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Last month, the European Union made history by turning Russian President Vladimir Putin's own wealth into a weapon against him.
In a bold move, undoubtedly accelerated to avoid the looming figure of a conciliatory newly elected President Donald Trump, and Hungary's Viktor Orban, the EU has decided to use the windfall profits from frozen Russian assets to back a $50 billion loan to Ukraine. The $325 billion worth of frozen assets is currently generating around $3 billion per year, which would repay the loan in the all too likely case that Russia refuses to pay reparations when the war comes to an end.
This isn't just a financial blow—it's an outright rebuttal of Russia's reliance on the principle of sovereign immunity, which shields a nation's assets from being exploited in the territory of another. For months, Russia has been attempting to inappropriately exploit this key principle of international law, claiming that breaching sovereign immunity even once would unravel the entire system.
Indeed, sovereign immunity has served as vital protection for several centuries, helping to establish equal respect of all jurisdictions and preventing them from taking advantage of one another whenever they feel like it.
But while it is right to practice caution when playing with international law, the principle of sovereign immunity is not absolute. In recent decades, it has been challenged on several separate occasions, each with their own distinct outcome.
In the early 2000s, for example, Argentina was sued by several hedge funds after defaulting on its sovereign debts. Its economic hardship was further entrenched when U.S. courts denied its invocation of sovereign immunity in favor of wealthy institutions that couldn't bear to lose their investments. A few years later, Greece found itself in a similar situation. But because its debt was largely governed by its own laws, sovereign immunity ensured that its remaining assets were well-protected.
A more unusual case is that of the ongoing dispute between Malaysia and the Philippines, which began in 2018. A group of self-identified heirs to the defunct Filipino Sultanate of Sulu were persuaded by their British lawyers to file for arbitration against Malaysia, laying claim to the resource rights to its oil-rich region of Sabah. Their argument was to be heard by an arbitrator appointed by the High Court in Madrid, Dr Gonzalo Stampa.
Stampa issued a preliminary award in 2020, but the Madrid court subsequently identified a key procedural defect in the appointment proceedings and as a result, the Court revoked Stampa's appointment and ordered him to terminate the proceedings. The decision acted as a robust and significant affirmation of the enduring importance of sovereign immunity.
But the Sulu's lawyers and third-party investors could not be dissuaded. Instead, they persuaded Stampa to defy the Madrid Court and to transfer the case to Paris, where he ordered Malaysia to pay a staggering $15 billion in compensation.
Stampa was later convicted for ignoring the Madrid court's orders, and concerns around his actions were only heightened when it was revealed that he had been paid a mysteriously generous fee of almost $3 million to rule on the case.
By this stage, the Sulu's backers had invested at least $20 million into the case. In their desperation to cover their losses, they set about changing the venue once again.
Faced with mounting, and robust rejections from European courts across Spain, France, and the Netherlands, the Sulu's backers have filed an $18 billion arbitration claim directly against Spain, seeking to challenge the Madrid's court's revocation of Stampa's appointment and arguing that its conviction of Stampa was inappropriate and derailed their case.
So, although there are clear arguments surrounding sovereign immunity, there are stark variations in how it plays out in practice.
The EU is using this malleability to its advantage, setting an entirely new precedent for how this enshrined principle of international law can be adapted in the context of war.
From this moment on, any world leader who makes such barbaric decisions as Putin has could see the deified protection of their authoritarian rule pulled out from beneath their oversized feet. In theory, sovereign immunity could also be denied to hold China to task for the Uyghur crisis, or to force industrialized nations to compensate for their historic role in creating an untenable climate for countries in the Global South.
But the EU must proceed with caution. While this has been a crucial and laudable step toward holding Russia accountable, as we can see from some of the examples above, sovereign immunity continues to play a key role in upholding the rule of law and we cannot afford for the principle to be dismantled altogether.
It's a delicate balance, and one misstep could have far-reaching consequences for governments all over the world. Countries could sue one another for all manner of things, exploiting fragile political systems to extract more resources for themselves.
This is the fragile task of legal decisions, where one wrong word can save or condemn entire countries. The EU needs to be ruthless but smart, ensuring that this new precedent serves in the name of justice rather than kickstarting a global descent into legal chaos.
Born on the island of Curaçao, Gilberto Morishaw is an expert on international governance, innovation and systems thinking. He is a former youth advisor for the European Commissioner for International Partnerships, a senior fellow for Humanity in Action, global shaper for the World Economic Forum, and a German Marshall Fund TILN fellow.
The views expressed in this article are the writer's own.
