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Russia's monetary authority has declared it is seeking damages totaling $230 billion from the securities depository Euroclear. This legal step constitutes a clear response by the Kremlin against plans to utilize frozen Russian state funds to support Ukraine.

The Legal Claim

According to reports in local state media, the central bank initiated a claim last week for roughly 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion claim.

EU leaders are set to decide later this week on a proposal to leverage approximately €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a large loan to finance its military and economic needs.

The vast majority of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear acts as the primary keeper for the Kremlin's frozen financial reserves.

A Clash Over Legality

EU officials have maintained that their plan is legally sound. They argue rests on the fact that title of the sovereign wealth remains with Russia, even though it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, however, has labeled any utilization of the funds as illegal appropriation. Authorities have warned of retaliatory measures, including confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in peace negotiations, stated on X that Russia "will win in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, the official characterized the assets plan as "a vicious assault on property rights and the international reserves system established by the United States."

The clearing house declined to provide a statement on the new lawsuit. The institution has in the past stated it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are not expected to recognize rulings from Russian tribunals, experts anticipate Moscow to seek implementation in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt 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 located," commented a legal expert from an international firm.

EU Countermeasures

European authorities said they are developing measures to discourage other nations from assisting any Russian lawsuits against EU companies. Additionally, they are crafting safeguards to shield EU countries with investments in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex plan, the EU would issue an first €90 billion loan to Ukraine, using the proceeds generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would stay untouched.

Ukraine would solely be obligated to repay the money in the event that Russia consented to pay reparations for the vast destruction caused during the nearly four-year conflict.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for financing Ukraine. This entails joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, requires full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously expressed its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it is not drawn from our public funds, which is also significant," she remarked. "It also delivers a clear message that if you cause all this damage to another country, you must pay for the reparations."