By Julia Payne BRUSSELS, Dec 12 (Reuters) - The European Commission has entered uncharted legal territory with its proposed Ukraine "reparations loan", lawyers and academics said, which makes the
Understanding the Legal Risks of EU's Reparations Loan for Ukraine
By Julia Payne
BRUSSELS, Dec 18 (Reuters) - European Union leaders are divided over whether to use frozen Russian assets, held mostly in a Belgian securities clearing house, to help finance Ukraine's war efforts.
Lawyers and academics says the European Commission has entered uncharted legal territory with its proposed Ukraine "reparations loan".
Belgium opposes the idea, arguing it would be on the hook to repay Russia in the event of any successful legal claim by Moscow.
The loan would be aimed at raising 90 billion euros ($105 billion) in 2026 and 2027 to help Ukraine defend itself against Russia.
Western powers immobilised Russia's sovereign assets soon after Moscow launched its full-scale invasion of Ukraine in 2022. Of the 300 billion euros ($350 billion) in Russian foreign assets frozen abroad, about 210 billion euros are in Europe, mostly in Belgium where they are held by central securities depository Euroclear.
WHAT ARE BELGIUM'S CONCERNS?
* Belgium's PM Bart de Wever fears being "buried in litigation".
* He has repeatedly expressed concern that Brussels may be left on the hook to repay Russia in the event of a successful claim and wants all EU countries to participate.
* Further, he is concerned about liquidity if Euroclear has to settle any claim quickly and EU countries should jointly cover any legal costs.
* To spread the risk of Russian retaliation, Belgium also wants other G7 countries holding Russian sovereign assets, such as Britain, Canada or Japan, to replicate the EU scheme.
* Belgium fears Russia will follow through on its promises to target companies and individuals in friendly jurisdictions.
WHO MIGHT CHALLENGE A ‘REPARATION LOAN’?
* Russia, Belgium and Euroclear.
HOW AND WHERE MIGHT A LEGAL CHALLENGE BE LODGED?
* Russia's central bank has filed a lawsuit in Moscow seeking $230 billion in damages from Euroclear, marking the first step in what the Kremlin has warned will be a legal nightmare for the EU if it proceeds to use frozen Russian assets to support Ukraine. If the central bank wins, it could seek enforcement against Euroclear's assets in other jurisdictions, especially those deemed "friendly" by Russia.
* Russia could launch a suit at the European Court of Justice. Venezuela set a precedent in 2021 after the court ruled a third country could legally challenge sanctions at the court.
* Russia could try to use a Cold War-era investment treaty between Belgium and the Soviet Union signed in 1989.
* Russia's central bank, even as a state entity, could qualify as an investor under the treaty's wording. A commission representing both sides would first be appointed to assess the claim, followed by an arbitration tribunal including an arbiter from a third country.
* The case could be escalated to the arbitration court in Stockholm or the U.N.
* Belgium and Euroclear could lodge complaints in a Belgian court or directly at the ECJ.
* Russia cannot lodge a suit at the International Criminal Court or the European Court of Human Rights as it is not a member.
* Any claim regarding the reparations loan would not fall under the scope of the International Court of Justice and Russia does not accept its jurisdiction.
LEGAL CHALLENGES TAKE YEARS TO PLAY OUT? HOW WOULD A CHALLENGE IMPACT THE LOAN?
* A legal challenge would not block the use of the assets while proceedings were ongoing.
* At the ECJ, the average duration of a suit and appeal is more than three years.
* The ECJ's threshold to approve an injunction is very high, dubbed "draconian" by one legal expert, and would involve independent evidence and research.
WHAT DO LAW EXPERTS SAY ABOUT HOW LEGALLY SOUND THE PROPOSAL IS?
* Legal experts have said the Commission has entered into unprecedented territory, making the outcome of any potential suit hard to predict.
* Experts say Belgium or Euroclear would have a stronger case than Russia to argue against the reparations loan. However, when it comes to sanctions the ECJ tends to uphold foreign policy measures.
* The EU has been careful to bypass outright expropriation and the Commission's plan is to borrow against cash balances from matured securities held by Euroclear accounts.
* Moscow's war has been deemed illegal in international courts because it was an unprovoked attack. It would not be able to challenge the EU's justification to immobilise the assets in the first place as a countermeasure.
* Further, the mechanism is temporary and reversible if Russia stops the war.
* Russia's claim that the assets have been confiscated has not matured. Sanctions override commercial contracts and the question would arise as to whether the assets were actually expropriated or theoretically still available.
($1 = 0.8520 euros)
(Reporting by Julia Payne; Editing by Alex Richardson)
