Euroclear in the Dock: Moscow Tests the Legal Limits of Europe’s Frozen Assets

As Russia’s central bank brings its claim against Euroclear before a Moscow court, the EU’s attempt to mobilise immobilised sovereign assets without crossing into confiscation meets its first live legal stress test.

On 16 January 2026, the Bank of Russia’s claim against Euroclear will come before the Moscow Arbitrazh Court. The proceeding is framed not as diplomacy by other means, but as a civil claim for loss arising from the continued immobilisation of Russian Central Bank assets held within the European Union. The court will not be asked to adjudicate the legality of EU sanctions as a matter of international law. It will be asked to determine whether, under Russian law, Euroclear’s compliance with EU restrictive measures constitutes an unlawful interference with the Bank of Russia’s property rights, giving rise to compensable loss.

Russian counsel can be expected to advance three propositions with some discipline. First, that Euroclear, as custodian, owes duties arising from custody and settlement arrangements that subsist notwithstanding foreign sanctions, and that compliance with EU measures does not extinguish liability under Russian civil law. Second, that the prolonged immobilisation of securities and cash balances has caused measurable damage, including loss of use and lost income, and that such loss is not rendered non justiciable merely because it arises from foreign public acts. Third, that the evolving EU policy of mobilising cash balances and associated revenues, even if framed as reversible and non confiscatory, aggravates that loss by converting temporary immobilisation into an open ended deprivation.

The remedies sought are unlikely to be confined to declaratory relief. The function of the claim is to establish a domestic judgment platform capable of supporting enforcement or countermeasures within Russia and of widening litigation risk for custodians and counterparties with Russian exposure. Whether such a judgment would be recognised or enforced in EU jurisdictions is a separate question. For present purposes, the existence of the proceedings is itself part of the legal landscape in which the European Union’s proposed financing structures must be assessed.

The European Union is considering a financing structure for Ukraine that rests not on the confiscation of Russian central bank principal, but on the mobilisation of cash balances that have accumulated as a consequence of immobilisation. The immediate issue is whether such a structure can be sustained within the limits imposed by international law on measures affecting sovereign property, and within the EU’s own constitutional framework for restrictive measures and fiscal risk. The more consequential issue is whether the structure genuinely avoids confiscation, or whether it achieves the economic effect of confiscation while relocating the legal and fiscal exposure to Member States and custodians.

The question is not abstract. The overwhelming majority of immobilised Russian Central Bank assets held within the G7 sit under EU jurisdiction, primarily at Euroclear in Belgium. Russia has already commenced proceedings against Euroclear in Moscow and has characterised any use of its assets, whether direct or indirect, as a violation of sovereign immunity. These proceedings are not an incidental backdrop. They form part of the operating environment in which the EU’s proposal must be assessed.

At its meeting of 23 October 2025, the European Council invited the Commission to present options for financial support for Ukraine “as soon as possible”, following more than three years of debate on the permissible use of immobilised Russian assets. That invitation was legally spare, but strategically pointed. It reflected a political demand for scale and predictability in Ukraine’s financing for 2026 and 2027, coupled with a continuing insistence that the principal of Russian sovereign assets should not be formally confiscated. The Commission President’s subsequent reference to a Reparations Loan was an attempt to give that mandate operational form without crossing a line that policymakers have repeatedly treated as legally and systemically dangerous.

Any serious legal analysis must begin by maintaining distinctions that political debate tends to blur. Freezing or immobilisation is a restrictive measure. Title remains with the foreign state, but dealing is prohibited. The orthodox debate here concerns whether such measures engage the rules on immunity and inviolability of state property, and if so whether they can be justified as countermeasures or under other doctrines precluding wrongfulness. Those questions remain contested, but they are analytically distinct from confiscation.

In February 2024 the EU moved further, requiring central securities depositories holding significant volumes of Russian Central Bank assets to segregate the extraordinary cash balances and revenues generated as a result of immobilisation from their ordinary accounting activities. That step did not alter ownership. It created a custody and accounting regime designed to stabilise the legal status of flows that existed only because immobilisation prevented Russia from managing or redeploying its reserves.

