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Russia's monetary authority has announced it is pursuing compensation amounting to $230 billion from the securities depository Euroclear. This action is a direct response by the Kremlin regarding proposals to use immobilized Russian state assets to support Ukraine.

The Financial Lawsuit

According to reports in Russian state media, the monetary authority initiated a lawsuit last week for roughly 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

EU leaders will decide in the coming days regarding a proposal to leverage around €210 billion in frozen Russian state funds. The proposal entails providing Ukraine with a substantial loan to finance its military and economic stability.

The vast majority of these assets, amounting to €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the primary keeper for the Russian frozen financial reserves.

A Clash Over Legality

EU officials have argued that their proposal is legally sound. Their position is based on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was frozen in European countries shortly after the full-scale military offensive of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as illegal appropriation. It has threatened retaliatory actions, such as confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, a figure who has assumed a key position in peace negotiations, stated on X that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments seen as an effort to drive a wedge 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."

Euroclear declined to provide a statement on the latest legal action. It has previously stated it is contending with over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

While judges in European nations are unlikely to recognize judgments from Russian courts, experts anticipate Moscow to seek enforcement in countries with closer ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant holdings can be located," commented a legal expert from an international firm.

EU Countermeasures

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

How the Funding Would Work

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

Kyiv would solely be required to repay the loan if and when Russia agreed to pay compensation for the vast damage inflicted during the ongoing war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for funding Ukraine. This involves common EU debt issuance to fund a loan, backed by unused funds within the EU budget.

This alternative move, nevertheless, requires full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the proposed loan scheme as "the strongest solution" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is also significant," she remarked. "It also sends a clear signal that when you do all this damage to another country, you have to pay for the reparations."