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Russia's monetary authority has stated it is seeking damages totaling $230 billion from the financial institution Euroclear. This move represents a direct response by the Kremlin regarding proposals to use immobilized Russian sovereign assets to aid Ukraine.

The Substantial Demand

According to reports in Russian state media, the monetary authority filed a claim last week for roughly 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

EU leaders are set to decide later this week regarding a proposal to use approximately €210 billion in immobilized Russian state funds. The proposal entails providing Ukraine with a substantial loan to fund its military and economic needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the main keeper for the Russian immobilised sovereign wealth.

Divergent Legal Views

EU authorities have argued that their plan is legally sound. They argue rests on the fact that ownership of the sovereign wealth remains with Russia, even though it was frozen in European jurisdictions shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as illegal appropriation. It has warned of retaliatory actions, such as confiscating EU corporate holdings within Russia.

Kirill Dmitriev, a figure who has taken on a key role in diplomatic talks, stated on a social media platform that Russia "will win in court" and regain its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, Dmitriev described the proposal as "a vicious attack on the right to ownership and the international reserves system established by the United States."

Euroclear declined to provide a statement on the new lawsuit. The institution has previously noted it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

While courts in EU countries are not expected to recognize rulings from Russian tribunals, analysts expect Moscow to pursue implementation in countries with closer relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such assets can be located," commented a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are working on measures to discourage other countries from aiding any Russian lawsuits against European companies. Additionally, they are crafting protections to shield EU countries with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay untouched.

Kyiv would solely be obligated to repay the loan if and when Russia agreed to pay compensation for the vast damage caused during the nearly four-year conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for financing Ukraine. This involves common EU borrowing to secure a loan, using unused funds within the EU budget.

This alternative move, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, viewed as aligned with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the most credible option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also significant," she stated. "Furthermore, it delivers a clear message that when you cause all this destruction to another country, you have to pay for the reparations."