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Russia's monetary authority has declared it is seeking damages amounting to $230 billion against the financial institution Euroclear. This legal step represents a clear response by the Kremlin against proposals to use frozen Russian state assets to support Ukraine.

The Financial Lawsuit

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

European Union officials will determine later this week on a proposal to use around €210 billion in frozen Russian state funds. This scheme entails granting Ukraine with a large loan to finance its defence and financial stability.

The vast majority of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. This institution serves as the main custodian for the Kremlin's immobilised financial reserves.

A Clash Over Legality

European Union officials have argued that their proposal is legally sound. Their position is based on the fact that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in EU countries following the full-scale invasion of Ukraine.

Moscow, however, has called any use of the assets as illegal appropriation. It has threatened retaliatory actions, including seizing European corporate holdings 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 retrieve its funds. He warned that the EU, the common currency, and Euroclear "will face consequences" from the plan.

Strategic Positioning

In comments interpreted as an attempt to drive a wedge between Europe and the United States, the official characterized the proposal as "a severe assault on the right to ownership and the global financial system created by the United States."

The clearing house declined to comment on the latest lawsuit. The institution has previously noted it is contending with over 100 legal cases in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are unlikely to enforce judgments from Russian tribunals, experts expect Moscow to pursue enforcement in nations with closer ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant assets can be identified," stated a legal expert from an NSP law firm.

European Safeguards

EU officials said they are developing steps to discourage other nations from assisting any Russian legal action against EU entities. They are also designing protections to shield EU countries with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed plan, the EU would issue an first €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 only be required to return the money in the event that Russia consented to pay reparations for the immense damage caused during the ongoing war.

Alternative Proposals

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

This alternative move, however, demands unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is also significant," she stated. "It also delivers a clear message that when you do all this damage to another nation, you have to pay for the rebuilding."