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Russia's monetary authority has declared it is seeking compensation totaling $230 billion from the securities depository Euroclear. This legal step is a direct warning from the Kremlin against proposals to utilize frozen Russian sovereign assets to support Ukraine.

The Substantial Demand

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

EU leaders will determine later this week on a plan to leverage approximately €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to fund its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the primary keeper for the Kremlin's frozen financial reserves.

Dispute on Ownership

EU officials have argued that their plan is legally sound. They argue rests on the principle that title of the sovereign wealth remains with Russia, even though it was frozen in EU countries shortly after the 2022 invasion of Ukraine.

The Russian government, in contrast, has called any utilization of the assets as theft. It has warned of reciprocal actions, including seizing European private investors' assets within Russia.

Kirill Dmitriev, a figure who has taken on a key position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He added that the EU, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

With statements seen as an effort to create division between Europe and the United States, Dmitriev described the proposal as "a vicious attack on property rights and the international reserves system established by the United States."

The clearing house declined to comment on the new legal action. The institution has in the past stated it is contending with over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are not expected to recognize judgments from Russian tribunals, experts expect Moscow to seek implementation in nations with closer 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 sympathetic states, if relevant holdings can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

European authorities indicated they are working on steps to deter other countries from assisting any Russian legal action against EU companies. They are also designing protections to shield EU countries with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, using the proceeds earned from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be obligated to repay the loan in the event that Russia consented to pay reparations for the immense damage caused during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative method for funding Ukraine. This entails joint EU debt issuance to secure a loan, backed by unallocated funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, considered friendly with the Kremlin, has already expressed its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest option" for aiding Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it is not drawn from our public funds, which is also important," she stated. "Furthermore, it delivers a clear signal that if you do all this damage to another nation, you have to pay for the reparations."