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Russia's monetary authority has declared it is pursuing damages valued at $230 billion against the securities depository Euroclear. This action constitutes a direct response from the Kremlin against proposals to use frozen Russian sovereign assets to aid Ukraine.

The Substantial Demand

According to reports in Russian state media, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

European Union officials are set to decide in the coming days on a proposal to use around €210 billion in frozen Russian assets. The proposal entails granting Ukraine with a substantial loan to fund its military and economic needs.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. This institution acts as the primary custodian for the Kremlin's immobilised financial reserves.

Divergent Legal Views

European Union authorities have argued that their proposal is on solid legal ground. Their position is based on the fact that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in EU countries following the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as theft. It has threatened reciprocal actions, such as confiscating EU corporate holdings within Russia.

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

Geopolitical Maneuvering

In comments seen 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 declined to provide a statement on the latest lawsuit. It has in the past noted it is facing more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

While courts in European nations are not expected to recognize rulings from Russian tribunals, experts expect Moscow to pursue enforcement in nations with stronger relations to the Kremlin.

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

EU Countermeasures

EU officials said they are working on measures to deter other nations from assisting any Russian legal action against EU companies. Additionally, they are designing safeguards to protect EU member states with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would remain untouched.

Kyiv would only be required to return the money in the event that Russia agreed to pay reparations for the immense destruction caused during the nearly four-year war.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different approach for financing Ukraine. This involves common EU debt issuance to secure a loan, using unallocated funds within the EU budget.

This alternative move, however, requires unanimity among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously signaled its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our taxpayers' money, which is also important," she remarked. "It also delivers a powerful signal that if you do all this damage to another country, you have to pay for the rebuilding."