Russian Central Bank Sues Euroclear Over Frozen Assets; Will the EU Be Hoist on the Investor-State Settlement Disputes (ISDS) Petard?

The Bank of Russia filed suit in Moscow Arbitration Court against Euroclear, with no amount of damages specified. The Kremlin vowed additional action if the assets were misappropriated.

Filing in Russia, as opposed to a foreign court, might look like a weak initial gambit. However, as we’ll discuss below, the procedure Russia is relying upon is enshrined in treaties and has been deployed with mixed success in other Russia-sanctions-contesting actions. Long-standing readers will be well-versed in this topic, investor-state dispute settlement procedures, since we have discussed it at considerable length in the context of the fight over the TransPacific Partnership and the Transatlantic Trade and Investment Partnership trade deals. Obama labored mightily to push them over the line before he left office. Trump did not pursue them.

These treaties, designed to override the laws and regulations of states in order to give protected status to investors, make a mockery of national sovereignity. ISDS disputes draw on a small community of arbitrators, many of whom were involved in drafting ISDS treaty provisions, with hearing held in secret and typically not appealable. The rising (and correct) perception that this rules were gutting labor rights and environmental protection was instrumental to stopping their reach being extended further in the US. But it seems no existing ISDS provisions have been unwound.¹

So Euroclear may be hoist on the ISDS petard.

The move also validates Euroclear’s and the Government of Belgium’s concerns about their liability. It should help stiffen their spines as well as those of member states like Hungary that object to the European Commission and the EU leaders pushing for the financial heist attempting to ram through legislation, using emergency powers, that would saddle them, without their consent, with a share of any losses were the EU to use the assets as collateral to continue to fund Ukraine and its war. However, Russia may be required by its agreement with Euroclear to proceed this way.

The Financial Times described the European plans that look to have teed up this action:

The suit is Russia’s first shot across Europe’s bows as Brussels moves to indefinitely immobilise the assets to fund a €90bn loan to Ukraine next week. Belgium, where most of the assets are held, has opposed the idea, fearing Russian retaliation.

The European Commission believes no courts outside the EU would have jurisdiction over the case. But Russia’s central bank said it would also “unconditionally challenge” efforts to immobilise its assets via international courts in both “friendly and hostile countries”.

It is seeking damages based on “the sum of the Bank of Russia’s blocked funds, the value of the blocked securities, and loss of expected gains”, the central bank added…

Kyiv’s western allies froze $300bn in Russia’s reserves shortly after President Vladimir Putin ordered the full-scale invasion of Ukraine in 2022. They are currently immobilised every six months through a process that requires unanimous agreement from all 27 EU members, including opponents of the scheme such as Hungary.

But the European Commission proposed using emergency powers to immobilise €210bn indefinitely to fund the €90bn loan, hoping it will bolster Kyiv’s resistance to Russia’s invasion and help secure a role for the continent in US-led peace talks. EU countries on Thursday agreed to that proposal ahead of a debate among EU leaders next week on the loan.

The Financial Times stated that Euroclear holds €185 billion of the €210 billion European total. It is not clear if that €185 billion is all central bank assets or includes the holdings of Russian companies and individuals.

Next from TASS:

The Bank of Russia has filed a lawsuit against the Euroclear depository in the Moscow Arbitration Court for damages caused to the Bank of Russia, the regulator’s press service reported…

“In connection with the illegal actions of the Euroclear depository, which are causing damages to the Bank of Russia, as well as in connection with the mechanisms officially reviewed by the European Commission for the direct or indirect use of Bank of Russia assets without the consent of the Bank of Russia, the Bank of Russia is filing a lawsuit in the Moscow Arbitration Court against the Euroclear depository for damages caused to the Bank of Russia,” the statement reads.

The regulator stressed that the actions of the Euroclear depository caused damage “due to the inability to manage cash and securities belonging to the Bank of Russia.”

The majority of Russia’s sovereign assets frozen in Europe (over €200 billion) are blocked on Euroclear’s platform in Belgium. The depository repeatedly opposed the expropriation of the assets, warning that it could lead to Russia seizing European or Belgian assets elsewhere in the world through legal action.

