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Russia's monetary authority has declared it is claiming damages totaling $230 billion against the financial institution Euroclear. This action constitutes a direct response by the Kremlin regarding proposals to use frozen Russian sovereign funds to aid Ukraine.

The Substantial Demand

Based on reports in Russian state media, the monetary authority filed a lawsuit last week for roughly 18 trillion roubles. This amount is equivalent to the stated $230 billion claim.

European Union officials are set to determine later this week regarding a plan to use around €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a large loan to fund its military and financial stability.

Most of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Kremlin's frozen financial reserves.

Dispute on Ownership

European Union authorities have argued that their proposal is legally sound. Their position is based on the fact that title of the sovereign wealth still belongs to Russia, despite being it was frozen in EU countries following the full-scale invasion of Ukraine.

The Russian government, in contrast, has called any use of the funds as theft. Authorities have threatened reciprocal measures, such as confiscating European corporate holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has taken on a prominent role in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its assets. He added that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Wider Implications

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

Euroclear refused to comment on the new legal action. It has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Enforcement Challenges

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

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant holdings can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to discourage other nations from aiding any Russian legal action against European companies. They are also designing safeguards to shield EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the complex plan, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be required to repay the loan if and when Russia consented to pay compensation for the immense damage caused during the ongoing war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an different method for financing Ukraine. This involves joint EU debt issuance to fund a loan, backed by unallocated funds within the European budget.

Such a proposal, however, requires full agreement among all 27 member states. The Hungarian government, viewed as aligned with the Kremlin, has already expressed its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it doesn't come from our public funds, which is also significant," she stated. "It also sends a powerful signal that when you cause all this damage to another country, you have to pay for the rebuilding."