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Russia's monetary authority has announced it is pursuing damages amounting to $230 billion against the securities depository Euroclear. This action is a clear response from the Kremlin against proposals to use immobilized Russian sovereign funds to support Ukraine.

The Substantial Demand

Based on accounts in local state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This sum is equivalent to the stated $230 billion claim.

EU leaders will determine in the coming days on a plan to leverage approximately €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a large loan to finance its military and economic stability.

The vast majority of these funds, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main keeper for the Russian immobilised sovereign wealth.

A Clash Over Legality

European Union authorities have argued that their plan is legally sound. Their position rests on the fact that ownership of the sovereign wealth still belongs to Russia, even though it was frozen in EU jurisdictions shortly after the full-scale military offensive of Ukraine.

Moscow, in contrast, has called any use of the assets as theft. It has warned of reciprocal actions, including confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe assault on property rights and the international reserves system created by the United States."

Euroclear refused to provide a statement on the latest legal action. It has previously stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

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

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that relevant holdings can be located," commented a lawyer from an international firm.

European Safeguards

EU officials said they are working on measures to deter other countries from aiding any Russian legal action against European companies. They are also designing safeguards to shield EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the detailed plan, the EU would issue an first €90 billion loan to Ukraine, backed by the cash earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would remain untouched.

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

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for financing Ukraine. This entails joint EU debt issuance to fund a loan, using unused funds within the European budget.

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

Speaking on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our public funds, which is equally significant," she remarked. "Furthermore, it delivers a clear message that when you do all this damage to another nation, you have to pay for the rebuilding."