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The Russian central bank has declared it is claiming damages totaling $230 billion from the financial institution Euroclear. This move constitutes a direct warning by the Kremlin regarding plans to use frozen Russian state assets to aid Ukraine.

The Legal Claim

Based on reports in Russian news outlets, the central bank filed a claim last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials are set to determine later this week regarding a proposal to leverage around €210 billion in immobilized Russian assets. This scheme involves granting Ukraine with a large loan to fund its defence and economic needs.

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

A Clash Over Legality

European Union authorities have argued that their proposal is on solid legal ground. They argue rests on the principle that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in EU jurisdictions following the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any utilization of the funds as illegal appropriation. It has threatened reciprocal actions, including seizing EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a key role in peace negotiations, wrote on X that Russia "will win in court" and regain its assets. He warned that the EU, the common currency, and Euroclear "will suffer" from the plan.

Strategic Positioning

With statements seen as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a vicious attack on property rights and the global financial system established by the United States."

Euroclear declined to provide a statement on the latest lawsuit. It has in the past noted it is contending with over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in EU countries are unlikely to recognize rulings from Russian tribunals, experts expect Moscow to seek implementation in nations with stronger relations to the Kremlin.

"Russian monetary authorities may attempt to enforce a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, provided that relevant assets can be identified," stated a lawyer from an international firm.

EU Countermeasures

EU officials said they are working on measures to discourage other nations from assisting any Russian legal action against EU companies. Additionally, they are crafting protections to protect EU countries with assets in Russia from what they call "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, using the cash generated from the immobilized assets at Euroclear. Critically, Russia's legal claim on the principal funds would stay untouched.

Ukraine would solely be obligated to return the money if and when Russia consented to pay compensation for the vast destruction inflicted during the nearly four-year conflict.

Other Funding Ideas

Belgium, backed by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for funding Ukraine. This involves joint EU borrowing to fund a loan, backed by unallocated funds within the European budget.

Such a proposal, however, demands full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has already expressed its opposition.

Speaking on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the most credible option" for aiding Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our public funds, which is also important," she remarked. "Furthermore, it sends a powerful signal that if you cause all this damage to another country, you have to pay for the reparations."