The EU is preparing to de facto confiscate Russian reserves. Before which courts and how can Russia challenge this confiscation? Alexandre Genko-Starosselsky, partner at EQA Avocats and member of the Paris Bar, sets out the situation in an article for RBC.

Within a week, European Union leaders may approve the European Commission’s proposals to “pledge as collateral” Russia’s immobilised sovereign reserves for a “reparation loan” to Ukraine. The vast majority of the assets of the Bank of Russia (CBR) are held in Belgium (Euroclear), whose Prime Minister has repeatedly warned that transferring these assets to Ukraine would trigger large-scale legal proceedings against his country. One can only agree with this assessment — for whatever name the EU gives to this operation, it amounts in substance to a confiscation, and a very dangerous precedent at that.

Should this come to pass, a veritable legal storm can be expected — before European courts, international arbitration tribunals, the International Court of Justice, and potentially Russian courts and those of third countries.

The very heart of the European system will be put to the test. While the freezing (“immobilisation”) of Russian assets has already been upheld by European case law, the confiscation of sovereign assets will represent an unprecedented qualitative leap.

The Bank of Russia will in all likelihood wish to challenge the future European legal instruments governing this “reparation loan” before the Court of Justice of the European Union. Russia will argue in particular that no international tribunal has ordered it to pay compensation to Ukraine, and that the confiscation directly violates its property rights and the fundamental principles of the EU.

It is safe to say that the European judges will be called upon to arbitrate between raison d’État and the rule of law — a historic test.

International Arbitration: Belgium in the Front Line

Under the bilateral investment protection agreement in force between Belgium, Luxembourg and Russia, any expropriation must be compensated. Failing that, the Bank of Russia could bring proceedings against Belgium before an international arbitration tribunal. The agreement protects all investors without restriction, and the CBR may avail itself of it.

The proceedings brought on this basis by Mikhail Fridman, with a possible decision in 2026, will serve as a barometer.

In the arbitration proceedings, Belgium will not be able to hide behind the EU or claim that it did not vote in favour of the loan to Ukraine. Indeed, the EU’s powers are founded on the principle of conferral, according to which the Union acts only within the limits of the competences conferred upon it by the Member States. In other words, the EU has been delegated competences that fall within national sovereignty. It follows that any EU decision is assumed by each member country as if it were its own. Nor will Belgium be able to claim that the “reparation loan” does not infringe Russia’s property rights. The Belgian Prime Minister and many others have already publicly acknowledged that this amounts to a de facto confiscation and that Russia should never expect to see this money again.

However, before this forum, Belgium will certainly be able to invoke the countermeasures taken by Russia. In plain terms, if Russia compensates itself by confiscating European assets on its territory or in other countries, the CBR will forfeit its right to claim compensation before the arbitral tribunal. Belgium could also argue that the harm suffered by the CBR is hypothetical if the latter simultaneously brings proceedings against Euroclear. It should be noted, however, that all such proceedings are particularly lengthy. Some decisions may be rendered more quickly than others, which in practice necessitates adapting claims in the course of litigation depending on outcomes obtained in other forums. In such a situation, the CBR would logically need to initiate all proceedings simultaneously.

In December, the European Trade Justice Coalition (ETJC) published a report recommending that European countries denounce their investment protection agreements with Russia. The need for “certain” EU member states to withdraw from bilateral investment agreements with Russia is also mentioned in the draft European Commission regulation on the “reparation loan.” At the same time, the ETJC authors acknowledge that these agreements contain sunset clauses which maintain the guaranteed protection for several years after any eventual termination. In the agreement between Belgium, Luxembourg and Russia, this period is 15 years.

Finally, it should not be forgotten that there are many other similar agreements concluded with EU countries, as well as with the United Kingdom. Belgium will probably not be the only country to invest CBR assets in an EU debt instrument, which will in turn be used to extend a loan to Ukraine.

European media have reported that a portion of the CBR’s assets are also frozen in Germany, France, Sweden and Cyprus.

International Court of Justice: Global Confrontation

Russia could bring proceedings before the United Nations International Court of Justice (ICJ) in The Hague for violation of the sovereign immunity of its assets by European states. All the leading professors of international law will be present at this highly political trial. There will, however, be one notable absentee from the dock: the EU itself — for the ICJ can only condemn a member state of the United Nations, which the EU is not.

The defence of the European states against which charges are brought will rely on the international law doctrine of countermeasures. Under that doctrine, however, only belligerent parties — not third parties — may take countermeasures. Moreover, confiscation, which is by its nature definitive, has never been regarded as a countermeasure, since countermeasures must be reversible.

Of course, an ICJ ruling will not make good the harm suffered by the CBR, but it could represent a symbolic victory for the Russian Federation, intended to demonstrate that it is the EU that is breaching the norms of international law.

Direct Actions Against Euroclear

There is no doubt that Euroclear will benefit from special immunity provided for under the future European regulation. The legality of this immunity will be the first challenge for the courts, as it bears the hallmarks of a denial of justice mechanism — which is unlawful in a state governed by the rule of law. Euroclear will also be able to defend itself by invoking circumstances beyond its control and, consequently, force majeure. This argument is not, however, beyond challenge. In several European countries, including France and Belgium, the law does not allow a payment obligation to be extinguished by invoking force majeure. Moreover, force majeure is generally understood to refer to a natural disaster, not a decision by public authorities.

Another subject of debate: the CBR could argue that a depositary of Euroclear’s stature had a duty to exhaust all available remedies to protect the assets of a sovereign client. Euroclear appears to have anticipated this: its chief executive has raised the possibility of challenging the European mechanism — but will this actually be done? Ultimately, the prospect of Euroclear insolvency proceedings, also raised by its chief executive, is not as far-fetched as it might seem.

It goes without saying that the CBR will bring proceedings against Euroclear before Russian courts or those of friendly countries, where its prospects of success will be higher. Admittedly, such decisions will not be recognised in the EU, where a mechanism already exists prohibiting the recognition of such rulings — but Euroclear holds reserves in other countries. In any event, Euroclear is becoming accustomed to this: proceedings brought against it in Russia are innumerable.

The question remains whether the CBR will be able to bring proceedings against Euroclear simultaneously in Russia and in Belgium. In principle, not if the claims are identical. But it will not be difficult to formulate distinct and complementary claims so as to bring the dispute before every available jurisdiction and thereby maximise the chances of success.

Enforcement of Decisions and the Hunt for Assets

Russia is already aware that decisions rendered in its favour cannot be enforced in Europe. There are, however, ancillary rights on which it might prevail. For example, the CBR could require Euroclear, before the courts, to credit it with the interest generated by its immobilised cash holdings.

The real danger plainly concerns Euroclear’s assets held in third states. Russia could already seek to obtain provisional attachment orders over those assets, opening a truly global battle for European holdings.

In the final analysis, a strategy presented as bold risks becoming a disastrous precedent — one that would lastingly undermine the reliability of the European legal and financial system.