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The Russian central bank has announced it is seeking damages amounting to $230 billion from the securities depository Euroclear. This action represents a direct response from the Kremlin against plans to use frozen Russian sovereign funds to support Ukraine.

The Financial Lawsuit

Based on reports in Russian state media, the central bank initiated a lawsuit last week for roughly 18 trillion roubles. This sum is equivalent to the aforementioned $230 billion demand.

EU leaders are set to determine in the coming days on a proposal to leverage around €210 billion in immobilized Russian assets. This scheme involves granting Ukraine with a large loan to finance its military and financial needs.

Most of these funds, amounting to €185 billion, reside at the Euroclear depository in Brussels. This institution acts as the main keeper for the Russian immobilised sovereign wealth.

Dispute on Ownership

European Union officials have argued that their proposal is legally sound. Their position is based on the principle that title of the state assets still belongs to Russia, despite being it was immobilized in EU jurisdictions following the full-scale military offensive of Ukraine.

Moscow, in contrast, has called any utilization of the assets as theft. It has warned of reciprocal actions, such as seizing European corporate assets within Russia.

Kirill Dmitriev, who has assumed a prominent role in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

In comments seen as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a vicious assault on the right to ownership and the global financial system created by the United States."

Euroclear refused to comment on the new legal action. The institution has previously noted it is contending with over 100 legal cases in Russian courts.

Enforcement Challenges

While courts in EU countries are unlikely to enforce rulings from Russian tribunals, experts expect Moscow to seek enforcement in nations with closer relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that relevant assets can be located," commented a lawyer from an international firm.

European Safeguards

European authorities said they are working on measures to deter other countries from assisting any Russian lawsuits against European companies. They are also designing protections to protect EU member states with investments in Russia from what they term "illegal 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 legal claim on the underlying funds would remain unaffected.

Kyiv would solely be obligated to return the money in the event that Russia agreed to pay reparations for the vast destruction inflicted during the ongoing conflict.

Other Funding Ideas

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

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

Speaking on Monday, the EU top diplomat, Kaja Kallas, said the reparations loan as "the most credible solution" for supporting Ukraine. "This mechanism is based on the Russian frozen assets, which means it is not drawn from our taxpayers' money, which is equally significant," she remarked. "Furthermore, it delivers a powerful message that if you do all this destruction to another country, you must pay for the rebuilding."