Russia may seek to seize Euroclear’s cash through court proceedings.
Western officials are preparing to seize $300-350 billion worth of Russian financial assets to help support Ukraine, but implementation remains complex given that it would set a controversial precedent.
Here are some suggested ideas:
confiscated
Some international policymakers and lawyers say Russia’s fixed reserves could simply be confiscated under an international law principle known as “countermeasures.” The assets would then be sold or mortgaged, with the proceeds going to Ukraine or a dedicated reconstruction fund.
Others, however, fear it would violate international norms and open a legal Pandora’s box, as it would set a precedent and Russia would challenge the move in court.
Previous examples of such seizures, such as the seizure of Iraqi assets after Iraq invaded Kuwait in 1990 and the seizure of German assets after World War II, occurred after the war ended, not while the war was still ongoing, as in the case of Russia’s invasion of Ukraine. Seizure when intense.
Even in the United States, leading sovereign debt experts stress that the International Emergency Economic Powers Act (IEEPA) does not authorize outright seizure of frozen Russian assets in the absence of an actual armed conflict between the United States and Russia.
Siphon closure record
Most of Russia’s nearly 210 billion euros ($230 billion) in reserves locked in the EU – mainly bonds and other types of securities invested by the Russian central bank – are held at a Brussels depository institution called Euroclear.
When the assets reach their final payment date (or “maturity,” as bankers say), they are converted into cash, a transaction that is taxed in Belgium at a rate of 25%.
Officials in the European Union, as well as the United States and the United Kingdom, which freeze much smaller amounts, have therefore proposed earmarking such revenue for Ukraine, which is estimated to reach 15-20 billion euros by 2027.
EU leaders are likely to applaud the move later this month. However, some within the EU remain cautious, with the European Central Bank warning that trapped Russian assets can only be claimed in cooperation with G7 forces. They want to ensure that if other countries such as China start repatriating their foreign reserves to protect them from surprise attacks, it won’t just be the euro that will be affected.
Some lawyers also point out that, legally speaking, there is no difference between siphoning off expired revenue and grabbing the entire $30-350 billion.
Russia may seek to seize Euroclear cash at securities depositories in Hong Kong, Dubai and elsewhere through court proceedings. The worry is that this could deplete Euroclear’s capital and require a huge bailout.
So there are plans to set aside some of the siphoned off funds as a safety net.
indemnity bond
“Indemnity bonds” have also been suggested as a way to circumvent certain legal issues. Ukraine will sell payable securities if and only if Ukraine receives compensation from Russia for damage caused by the war.
Interest payments may also accrue and will only be payable if Kiev receives compensation.
Bondholders would have no contractual claim on the Kremlin’s frozen reserves. But given that Russia is unlikely to be willing to pay compensation, these assets will be the most likely source of cash to pay for the losses.
Because reserves earn interest, they can be used to pay the bond’s principal and make periodic coupon payments. This differs from confiscation in that assets will only be transferred if a legitimate compensation mechanism first determines that the damage was caused by Ukraine.
Ukraine will have a reasonable means of collecting any damages not exceeding the value of the reserves. Therefore, it could issue up to $300-350 billion in compensation bonds. But it would only get that amount if the United States, EU governments and other allies were willing to buy the securities.
syndicated loan
Lee Buchheit, a veteran legal expert on sovereign debt, and Daleep Singh, who has just returned to the White House as deputy national security adviser for international economics, further fleshed out the bond idea.
Their view is that Ukraine could commit claims to Russia to a consortium of its allies in exchange for loans. If Moscow refuses to pay the damage, the allies can use Russia’s frozen assets to repay the loan. The rationale for this is the widely recognized legal principle that if a creditor controls the debtor’s assets, it can set off those assets against the outstanding debt.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