Earlier Russian President Vladimir Putin stated that the global financial and economic order would be destroyed, and economic separatism would only intensify, if the West stole Russia’s frozen assets. Kremlin Spokesman Dmitry Peskov noted that Moscow would definitely respond to the theft of its assets in Europe. He stressed that the Kremlin intends to organize legal proceedings against those involved in this scheme.

A favorable result in Moscow would at a minimum seem to set up Russia to be able to take compensatory action if Euroclear did not free the funds, such as immobilizing Euroclear funds in Russia, estimated at €15 billion. That would tee up litigation by those parties against Euroclear.

Moreover, when a party fails to satisfy a legal judgement, they attempt to garnish assets they can reach. So a next move by Russia if it prevails (which seems likely not just given the choice of venue but also how investor-biased ISDS provisions are) would be to sue Euroclear in other jurisdictions, such as Hong Kong and Singapore, where Euroclear has operations and substantial assets, to collect or impound assets, since there is not enough Euroclear loot in Russia to compensate Russia were it to prevail.

Mind you, I have no idea if and how this could work in practical terms. But with the Lehman bankruptcy, there was a fight over which court would have jurisdiction. This has also been a common fist fight with vulture investors, such as hedgies like Paul Singer who bought claims against Argentina on the cheap and gott a US court to enforce them. I have not followed Singer closely enough to follow his machinations, plus his operations are likely not generalizable to Russia and Euroclear. Argentina sold bonds with would have contained rule of law provisions and likely specified the jurisdiction in which claims would be heard. The analogous provisions in the Euroclear agreement would be different.

Presumably we will get a lot more detail, particularly if the underlying filing is made public so legal mavens can review it and opine further. The commentary on Twitter so far doesn’t add to the raw facts. We had pointed out yesterday that Singapore provides for discovery, which could make it a very useful venue. From the Financial Times’ comments section:

ABgk
It’s a warning shot. The real escalation would be Singapore court – Euroclear has huge assets in that jurisdiction and judges there have previously sided with a view that sovereign assets are untouchable. This is why Euroclear is so nervous – they are exposed outside EU a LOT and there are no protections. In case Singaporean court uses their assets there as a collateral, France and Germany will shrug it off and will let the Belgians to hang dry.

A recent VoxEU article states that Russia has already frozen Euroclear assets² in Russia and some afflicted Euroclear clients have gotten recoveries:

According to the Financial Times (2025), Russia has confiscated approximately €33 billion in assets belonging to Euroclear clients. In addition, Euroclear faces more than 100 lawsuits related to immobilised and frozen assets. In response, the EU Council introduced a loss recovery derogation and a no liability clause in December 2024. A loss recovery derogation enables CSDs to request competent authorities of the Member States to unfreeze cash balances and use them to meet their legal obligations towards their clients.

Reuters (2025) reports that Euroclear invoked this regulation to release €3 billion in Russian assets to compensate clients whose holdings had been expropriated in Russia. Euroclear’s quarterly results also show a €1 billion decline in Russian assets between the second and fourth quarters of 2025, consistent with a partial unblocking of these funds. This decision set an important precedent for the confiscation of Russian assets. However, the proceeds were used to indemnify Euroclear’s clients, effectively socialising their losses from operating in Russia.

From Le Monde on December 10 about the use of arbitration to seek recoveries from sanctions:

Russia has not only threatened Europe through drone incursions and hybrid interference operations, but also in court. By exploiting old commercial treaties dating back to the end of the Cold War, Russian companies and oligarchs have multiplied arbitration proceedings to challenge the European Union’s sanctions policy, posing an increasingly serious financial risk to member states.

This warning was issued by a coalition of European NGOs, including the Veblen Institute for Economic Reforms, Friends of the Earth Europe and PowerShift, in a report published on Tuesday, December 9 titled “Frozen Assets, Hot Claims: How Russian oligarchs and other investors sue over sanctions.” These organizations estimate that at least $48 billion (€41 billion) has been claimed from the EU and its allies (the United Kingdom, Ukraine and Canada) in compensation for these sanctions – a minimum figure, as most of the 24 proceedings identified in the report have not disclosed the amounts sought.

After their villas, yachts and works of art were frozen following the invasion of Ukraine, several oligarchs have retaliated through legal proceedings, with varying degrees of success. In 2024, Piotr Aven and Mikhail Fridman won a case in the EU’s court, which found their contribution to the war to be too indirect to justify the sanctions imposed on them.

