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The Russian central bank has announced it is seeking damages amounting to $230 billion from the financial institution Euroclear. This move is a direct warning from the Kremlin against plans to utilize immobilized Russian sovereign funds to support Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the monetary authority filed a claim last week for an estimated 18 trillion roubles. This figure is equivalent to the stated $230 billion claim.

EU leaders are set to determine later this week on a proposal to use around €210 billion in immobilized Russian state funds. The proposal entails providing Ukraine with a large loan to fund its military and financial stability.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Kremlin's immobilised financial reserves.

Divergent Legal Views

EU officials have maintained that their plan is legally sound. They argue is based on the fact that ownership of the state assets remains with Russia, even though it was frozen in European countries following the 2022 invasion of Ukraine.

Moscow, however, has labeled any use of the assets as theft. Authorities have warned of reciprocal measures, including confiscating EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent position in diplomatic talks, wrote on a social media platform that Russia "will win in court" and regain its assets. He added that the European Union, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments interpreted as an effort to drive a wedge between Europe and the United States, Dmitriev characterized the proposal as "a severe assault on property rights and the international reserves system created by the United States."

The clearing house declined to provide a statement on the new legal action. It has previously stated it is facing over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are not expected to recognize judgments from Russian tribunals, analysts expect Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian court's decision against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if such assets can be located," commented a legal expert from an international firm.

EU Countermeasures

European authorities said they are developing measures to deter other nations from aiding any Russian lawsuits against EU entities. They are also designing protections to shield EU member states with investments in Russia from what they call "unlawful expropriation."

The Proposed Loan Mechanism

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

Kyiv would solely be required to return the money in the event that Russia agreed to pay compensation for the vast damage caused during the nearly four-year war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for funding Ukraine. This entails common EU debt issuance to fund a loan, using unallocated funds within the European budget.

This alternative move, nevertheless, requires unanimity among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, which means it doesn't come from our public funds, which is also significant," she remarked. "It also delivers a powerful signal that if you cause all this damage to another nation, you must pay for the rebuilding."