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Russia's monetary authority has declared it is seeking compensation valued at $230 billion against the securities depository Euroclear. This legal step represents a direct response from the Kremlin regarding proposals to use immobilized Russian state funds to support Ukraine.

The Financial Lawsuit

Based on reports in local news outlets, the monetary authority initiated a claim last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion demand.

EU leaders will decide later this week on a proposal to leverage around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a large loan to finance its military and economic stability.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

EU authorities have maintained that their proposal is legally sound. Their position rests on the principle that ownership of the state assets remains with Russia, even though it was immobilized in EU countries following the full-scale military offensive of Ukraine.

Moscow, in contrast, has labeled any use of the assets as theft. It has warned of retaliatory measures, such as seizing EU corporate assets within Russia.

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

Wider Implications

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

Euroclear refused to provide a statement on the latest legal action. The institution has in the past noted it is contending with over 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While judges in European nations are not expected to recognize judgments from Russian tribunals, experts anticipate Moscow to seek implementation in countries with stronger relations to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be identified," commented a legal expert from an international firm.

EU Countermeasures

EU officials indicated they are working on measures to discourage other countries from assisting any Russian lawsuits against EU companies. They are also designing safeguards to protect EU countries with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Importantly, Russia's legal claim on the principal funds would stay untouched.

Ukraine would only be obligated to return the money if and when Russia agreed to pay reparations for the vast destruction inflicted 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 funding Ukraine. This involves common EU borrowing to fund a loan, using unallocated funds within the EU budget.

This alternative move, however, requires unanimity among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also significant," she stated. "Furthermore, it delivers a powerful signal that when you cause all this destruction to another country, you must pay for the reparations."