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The Russian central bank has stated it is seeking damages valued at $230 billion from the securities depository Euroclear. This move is a direct warning by the Kremlin against plans to use immobilized Russian state funds to aid Ukraine.

The Financial Lawsuit

According to reports in Russian state media, the central bank filed a claim last week for roughly 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion demand.

European Union officials will determine later this week on a proposal to leverage approximately €210 billion in immobilized Russian assets. The proposal entails providing Ukraine with a substantial loan to finance its military and financial stability.

The vast majority of these assets, totaling €185 billion, reside at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Kremlin's frozen financial reserves.

Dispute on Ownership

EU officials have maintained that their proposal is on solid legal ground. Their position rests on the principle that ownership of the sovereign wealth still belongs to Russia, even though it was immobilized in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as illegal appropriation. Authorities have warned of reciprocal measures, including confiscating European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in diplomatic talks, stated 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 face consequences" from the proposal.

Strategic Positioning

In comments seen as an attempt to drive a wedge between Europe and the United States, the official characterized the assets plan as "a severe attack on the right to ownership and the international reserves system established by the United States."

Euroclear refused to provide a statement on the latest lawsuit. It has previously stated it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are not expected to enforce rulings from Russian tribunals, experts anticipate Moscow to pursue enforcement in countries with closer ties to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if such assets can be identified," commented a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to discourage other countries from aiding any Russian legal action against EU companies. Additionally, they are crafting protections to protect EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the complex scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the principal funds would remain unaffected.

Ukraine would solely be required to repay the loan if and when Russia agreed to pay compensation for the immense destruction inflicted during the ongoing war.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This involves joint EU borrowing to secure a loan, using unallocated funds within the European budget.

Such a proposal, however, demands unanimity among all 27 EU countries. Hungary's government, considered aligned with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the most credible solution" for aiding Ukraine. "This mechanism is secured against the Russian frozen assets, meaning it doesn't come from our public funds, which is equally important," she remarked. "It also sends a clear signal that when you cause all this destruction to another country, you must pay for the reparations."