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Russia's monetary authority has declared it is pursuing compensation amounting to $230 billion against the financial institution Euroclear. This legal step is a clear warning by the Kremlin regarding proposals to use frozen Russian sovereign funds to support Ukraine.

The Legal Claim

Based on accounts in local news outlets, the monetary authority initiated a claim last week for approximately 18 trillion roubles. This amount corresponds to the stated $230 billion claim.

European Union officials are set to decide in the coming days regarding a plan to leverage approximately €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a substantial loan to fund its military and financial needs.

Most of these assets, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the main custodian for the Russian frozen sovereign wealth.

A Clash Over Legality

EU authorities have argued that their proposal is on solid legal ground. They argue is based on the fact that ownership of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions shortly after the full-scale military offensive of Ukraine.

The Russian government, however, has called any utilization of the funds as illegal appropriation. It has threatened retaliatory measures, such as seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and regain its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments interpreted as an attempt to create division between Europe and the United States, Dmitriev characterized the assets plan as "a severe assault on the right to ownership and the international reserves system established by the United States."

The clearing house refused to comment on the latest legal action. The institution has in the past noted it is facing more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are unlikely to recognize judgments from Russian courts, analysts anticipate Moscow to pursue enforcement in nations with closer relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if such holdings can be identified," stated a legal expert from an international firm.

European Safeguards

EU officials said they are working on steps to deter other nations from aiding any Russian lawsuits against EU entities. Additionally, they are crafting protections to protect EU countries with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the complex scheme, the EU would issue an first €90 billion loan to Ukraine, using the cash generated from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Ukraine would solely be required to repay the loan if and when Russia consented to pay reparations for the immense damage caused during the nearly four-year war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative approach for financing Ukraine. This involves common EU borrowing to secure a loan, backed by unused funds within the EU budget.

Such a proposal, nevertheless, demands full agreement among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has already signaled its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is equally important," she stated. "It also sends a powerful message that if you cause all this destruction to another nation, you have to pay for the rebuilding."