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Russia's monetary authority has stated it is claiming damages totaling $230 billion against the securities depository Euroclear. This legal step is a direct warning from the Kremlin against proposals to use immobilized Russian state assets to aid Ukraine.

The Substantial Demand

Based on reports in local state media, the central bank initiated a claim last week for an estimated 18 trillion roubles. This amount corresponds to the stated $230 billion demand.

European Union officials will determine in the coming days on a proposal to use approximately €210 billion in immobilized Russian assets. This scheme entails granting Ukraine with a substantial loan to fund its military and financial stability.

The vast majority of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the main custodian for the Kremlin's frozen sovereign wealth.

Divergent Legal Views

European Union officials have maintained that their proposal is on solid legal ground. Their position is based on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in EU jurisdictions following the full-scale invasion of Ukraine.

The Russian government, however, has called any use of the assets as illegal appropriation. Authorities have threatened reciprocal measures, including confiscating EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent role in peace negotiations, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Wider Implications

With statements seen as an attempt to drive a wedge between Europe and the United States, the official characterized the assets plan as "a vicious attack on the right to ownership and the international reserves system created by the United States."

Euroclear declined to provide a statement on the new legal action. It has previously stated it is facing more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although judges in European nations are unlikely to recognize judgments from Russian courts, analysts expect Moscow to seek enforcement in countries with closer relations to the Kremlin.

"The Bank of Russia may attempt to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities indicated they are developing measures to discourage other countries from assisting any Russian lawsuits against European companies. They are also crafting safeguards to shield EU member states with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would issue an first €90 billion loan to Ukraine, backed by the proceeds generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would solely be obligated to repay the money if and when Russia consented to pay reparations for the immense destruction caused during the nearly four-year conflict.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative method for funding Ukraine. This entails joint EU borrowing to fund a loan, using unused funds within the European budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible solution" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our public funds, which is equally significant," she stated. "Furthermore, it sends a clear message that if you cause all this damage to another nation, you must pay for the rebuilding."