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The Russian central bank has announced it is seeking damages amounting to $230 billion against the financial institution Euroclear. This move constitutes a clear response by the Kremlin regarding proposals to use immobilized Russian sovereign funds to aid Ukraine.

The Substantial Demand

According to accounts in local news outlets, the central bank filed a lawsuit last week for roughly 18 trillion roubles. This sum is equivalent to the stated $230 billion demand.

EU leaders are set to decide in the coming days regarding a plan to use around €210 billion in immobilized Russian state funds. This scheme entails granting Ukraine with a large loan to fund its defence and financial needs.

The vast majority of these funds, totaling €185 billion, are stored at the Euroclear clearing house in Brussels. Euroclear serves as the primary keeper for the Russian frozen sovereign wealth.

Divergent Legal Views

EU 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, even though it was frozen in EU jurisdictions shortly after the full-scale military offensive of Ukraine.

Moscow, however, has labeled any use of the funds as theft. Authorities have warned of retaliatory actions, including seizing European private investors' assets within Russia.

Kirill Dmitriev, who has taken on a key role in peace negotiations, wrote on X that Russia "will win in court" and retrieve its funds. He added that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Geopolitical Maneuvering

In comments interpreted as an attempt to create division between Europe and the United States, Dmitriev characterized the proposal as "a severe attack on the right to ownership and the global financial system established by the United States."

The clearing house refused to comment on the new legal action. It has previously stated it is contending with over 100 lawsuits in Russian jurisdictions.

Enforcement Challenges

Although judges in EU countries are unlikely to recognize rulings from Russian tribunals, experts anticipate Moscow to seek implementation in countries with stronger ties to the Kremlin.

"The Bank of Russia could try to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that such assets can be identified," stated a legal expert from an NSP law firm.

EU Countermeasures

EU officials said they are developing steps to deter other nations from aiding any Russian legal action against EU entities. Additionally, they are crafting protections to protect EU countries with investments in Russia from what they call "illegal expropriation."

How the Funding Would Work

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

Ukraine would only be obligated to repay the loan if and when Russia agreed to pay compensation for the vast damage caused during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for financing Ukraine. This involves common EU debt issuance to fund a loan, backed by unallocated funds within the European budget.

This alternative move, however, requires full agreement among all 27 member states. The Hungarian government, considered friendly with the Kremlin, has previously signaled its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, described the proposed loan scheme as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian immobilized funds, meaning it doesn't come from our taxpayers' money, which is equally significant," she remarked. "Furthermore, it sends a powerful signal that if you do all this damage to another nation, you must pay for the reparations."