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The Russian central bank has announced it is claiming damages amounting to $230 billion from the securities depository Euroclear. This move represents a clear warning from the Kremlin against proposals to utilize frozen Russian state assets to support Ukraine.

The Financial Lawsuit

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

EU leaders are set to decide in the coming days regarding a proposal to leverage approximately €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a large loan to fund its military and economic needs.

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

Divergent Legal Views

EU officials have maintained that their proposal is on solid legal ground. Their position rests on the principle that title of the state assets remains with Russia, even though it was frozen in EU countries shortly after the full-scale military offensive of Ukraine.

The Russian government, however, has called any use of the funds as theft. It has threatened retaliatory actions, such as seizing EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, wrote on X that Russia "will prevail in court" and retrieve its funds. He warned that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments interpreted as an attempt to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a vicious attack on property rights and the global financial system established by the United States."

Euroclear declined to comment on the latest legal action. The institution has previously stated it is contending with more than 100 legal cases in Russian courts.

Enforcement Challenges

While courts in European nations are unlikely to enforce rulings from Russian courts, experts anticipate Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such holdings can be identified," commented a lawyer from an international firm.

European Safeguards

European authorities said they are developing measures to discourage other countries from assisting any Russian lawsuits against EU entities. Additionally, they are designing safeguards to protect EU countries with assets in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain unaffected.

Ukraine would only be obligated to return the money in the event that Russia consented to pay reparations for the immense destruction caused during the ongoing war.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for financing Ukraine. This involves joint EU borrowing to fund a loan, backed by unallocated funds within the EU budget.

This alternative move, nevertheless, demands full agreement among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the most credible option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it is not drawn from our public funds, which is equally important," she remarked. "It also delivers a clear message that when you cause all this damage to another country, you have to pay for the reparations."