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The Russian central bank has declared it is claiming damages amounting to $230 billion from the financial institution Euroclear. This legal step represents a direct warning from the Kremlin against proposals to utilize immobilized Russian sovereign assets to aid Ukraine.

The Legal Claim

Based on accounts in local state media, the monetary authority filed a lawsuit last week for approximately 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

EU leaders are set to decide in the coming days on a plan to leverage approximately €210 billion in frozen Russian assets. This scheme involves providing Ukraine with a substantial loan to fund its defence and economic needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Kremlin's immobilised financial reserves.

Dispute on Ownership

European Union officials have argued that their proposal is on solid legal ground. They argue rests on the principle that title of the state assets remains with Russia, despite being it was frozen in EU countries following the full-scale invasion of Ukraine.

Moscow, in contrast, has called any use of the funds as theft. It has warned of retaliatory measures, such as seizing EU private investors' holdings within Russia.

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

Wider Implications

With statements seen as an attempt to drive a wedge between Europe and the United States, Dmitriev described the proposal as "a severe assault on property rights and the global financial system established by the United States."

Euroclear declined to provide a statement on the new lawsuit. 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 unlikely to enforce judgments from Russian courts, experts expect Moscow to seek enforcement in countries with stronger relations to the Kremlin.

"Russian monetary authorities could try to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, provided that relevant assets can be located," commented a lawyer from an NSP law firm.

EU Countermeasures

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

How the Funding Would Work

Under the complex plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

Ukraine would solely be required to return the loan in the event that Russia consented to pay reparations for the immense destruction inflicted during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an different approach for financing Ukraine. This involves joint EU debt issuance to secure a loan, backed by unused funds within the European budget.

This alternative move, however, requires full agreement among all 27 EU countries. The Hungarian government, viewed as friendly with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the most credible solution" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our public funds, which is equally significant," she stated. "Furthermore, it delivers a powerful signal that when you cause all this damage to another country, you must pay for the reparations."