Few commuters navigating the traffic-choked Boulevard du Jardin Botanique in central Brussels look up at the Lego-like office tower that houses the esoteric financial organisation called Euroclear.
Fewer still would be able to tell you what goes on behind its doors. But, as Russia’s full-scale invasion of Ukraine enters its third grim year, this paean to architectural blandness is at the heart of one of the most vigorous diplomatic and financial arguments since the bloody conflict began: should the West seize Russia’s overseas assets and hand them over to Kyiv?
After the death of Alexei Navalny, Lord Cameron of Chipping Norton last week urged his fellow G7 foreign ministers at the Munich security summit to seize Russia’s assets in their countries so they can be used as reparations to rebuild Ukraine. Rishi Sunak has reiterated the idea. But Sunak and Cameron will need to summon all of their diplomatic powers to prevail, for the idea is deeply unpopular in European circles.
Many bankers, lawyers and companies with Russian links argue that it would set a bad precedent and cost the West the moral high ground, dragging Europe and America down to Moscow’s level by breaking international laws protecting sovereign states.
Others, such as Bill Browder, the businessman whose own Russian operations were stolen from him in President Putin’s Russia, scoff at such concerns. “Putin has caused up to $1 trillion of damage in Ukraine,” he said. “He, and the Russian state, should pay for the damage they have caused. The only people against that are those looking to serve their own narrow self-interest.”
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Politically, the push is being led by America and Britain, and resisted largely by Germany, France and Italy.
London and Washington’s plan is not to expropriate the yachts, mansions and Lamborghinis of Russian oligarchs abroad. That would involve the protracted process of proving in court that each individual was personally responsible for breaking the law over the invasion, not to mention overcoming rules protecting private property.
Rather, it focuses solely on Russia’s sovereign overseas assets — the near $300 billion of the state’s reserves held abroad before the 2022 invasion. After all, there can be little doubt that Moscow drove its tanks through international laws when it invaded a sovereign state. And that is where the grey Brussels HQ of Euroclear comes in.
Roughly two thirds of Russia’s entire overseas sovereign assets have been held there since they were frozen in 2022. In total, Euroclear holds some €191 billion of it. Why? Because Euroclear is the main European depository for international bonds, shares and other financial assets. As with most major countries’ foreign-based assets, Russia’s were held largely as high-grade foreign government bonds: UK gilts, US Treasuries and European sovereign debt.
Euroclear is staunchly opposed to the idea of seizing the booty, and, given that it holds most of it, that makes it probably the biggest corporate stumbling block to Sunak and Cameron’s plan.
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Cynics, and there are plenty, say its opposition has a lot to do with the fact that Euroclear last year made some €4.4 billion from interest related to the frozen Russian-owned bonds it holds. From that windfall, €1.1 billion goes to the Belgian state in tax.
Belgium, too, is opposed to an outright asset seizure but the government has proposed a compromise where the assets would be used as collateral against which Ukraine could borrow to fund its rebuilding. But for Euroclear’s outgoing chief executive Lieve Mostrey, this would still be unacceptable, exposing her organisation to Russian legal claims and threatening the stability of Euroclear and Europe’s financial system.
“Using assets that don’t belong to you as collateral … could have exactly the same effects on the markets as a direct seizing,” she told the Financial Times.
The plans outlined by Sunak include seizing and handing to Ukraine the interest accruing on the Russian assets, before finding legal means to go after the assets themselves.
Euroclear has strong allies in its opposition. The European Central Bank and the Italian central bank have lobbied that such a move would undermine the euro.
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German government sources have said that it could set a damaging legal precedent if the international laws of sovereign immunity was overthrown.
Jamie Rogers, a partner at the City law firm Hogan Lovells, who specialises in sanctions compliance, agreed that there are serious legal problems with the idea, adding that it could also cause a backlash in Russia. “There are still western businesses operating there lawfully which are at risk of expropriation [by Moscow]. There are already instances where that has happened,” he said.
Financiers have argued that an asset grab could deter other countries and central banks from lending to western nations if we prove ourselves willing to expropriate them at will. But Maximilian Hess, author of Economic War: Ukraine and the Global Conflict Between Russia and the West, said such arguments were “hooey”.
He pointed out that western governments proved that there would be little such damage when they froze Russian assets in 2022. “That had almost no impact on the use of western financial institutions by other countries,” he said.
Those fearing a withdrawal of sovereign investment fundamentally misunderstand the international system, he argued. States running surpluses who want to hold assets abroad need strong economies like Britain and America with deficits or there would be no gilts and US Treasury bonds for them to invest in. And there are a limited number of big, safe deficit countries around.
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“Even Dubai, which serves as a nice home for lots of other questionable [assets] is not a place that can absorb these excess savings,” Hess said.
Fabio Panetta, Italy’s central bank governor, warned last month that seizing Russian euro-denominated assets risked harming the single currency and sending international investors to other currencies such as the Chinese renminbi.
However, Robert Zoellick, the former World Bank president, countered that even China does not want to hold its foreign earnings in renminbi. Like other nations with surpluses, it prefers holding them in dollars and euros, he has argued.
Browder said: “If the UK, US, EU, Japan, Switzerland all agree to do this, then it does not create any adverse effect because there is nowhere else to go.”
Zoellick also argued that seizing Russia’s assets is legal, pointing to the detailed findings of a group of lawyers and academics including Professor Philippe Sands, of University College London, and Professor Dapo Akande, of Oxford University. They published a paper that found international law permits states to take “countermeasures” against a country that had violated its international obligations if it was to compensate “states that have been injured by that conduct.”
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There are precedents for seizing assets and using them for reparations going back to the treaties of Versailles and Potsdam after the First and Second World Wars. Saddam Hussein’s foreign assets were taken and redistributed for the rebuilding of Iraq. However, lawyers argue that while there are similarities between such cases — Sudan, Libya, Iran and Yugoslavia are also sometimes cited — none are precisely the same situation.
Ben Brandon, a partner at Mischcon de Reya in London, works with a team of lawyers and investigators called the Ukraine Justice Alliance, looking at ways of helping legally to seize Russian assets to pay reparations to Ukraine. He said they had found it would be “very challenging”. Britain’s 1978 State Immunity Act and similar rules in other countries were difficult to overcome.
However, Hess said, “laws get changed all the time”, internationally and domestically: “We have this thing called the rules-based order but there’s really no such thing. In fact, we make up the rules as we go and we make them in the West’s interests. I happen to like that.”
Brandon agreed, saying international law has evolved in response to past armed conflicts. If a sufficient international consensus could be built around such reforms, and domestic parliaments passed new laws, it could, and should be done.
“My worry is that it ends up being delayed and eventually put in the “too difficult” basket,” he said.
With the clock ticking towards a potential election of Donald Trump to the White House and the probable end to American support for Ukraine that this would entail, time is in short supply.
Browder, who wants Russia’s seized reserves to be used to buy weapons for Ukraine, as well as rebuilding the country, said: “I hope the prospect of Trump will focus minds. The confiscation of Russian central bank reserves is essentially ‘Trump insurance’, a way of continuing to help Ukraine if the US cuts them off.”
