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The Russian central bank has declared it is claiming damages amounting to $230 billion against the financial institution Euroclear. This legal step constitutes a clear response by the Kremlin against proposals to use frozen Russian sovereign funds to aid Ukraine.

The Legal Claim

Based on reports in local state media, the monetary authority filed a claim last week for approximately 18 trillion roubles. This amount corresponds to the aforementioned $230 billion demand.

EU leaders are set to determine in the coming days on a plan to use around €210 billion in frozen Russian state funds. This scheme involves granting Ukraine with a substantial loan to fund its military and financial needs.

Most of these funds, totaling €185 billion, reside at the Euroclear depository in Brussels. This institution serves as the main custodian for the Kremlin's immobilised sovereign wealth.

A Clash Over Legality

European Union authorities have argued that their proposal is legally sound. Their position rests on the principle that ownership of the state assets remains with Russia, despite being it was frozen in European countries shortly after the 2022 invasion of Ukraine.

Moscow, in contrast, has labeled any utilization of the assets as illegal appropriation. Authorities have warned of reciprocal measures, such as confiscating European corporate holdings within Russia.

Kirill Dmitriev, who has assumed a prominent position in diplomatic talks, stated on a social media platform that Russia "will prevail in court" and retrieve its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements seen as an effort to drive a wedge between Europe and the United States, Dmitriev described the assets plan as "a vicious assault on property rights and the international reserves system established by the United States."

The clearing house refused to comment on the new legal action. It has in the past noted it is facing more than 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While courts in EU countries are not expected to enforce judgments from Russian tribunals, experts expect Moscow to pursue enforcement in countries 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, if relevant assets can be located," stated a legal expert from an NSP law firm.

European Safeguards

EU officials said they are working on steps to deter other countries from aiding any Russian lawsuits against EU entities. They are also designing protections to protect EU member states with assets in Russia from what they term "unlawful expropriation."

How the Funding Would Work

According to the detailed scheme, the EU would provide an initial €90 billion loan to Ukraine, backed by the proceeds generated from the frozen assets at Euroclear. Critically, Russia's ownership claim on the underlying funds would stay unaffected.

Kyiv would solely be required to return the money in the event that Russia consented to pay reparations for the immense destruction caused during the ongoing conflict.

Other Funding Ideas

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

Such a proposal, nevertheless, demands full agreement among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has already signaled its objection.

Speaking on Monday, the EU foreign policy chief, a senior official, said the proposed loan scheme as "the most credible option" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is equally important," she remarked. "Furthermore, it sends a clear signal that if you cause all this destruction to another country, you have to pay for the rebuilding."