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Russia's monetary authority has stated it is seeking compensation totaling $230 billion from the securities depository Euroclear. This action constitutes a clear response from the Kremlin regarding plans to utilize frozen Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on accounts in Russian state media, the monetary authority initiated a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials will decide in the coming days on a proposal to use approximately €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a large loan to fund its military and economic needs.

Most of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Russian frozen financial reserves.

Divergent Legal Views

European Union officials have maintained that their proposal is legally sound. They argue is based on the fact that ownership of the state assets still belongs to Russia, even though it was frozen in EU jurisdictions following the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any utilization of the funds as illegal appropriation. It has warned of reciprocal actions, including seizing EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements interpreted as an attempt to create division between Europe and the United States, the official characterized the proposal as "a vicious assault on property rights and the international reserves system created by the United States."

The clearing house refused to provide a statement on the latest lawsuit. It has previously stated it is contending with over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in European nations are not expected to recognize judgments from Russian courts, experts expect Moscow to seek enforcement in nations with closer relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets 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 aiding any Russian lawsuits against European companies. They are also designing safeguards to protect EU member states with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

According to the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would only be obligated to return the loan in the event that Russia consented to pay reparations for the vast 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 different method for financing Ukraine. This entails joint EU borrowing to fund a loan, backed by unused funds within the EU budget.

This alternative move, nevertheless, requires unanimity among all 27 member states. The Hungarian government, considered aligned with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, which means it is not drawn from our taxpayers' money, which is also significant," she remarked. "Furthermore, it delivers a powerful message that if you cause all this damage to another country, you have to pay for the rebuilding."