On 23 October, EU leaders failed to agree on the Commission’s plan to use frozen Russian assets as collateral for a loan to Ukraine. The proposal is legally defensible, but the risk of litigation is real. With Kyiv’s IMF programme ending in November, time is short. To unlock the deal, the EU and its members should provide Belgium firm guarantees and EU-wide risk-sharing.
What is the legal status of Russian sovereign assets?
After Russia’s full-scale invasion of Ukraine in February 2022, the EU and its G7 partners froze more than €250 billion in Russian Central Bank reserves held in Western financial institutions. About €210 billion sits with Belgium-based Euroclear, of which roughly €176 billion in bonds has already matured and been converted to cash. The rest is due between 2026 and 2027.
Since the freeze, some Western officials have urged outright seizure to fund Ukraine’s defence, arguing that Russia should pay for the destruction it caused. Yet the prevailing view until recently has been that transferring these assets to Ukraine would be illegal.
Under customary international law, state property is generally immune from “measures of constraint” such as seizure and expropriation. The pending UN Convention on State Immunitiesconfirms this principle, which, in practice, applies to executive actions like the EU Council sanctions that function similarly to judicial measures.
The International Court of Justice has also taken a strict line. In 2012, it ruled that Italy breached Germany’s sovereign immunity by allowing WWII-era compensation claims to proceed in Italian courts and by attempting to seize German state property. The Court made clear that state assets are strongly protected from such enforcement.
What is the EU Commission’s plan, and is it legal?
The Commission proposes a legally cautious workaround converting about €140 billion of Russia’s frozen reserves into an interest-free reparations loan for Ukraine. Kyiv would repay only when Moscow pays war reparations. Euroclear would hold EU-guaranteed bonds, preserving Russia’s legal claim to the underlying assets.
While no expropriation would occur, the scheme could still be cast as an unlawful constraint on state property. However, it should be seen as a countermeasure rather than expropriation. Under the Articles on State Responsibility, countermeasures allow states to suspend specific obligations owed to a wrongdoing state to restore compliance.
Crucially, such measures are not limited to the directly injured state. When violations implicate obligations erga omnes, duties owed to the international community, or breach jus cogens norms, peremptory rules from which no derogation is permitted (such as prohibitions on aggression, war crimes, torture and genocide), third states may act to induce compliance.
Russia’s invasion of Ukraine and its war crimes fall in this category, enabling the EU to temporarily suspend certain obligations, including the protection of sovereign immunity for Moscow’s central bank assets.
Countermeasures are not reprisals: they must be reversible and lifted once legality is restored. The Commission’s design meets this test. Russia’s claim remains on the books, backed by EU-guaranteed bonds and unfrozen once hostilities cease and reparations are paid.
What are the risks of a legal challenge?
While the Commission’s plan is legally sound, litigation risks cannot be overlooked.
Unlike domestic courts, international tribunals can hear a case only with the consent of all parties to the dispute. There is no treaty basis for Russia to bring Belgium before the International Court of Justice, and an ad hoc treaty to submit the dispute to the Court is highly unlikely.
The bigger risk lies in investment arbitration. Under the Belgium–Luxembourg–Russia bilateral investment treaty (BIT), Russian state-linked entities could allege Belgian violations of investor protections. While investment arbitration is generally for private investors, arbitration tribunals have often accepted jurisdiction over claims by state-owned entities or their corporate vehicles. That means an arbitration tribunal could potentially force Belgium to defend the EU’s legal rationale.
As Euroclear’s host state, Belgium is the front-line defendant for any BIT claim by Russia, bearing the legal costs and liabilities for an EU-wide policy.
To be prepared for such a risk, EU capitals should back Belgium with explicit guarantees – coordinated legal defense and burden-sharing to cover any financial indemnities – to secure its consent and ensure that the Ukraine loan package remains legally, politically and financially durable.
