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The Russian central bank has announced it is claiming damages totaling $230 billion from the securities depository Euroclear. This action represents a direct warning from the Kremlin regarding proposals to utilize frozen Russian sovereign funds to support Ukraine.

The Financial Lawsuit

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

EU leaders will determine in the coming days 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 economic stability.

The vast majority of these assets, totaling €185 billion, are held at the Euroclear clearing house in Brussels. Euroclear serves as the main custodian for the Russian frozen financial reserves.

Divergent Legal Views

EU officials have maintained that their plan is legally sound. Their position is based on the principle that title of the state assets still belongs to Russia, despite being it was frozen in European jurisdictions shortly after the full-scale invasion of Ukraine.

Moscow, however, has called any use of the assets as theft. It has threatened reciprocal actions, including seizing EU private investors' holdings within Russia.

Kirill Dmitriev, who has taken on a prominent role in peace negotiations, stated on a social media platform that Russia "will win in court" and retrieve its assets. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

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

The clearing house refused to comment on the latest legal action. The institution has previously noted it is facing over 100 legal cases in Russian courts.

Enforcement Challenges

While courts in EU countries are not expected to recognize judgments from Russian courts, experts anticipate Moscow to seek implementation in countries with stronger ties to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant holdings can be identified," commented a legal expert from an international firm.

EU Countermeasures

EU officials indicated they are working on measures to deter other nations from aiding any Russian legal action against EU companies. Additionally, they are crafting safeguards to protect EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the complex plan, the EU would issue an first €90 billion loan to Ukraine, backed by the proceeds earned from the immobilized assets at Euroclear. Critically, Russia's legal claim on the underlying funds would remain untouched.

Ukraine would only be obligated to return the loan if and when Russia agreed to pay compensation for the vast damage inflicted during the ongoing conflict.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for financing Ukraine. This involves common EU borrowing to fund a loan, backed by unused funds within the European budget.

This alternative move, however, requires full agreement among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the proposed loan scheme as "the strongest option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally important," she remarked. "Furthermore, it delivers a clear signal that when you do all this destruction to another country, you have to pay for the reparations."