Beyond this high-profile case, several Russian oligarchs and companies have launched much more discreet proceedings, relying on investment treaties that many European states signed with the Soviet Union in the late 1980s. Designed to protect investors, these bilateral agreements have created a parallel justice system known as investor-state dispute settlement (ISDS). This mechanism allows investors to bring their cases before a panel of private international arbitrators, rather than a conventional court, to seek compensation if they believe a state has abused its rights, such as through expropriation or unfair treatment.

Fridman, for example, used the 1989 treaty between Luxembourg and Russia to demand the return of his assets that are frozen in the EU country, along with financial compensation for the “irreversible and catastrophic damage” to his business. He is seeking the equivalent of €14.5 billion, which represents half of Luxembourg’s annual budget…

Although none of these proceedings have yet succeeded, their initiators know their chances are much higher than in a European court. Arbitrators in ISDS cases must determine whether the state expropriated the complainant’s assets without valid reason – a practice prohibited by bilateral treaties, even when sanctions are in place. The Court of Justice of the EU highlighted this vulnerability as early as 2009, but “the EU member states (…) have not renegotiated their treaties to include safeguards, nor have they canceled them,” the Veblen Institute said..

From the underlying Frozen Assets, Hot Claims paper (emphasis theirs):

Our analysis also shows that:

• Overall, known ISDS claims and threats of claims by sanctioned individuals and entities alreadyamount to 62 billion USD. This is getting close to the 70 billion USD of military assistance the EU has provided to Ukraine since 2022. The true figure is very likely to be slightly higher as in more than half the cases no information about the amounts claimed is available.
• More than half of the ongoing, sanctions-related ISDS cases are against Ukraine. The others are targeting other European countries (Belgium, France, Lithuania, Luxembourg and the UK) and Canada.
• Seven ISDS cases against Ukraine’s sanctions and security policies are based on investment treaties with EU member states and a further two on the Ukraine-UK investment treaty. This shows that the investment treaties that European countries maintain with Ukraine have enabled sanctioned individuals and entities to directly challenge Ukraine’s national security policy.
• Russian oligarch Mikhail Fridman has filed five claims against sanctions-related measures and threatened a sixth case. Three of the five cases are targeting Ukraine, of which two are based on the investment treaty that Ukraine has with Belgium and Luxembourg and the other on one with the Netherlands.
• Of the 24 cases challenging sanctions, 13 have been initiated in 2025 alone, highlighting how investors are favourably resorting to ISDS to challenge the sanctions policy of Ukraine and its supporters.

The incompatibility of EU countries’ investment treaties with EU sanctions policy was highlighted by the European Court of Justice in 2009. In three rulings against Austria, Sweden, and Finland, it found that capital transfer clauses in the three countries’ investment treaties conflict with the Council’s authority to unilaterally impose sanctions on third countries. However, in the years since then, the countries and other EU Member States with similar clauses in their treaties have failed to remedy the situation. They have not renegotiated their treaties to include safeguards, nor have they cancelled them.

Another whining article by IIDS about “unintended consequences” of ISDS provisions suggests that they could be effective tools for Russia, or at least very much muddy the waters for EU member states. For instance:

The threat of investment arbitration claims from Russian actors challenging the European Union’s proposed new Ukraine support package is the latest example of how outdated investment treaties can be used to undermine governments’ responses to crises…

That Belgian decision-makers now refrain from backing the crucial Ukraine proposal for fear of arbitration based on investment treaties only adds to longstanding concerns about these instruments. Over the past decades, these treaties have increasingly been misused in ways their drafters never intended. From climate policy to public health, they now put collective security decisions at risk. Reform is more urgent than ever.

I don’t recall such tender concerns when Amazon rain forests were at risk.

In any event, pass the popcorn. Things are about to get ugly. The long-standing erosion of national rights in favor of stateless investors is being turned against its neoliberal creators.

