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Russia's monetary authority has stated it is claiming damages amounting to $230 billion against the securities depository Euroclear. This action constitutes a clear warning by the Kremlin regarding plans to use frozen Russian state assets to support Ukraine.

The Substantial Demand

Based on reports in Russian news outlets, the central bank initiated a claim last week for roughly 18 trillion roubles. This sum corresponds to the aforementioned $230 billion demand.

EU leaders are set to determine in the coming days regarding a plan to leverage approximately €210 billion in immobilized Russian assets. The proposal involves granting Ukraine with a substantial loan to fund its defence and financial stability.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the main keeper for the Russian immobilised financial reserves.

Divergent Legal Views

EU authorities have maintained that their proposal is on solid legal ground. Their position rests on the fact that ownership of the sovereign wealth remains with Russia, even though it was immobilized in EU countries following the 2022 invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the funds as illegal appropriation. It has threatened reciprocal measures, including confiscating European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a prominent position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will face consequences" from the plan.

Strategic Positioning

With statements seen as an effort to create division between Europe and the United States, the official characterized the proposal as "a vicious attack on the right to ownership and the global financial system established by the United States."

The clearing house declined to provide a statement on the new legal action. It has in the past noted it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although courts in European nations are unlikely to enforce judgments from Russian tribunals, experts anticipate Moscow to pursue enforcement in countries with stronger relations to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant assets can be located," commented a legal expert from an international firm.

EU Countermeasures

EU officials said they are working on measures to deter other countries from assisting any Russian legal action against European entities. Additionally, they are designing protections to protect EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would only be obligated to return the loan if and when Russia agreed to pay reparations for the immense damage caused during the nearly four-year war.

Alternative Proposals

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for financing Ukraine. This entails common EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, however, requires unanimity among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the most credible solution" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, which means it doesn't come from our public funds, which is equally important," she stated. "It also sends a clear signal that when you cause all this destruction to another country, you have to pay for the reparations."