The subsequent decision to channel net windfall profits generated from reinvestment of those cash balances towards Ukraine was another incremental step. It relied on the proposition that income generated as a by product of immobilisation could be treated differently from the underlying principal. It is no accident that the EU has become the principal testing ground for such income use mechanisms. They represent an attempt to reconcile political pressure with legal constraint.

Confiscation, or permanent transfer of principal, remains the boundary that policymakers have been careful not to cross. Permanent transfer of foreign central bank reserves engages the most stringent form of enforcement immunity in international law and in domestic systems. That is not a moral position. It is a structural feature of the legal order. European Parliament studies and national legal advice have consistently treated confiscation as legally exposed and systemically destabilising, even where the underlying conduct of the foreign state is unlawful.

Against that background, the Commission’s proposed Reparations Loan seeks to mobilise the cash balances associated with immobilised assets rather than relying solely on annual profits. Public reporting indicates a structure under which EU based central securities depositories would issue a long term, zero interest syndicated loan equivalent to those balances, with Member States providing guarantees through their national budgets. The legal presentation is careful. The assets remain owned by Russia. The mechanism is framed as reversible. The assets themselves are said not to be touched.

That framing does much of the legal work. It also carries the central ambiguity. A measure may avoid the formal label of confiscation and still be attacked as a substantive measure of constraint against sovereign property. The defence therefore depends not on rhetoric, but on characterisation. The argument is that the measure targets balances and flows that exist only because immobilisation prevents Russia’s access and investment choices, that ownership of principal remains intact, and that the structure is contingent upon future reparations outcomes. Whether that characterisation holds under legal scrutiny is an open question. It is not resolved by assertion.

What is clear is where the risk sits. The structure does not eliminate downside exposure. It reallocates it. If Russia does not pay reparations, repayment obligations fall on Member States. Operational and litigation risk concentrates around the custodians and the host state. Belgium’s insistence on EU level guarantees reflects that reality. The collateral is politically potent, but legally constrained. The credible backstop is fiscal.

The emphasis placed on reversibility is therefore double edged. Reversibility assists in distinguishing the mechanism from confiscation. It also creates dependency. The scheme only functions if immobilisation continues uninterrupted for the duration of the loan. That is not simply a matter of political resolve. It is a legal design constraint, given that the restrictive measures immobilising the assets are renewed periodically within the EU’s sanctions framework. The financial architecture implicitly assumes that the cost of reversal becomes prohibitive once Member States are exposed as guarantors.

The arbitration and treaty flank cannot be ignored, even if its ultimate reach is uncertain. Russia’s proceedings against Euroclear are unlikely to succeed on orthodox enforcement grounds outside Russia. Their function is leverage, signalling, and risk creation. In parallel, the invocation of legacy investment treaties offers another avenue by which measures taken at the custodian or host state level may be reframed as treaty breaches, irrespective of the merits. The threat itself is part of the pressure. That, too, must be priced into any serious assessment.

The United States provides a useful comparator. The REPO Act created statutory authority to repurpose certain Russian sovereign assets. It has not resulted in widespread confiscation of central bank reserves. The distinction matters. Legal authority does not compel legal prudence, and the absence of execution speaks to the same immunity and stability concerns that shape the EU’s approach.

The legal boundary the EU is attempting to navigate is therefore not between inaction and seizure. It lies between immobilisation, revenue capture, and permanent transfer of principal. The EU already occupies the first two categories. The Reparations Loan appears designed to approximate the economic effect of principal mobilisation without formally crossing into confiscation. Whether that attempt succeeds will turn on how courts and counterparties characterise the measure, and on whether the fiscal guarantees underpinning it are credible enough to absorb the risk displaced from the assets themselves.

In substance, the proposal is best understood not as confiscation by another name, but as an effort to transform immobilised sovereign reserves into a contingent fiscal instrument, wrapped in legal reversibility and backed by Member State balance sheets. The law does not prohibit ingenuity. It does insist that someone ultimately carries the risk.