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¹ A mini-recap from a 2023 post, Even Rich Nations Now Worried About ISDS:

In the US, Public Citizen deserves a great deal of credit for turning policy-makers against the multinational-favoring, national-law-and-regulation-gutting “free trade agreement known as ISDS, or “investor state dispute settlement. These disputes are arbitrated by secret panels with no appeal and pro-corporate cronies acting as deciders. Public Citizen’s relentless digging got key bad facts out in the open…

Some…notorious cases, the first from a 2014 post:

Germans are particularly aware of the dangers of these foreign investor panels due to payments the German government has been forced to make. Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011, Der Spiegel reported on how it was suing for expected €1 billion plus losses due to Germany’s program to phase out nuclear power:

According to Handelsblatt, Vattenfall has an advantage in seeking compensation because the company has its headquarters abroad. As a Swedish company, Vattenfall can invoke investment rules under the Energy Charter Treaty (ECT), which protect foreign investors in signatory nations from interference in property rights. That includes, according to the treaty’s text, a “fair and equitable treatment” of investors.

The Swedish company has already filed suit once against the German government at the ICSID. In 2009, Vattenfall sued the federal government over stricter environmental regulations on its coal-fired power plant in Hamburg-Moorburg, seeking €1.4 billion plus interest in damages. The parties settled out of court in August 2010.

What is particularly galling about these agreements is that they give investors the right to sue over lost future profits.

A report in the UK website Vox Political suggests that Germany has figured out what the TTIP is really about and isn’t about to be snookered. Germany’s willingness to defy the US may be part of the fallout of revelations of the amount of “Five Eyes” snooping that goes on in the Eurozone, and may also reflect discomfort with US escalation of hostilities with Russia, when it is not to Germany’s advantage to participate in economic brinksmanship.

Or see this section of a Nick Corbishley post from 2016:

International arbitration lawyers have a soft spot for Latin America, for a reason: over the last ten years, the region has been one of the primary sources of their exorbitant fees, which can range from $375 to $700 per hour depending on where the arbitration takes place.

By 2008, more than half of all registered claims at the International Centre for Settlement of Investment Disputes (ICSID) were pending against Latin American countries. In 2012, around one-quarter of all new ICSID disputes involved a Latin American state.

Today the region faces a fresh deluge of ISDS claims. The countries most affected include Uruguay, whose anti-tobacco legislation has been challenged by Philip Morris at an international arbitration panel; Argentina, Ecuador and Colombia, which until a few years ago had never been on the receiving end of an investor-state dispute settlement (ISDS). Now it is the target of multiple suits that could end up setting its government back billions of dollars.

The claimants include Glencore, the world’s biggest and most heavily leveraged commodities trader; Carlos Slim-owned América Móvil, the leading wireless services provider in Latin America and the third largest in the world; the Spanish insurance company Sanitas; the Swiss pharmaceutical giant Novartis; and the Canadian miner Eco Oro and US miner Tobie Mining and Energy.

Each company on that list feels that decisions or actions taken by the Colombian government have in one way or another cost or will cost them profits to which they feel entitled. And each company is doing what it has the right to do under today’s trade treaties — suing the government of that country for damages.

It is the last company on the list — Tobie Mining and Energy — that is the biggest concern to the Colombian government for the damages it seeks: $16.5 billion. That’s a lot of money for a nation with per-capita GDP of $7,831 and whose currency has lost 40% of its value against the dollar over the last 18 months. It’s the equivalent of 20% of its national budget.

But the whole point of ISDS had seemed to be colonialism in another guise, particularly deployed against proto or actual socialist countries that might take things like workplace rules and environmental protection too seriously. But then, as Jomo describes, advanced economies started being hoist on this multinational petard.

But ISDS, although waning in support, is still far from dead.

² It also explains what Euroclear does. Some readers seemed not to understand what securities depositaries are:

Central Securities Depositories are a core component of post-trade infrastructure. Each security issuer must select a CSD to register newly issued securities, and when these securities are traded, the CSD records the change in ownership – a process known as settlement. Beyond settlement, CSDs facilitate the distribution of cash flows such as dividends, coupons, and bond redemptions. These functions are essential to the integrity of securities issuance, the accurate recording of ownership, and the finality of settlement, making it inconceivable that European authorities would ever allow Euroclear or any other CSD to fail…

International CSDs, such as Euroclear and Clearstream, are focal points in global financial networks. States with political authority over these infrastructures can weaponise them as chokepoints to cut their adversaries off from the network