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The Russian central bank has declared it is claiming damages totaling $230 billion from the securities depository Euroclear. This move represents a clear warning by the Kremlin regarding proposals to use frozen Russian sovereign funds to aid Ukraine.

The Legal Claim

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

European Union officials are set to decide in the coming days regarding a proposal to use around €210 billion in frozen Russian state funds. This scheme involves providing Ukraine with a large loan to finance its military and economic stability.

The vast majority of these assets, totaling €185 billion, are stored at the Euroclear depository in Brussels. This institution acts as the main custodian for the Kremlin's frozen sovereign wealth.

Dispute on Ownership

European Union officials have maintained that their proposal is legally sound. Their position is based on the principle that ownership of the sovereign wealth still belongs to Russia, despite being it was immobilized in EU countries following the 2022 military offensive of Ukraine.

The Russian government, in contrast, has labeled any utilization of the assets as theft. It has threatened retaliatory actions, including seizing EU corporate assets within Russia.

Kirill Dmitriev, who has taken on a prominent role in peace negotiations, stated on X that Russia "will prevail in court" and retrieve its funds. He warned that the EU, the common currency, and Euroclear "will suffer" from the plan.

Wider Implications

In comments seen as an attempt to create division between Europe and the United States, Dmitriev characterized the assets plan as "a vicious attack on the right to ownership and the global financial system created by the United States."

The clearing house refused to provide a statement on the latest lawsuit. It has previously noted it is facing more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

Although courts in European nations are unlikely to recognize judgments from Russian courts, analysts expect Moscow to pursue enforcement in nations with closer ties to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant assets can be identified," commented a lawyer from an international firm.

European Safeguards

European authorities said they are developing measures to discourage other nations from aiding any Russian lawsuits against European entities. They are also crafting protections to shield EU countries with investments in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

Under the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's legal claim on the principal funds would remain unaffected.

Kyiv would only be obligated to return the loan if and when Russia consented to pay compensation for the immense damage caused during the nearly four-year conflict.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative approach for funding Ukraine. This entails common EU borrowing to fund a loan, using unused funds within the EU budget.

Such a proposal, nevertheless, requires unanimity among all 27 member states. The Hungarian government, viewed as friendly with the Kremlin, has already expressed its opposition.

Commenting on Monday, the EU top diplomat, Kaja Kallas, described the reparations loan as "the strongest solution" for supporting Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also important," she stated. "It also delivers a clear signal that when you cause all this destruction to another nation, you have to pay for the rebuilding."