obligated to repay the money if and when Russia consented to pay reparations for the immense damage caused during the nearly four-year war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for funding Ukraine. This entails joint EU borrowing to secure a loan, using unused funds within the European budget.

This alternative move, nevertheless, demands unanimity among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU foreign policy chief, a senior official, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is also important," she remarked. "Furthermore, it sends a powerful signal that when you cause all this destruction to another country, you must pay for the reparations."