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The Russian central bank has announced it is seeking damages totaling $230 billion from the securities depository Euroclear. This legal step represents a direct response by the Kremlin regarding plans to utilize immobilized Russian state funds to aid Ukraine.

The Financial Lawsuit

Based on reports in local news outlets, the central bank filed a claim last week for roughly 18 trillion roubles. This figure is equivalent to the aforementioned $230 billion demand.

EU leaders will decide later this week regarding a proposal to leverage around €210 billion in frozen Russian state funds. The proposal entails granting Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these assets, amounting to €185 billion, are held at the Euroclear clearing house in Brussels. This institution serves as the primary keeper for the Kremlin's immobilised sovereign wealth.

Divergent Legal Views

EU authorities have argued that their proposal is on solid legal ground. They argue rests on the principle that ownership of the state assets remains with Russia, despite being it was frozen in EU jurisdictions shortly after the 2022 invasion of Ukraine.

The Russian government, however, has labeled any use of the funds as illegal appropriation. It has warned of retaliatory measures, such as confiscating EU private investors' assets within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a prominent position in peace negotiations, stated on X that Russia "will win in court" and regain its assets. He added that the European Union, the euro, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments interpreted as an attempt to create division between Europe and the United States, the official described the proposal as "a vicious attack on the right to ownership and the international reserves system established by the United States."

The clearing house declined to provide a statement on the latest lawsuit. It has in the past noted it is contending with more than 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are not expected to recognize judgments from Russian tribunals, experts expect Moscow to pursue implementation in countries with closer relations to the Kremlin.

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

EU Countermeasures

EU officials said they are working on measures to discourage other nations from assisting any Russian lawsuits against EU entities. Additionally, they are crafting safeguards to shield EU countries with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would issue an first €90 billion loan to Ukraine, backed by the cash generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Ukraine would only be obligated to return the money if and when Russia agreed to pay compensation for the immense 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 funding Ukraine. This entails joint EU borrowing to fund a loan, using unused funds within the EU budget.

This alternative move, however, requires unanimity among all 27 member states. Hungary's government, considered friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the strongest solution" for supporting Ukraine. "This mechanism is secured against the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is also significant," she remarked. "Furthermore, it delivers a clear message that when you cause all this damage to another nation, you must pay for the reparations."