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The Russian central bank has stated it is seeking damages amounting to $230 billion against the securities depository Euroclear. This legal step is a clear warning from the Kremlin regarding plans to use immobilized Russian state funds to support Ukraine.

The Substantial Demand

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

European Union officials will decide in the coming days on a proposal to leverage approximately €210 billion in frozen Russian state funds. The proposal involves providing Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear acts as the primary custodian for the Kremlin's immobilised financial reserves.

Divergent Legal Views

European Union officials have maintained that their plan is legally sound. They argue is based on the principle that ownership of the state assets still belongs to Russia, even though it was frozen in European jurisdictions following the full-scale 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, such as seizing European private investors' assets within Russia.

Kirill Dmitriev, who has taken on a key role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and regain its assets. He warned that the European Union, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

With statements interpreted as an effort 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 international reserves system established by the United States."

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

Enforcement Challenges

While courts in EU countries are not expected to recognize judgments from Russian courts, analysts expect Moscow to seek implementation in countries with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly states, provided that such holdings can be located," stated a legal expert from an international firm.

EU Countermeasures

European authorities said they are working on measures to discourage other countries from assisting any Russian legal action against European entities. They are also designing 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 plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay untouched.

Ukraine would solely be required to return the loan if and when Russia agreed to pay reparations for the immense damage inflicted during the nearly four-year conflict.

Alternative Proposals

Belgium, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an alternative approach for financing Ukraine. This involves joint EU debt issuance to fund a loan, backed by unused funds within the EU budget.

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

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the proposed loan scheme as "the most credible option" for aiding Ukraine. "This mechanism is secured against the Russian immobilized funds, which means it doesn't come from our taxpayers' money, which is also important," she stated. "It also delivers a clear message that when you cause all this destruction to another country, you have to pay for the rebuilding."