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Russia's monetary authority has announced it is pursuing damages amounting to $230 billion from the securities depository Euroclear. This move is a clear warning by the Kremlin against proposals to utilize immobilized Russian sovereign assets to support Ukraine.

The Substantial Demand

According to accounts in local state media, the central bank filed a lawsuit last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

EU leaders are set to decide later this week regarding a plan to leverage around €210 billion in immobilized Russian state funds. This scheme involves providing Ukraine with a large loan to finance its defence and economic needs.

Most of these assets, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the primary custodian for the Russian frozen sovereign wealth.

Divergent Legal Views

EU officials have argued that their plan is on solid legal ground. Their position rests on the principle that ownership of the state assets remains with Russia, even though it was immobilized in European jurisdictions shortly after the 2022 military offensive of Ukraine.

Moscow, in contrast, has called any use of the assets as illegal appropriation. It has warned of retaliatory actions, such as confiscating EU private investors' assets within Russia.

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

Strategic Positioning

With statements seen as an effort to drive a wedge between Europe and the United States, the official described 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 new lawsuit. The institution has previously stated it is contending with more than 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are unlikely to recognize rulings from Russian courts, analysts expect Moscow to pursue implementation in nations with stronger ties 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 friendly nations, if relevant assets can be identified," commented a lawyer from an international firm.

European Safeguards

EU officials indicated they are working on steps to deter other nations from aiding any Russian lawsuits against European companies. Additionally, they are designing protections to shield 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 first €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal 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 damage caused during the nearly four-year conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to consider an different method for financing Ukraine. This involves common EU debt issuance to fund a loan, using unused funds within the EU budget.

Such a proposal, however, demands full agreement among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is equally significant," she remarked. "Furthermore, it sends a powerful signal that if you do all this destruction to another country, you must pay for the reparations."