Using Russian assets for a loan to Ukraine is legal – but Belgium needs guarantees
On 23 October, EU leaders failed to agree on the Commission’s plan to use frozen Russian assets as collateral for a loan to Ukraine. The proposal is legally defensible, but the risk of litigation is real. With Kyiv’s IMF programme ending in November, time is short. To unlock the deal, the EU and its members should provide Belgium firm guarantees and EU-wide risk-sharing.
What is the legal status of Russian sovereign assets?
After Russia’s full-scale invasion of Ukraine in February 2022, the EU and its G7 partners froze more than €250 billion in Russian Central Bank reserves held in Western financial institutions. About €210 billion sits with Belgium-based Euroclear, of which roughly €176 billion in bonds has already matured and been converted to cash. The rest is due between 2026 and 2027.
Since the freeze, some Western officials have urged outright seizure to fund Ukraine’s defence, arguing that Russia should pay for the destruction it caused. Yet the prevailing view until recently has been that transferring these assets to Ukraine would be illegal.
Under customary international law, state property is generally immune from “measures of constraint” such as seizure and expropriation. The pending UN Convention on State Immunitiesconfirms this principle, which, in practice, applies to executive actions like the EU Council sanctions that function similarly to judicial measures.
The International Court of Justice has also taken a strict line. In 2012, it ruled that Italy breached Germany’s sovereign immunity by allowing WWII-era compensation claims to proceed in Italian courts and by attempting to seize German state property. The Court made clear that state assets are strongly protected from such enforcement.
What is the EU Commission’s plan, and is it legal?
The Commission proposes a legally cautious workaround converting about €140 billion of Russia’s frozen reserves into an interest-free reparations loan for Ukraine. Kyiv would repay only when Moscow pays war reparations. Euroclear would hold EU-guaranteed bonds, preserving Russia’s legal claim to the underlying assets.
While no expropriation would occur, the scheme could still be cast as an unlawful constraint on state property. However, it should be seen as a countermeasure rather than expropriation. Under the Articles on State Responsibility, countermeasures allow states to suspend specific obligations owed to a wrongdoing state to restore compliance.
Crucially, such measures are not limited to the directly injured state. When violations implicate obligations erga omnes, duties owed to the international community, or breach jus cogens norms, peremptory rules from which no derogation is permitted (such as prohibitions on aggression, war crimes, torture and genocide), third states may act to induce compliance.
Russia’s invasion of Ukraine and its war crimes fall in this category, enabling the EU to temporarily suspend certain obligations, including the protection of sovereign immunity for Moscow’s central bank assets.
Countermeasures are not reprisals: they must be reversible and lifted once legality is restored. The Commission’s design meets this test. Russia’s claim remains on the books, backed by EU-guaranteed bonds and unfrozen once hostilities cease and reparations are paid.
What are the risks of a legal challenge?
While the Commission’s plan is legally sound, litigation risks cannot be overlooked.
Unlike domestic courts, international tribunals can hear a case only with the consent of all parties to the dispute. There is no treaty basis for Russia to bring Belgium before the International Court of Justice, and an ad hoc treaty to submit the dispute to the Court is highly unlikely.
The bigger risk lies in investment arbitration. Under the Belgium–Luxembourg–Russia bilateral investment treaty (BIT), Russian state-linked entities could allege Belgian violations of investor protections. While investment arbitration is generally for private investors, arbitration tribunals have often accepted jurisdiction over claims by state-owned entities or their corporate vehicles. That means an arbitration tribunal could potentially force Belgium to defend the EU’s legal rationale.
As Euroclear’s host state, Belgium is the front-line defendant for any BIT claim by Russia, bearing the legal costs and liabilities for an EU-wide policy.
To be prepared for such a risk, EU capitals should back Belgium with explicit guarantees – coordinated legal defense and burden-sharing to cover any financial indemnities – to secure its consent and ensure that the Ukraine loan package remains legally, politically and financially durable.
Share link:
Related Post
The proliferation of AI-enabled military technology in the Middle East
From drones to rocket fuel, China and Russia are helping Iran through supply chains
Defending the skies of the Arab Gulf states