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The Russian central bank has declared it is seeking damages amounting to $230 billion from the securities depository Euroclear. This move constitutes a clear warning by the Kremlin regarding proposals to utilize immobilized Russian state assets to aid Ukraine.

The Substantial Demand

According to accounts in local news outlets, the central bank filed a claim last week for an estimated 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

European Union officials are set to decide later this week on a proposal to use approximately €210 billion in immobilized Russian state funds. The proposal entails providing Ukraine with a substantial loan to fund its defence and economic needs.

Most of these funds, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Kremlin's immobilised sovereign wealth.

Divergent Legal Views

European Union authorities have maintained that their plan is on solid legal ground. They argue rests on the principle that ownership of the sovereign wealth remains with Russia, even though it was frozen in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has labeled any use of the assets as theft. Authorities have warned of retaliatory measures, including confiscating EU private investors' holdings within Russia.

Kirill Dmitriev, a figure who has assumed a prominent role in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

In comments seen as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a severe assault on property rights and the international reserves system created by the United States."

Euroclear refused to provide a statement on the new legal action. It has previously stated it is contending with more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to enforce judgments from Russian courts, experts anticipate Moscow to seek implementation in countries with closer relations to the Kremlin.

"Russian monetary authorities may attempt to implement a Russian court's decision against Euroclear in countries such as 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 indicated they are developing measures to deter other countries from assisting any Russian lawsuits against European companies. Additionally, they are crafting protections to protect EU countries with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

According to the detailed plan, the EU would issue an initial €90 billion loan to Ukraine, backed by the cash earned from the immobilized assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay unaffected.

Kyiv would only be obligated to repay the money in the event that Russia agreed to pay reparations for the vast damage inflicted during the nearly four-year conflict.

Other Funding Ideas

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

Such a proposal, nevertheless, requires full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, which means it doesn't come from our public funds, which is also significant," she stated. "Furthermore, it sends a powerful signal that if you do all this damage to another nation, you must pay for the rebuilding."