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Russia's monetary authority has stated it is claiming damages amounting to $230 billion from the financial institution Euroclear. This legal step represents a clear response by the Kremlin against proposals to use frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

According to reports in local state media, the monetary authority filed a claim last week for an estimated 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide in the coming days regarding a plan to leverage around €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to fund its military and financial needs.

Most of these funds, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the primary custodian for the Kremlin's frozen financial reserves.

Divergent Legal Views

EU authorities have argued that their proposal is on solid legal ground. Their position rests on the principle that ownership of the state assets still belongs to Russia, despite being it was frozen in EU countries shortly after the full-scale invasion of Ukraine.

The Russian government, however, has labeled any use of the assets as illegal appropriation. It has warned of reciprocal measures, including seizing EU private investors' assets within Russia.

Kirill Dmitriev, who has taken on a key role in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements interpreted as an attempt to create division between Europe and the United States, the official described 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 latest lawsuit. It has previously noted it is facing more than 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are unlikely to recognize judgments from Russian tribunals, experts expect Moscow to pursue enforcement in countries with stronger ties to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant holdings can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are working on steps to discourage other nations from aiding any Russian lawsuits against EU companies. They are also designing safeguards to shield EU countries with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would solely be obligated to repay the loan in the event that Russia consented to pay compensation for the immense damage inflicted during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for financing Ukraine. This entails joint EU debt issuance to secure a loan, using unallocated funds within the European budget.

Such a proposal, nevertheless, demands unanimity among all 27 member states. Hungary's government, considered aligned with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible option" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, which means it is not drawn from our public funds, which is also important," she remarked. "Furthermore, it sends a powerful signal that when you do all this damage to another country, you have to pay for the reparations."