In France, Francis Vercamer, a deputy of the National Assembly of France recently asked to clarify the Russian repayment of bonds from the Czarist Russia period in the 1800s. The French invested in the railroad bonds backed by the gold standard. The bonds were issued during the railroad construction boom in the latter part of the 1800s. In January 1857 Alexander II signed into law the start of building railroads to connect a multitude of the Russian regions.
Consequently, Russia and France created an association with a primary goal of aiding in the building of Russian railroads, with the compounded capital of the 275 million Roubles backed by silver. The Nikolaevskaya railroad was built to connect St. Petesburg and Moscow and was signed off by the Russian Emperor Nicholas I. The Parisian bankers Gottinger and K were one of the investors of Nikolaevskaya railroad bonds. It took 800,000 workers to build the railroad and required large financial investments.
The association helped attract French investors to invest into the bonds. At the time, the price of each bond was 125 Roubles and 28 million were issued. Nevertheless, the estimated amount of French investments is 15 billion Francs and current value ranges betwixt 10,000 to 30,000 Euros. A lot of investors did profit from the bond investments. However, some were not able to collect on their investments after the Russian Revolution in 1917, consequently resulting in the bonds annulment by Lenin in the 1918.
After the collapse of the Soviet Union, the Russian government offered to repay the funds. A treaty between France and Russia was signed in 1997. The treaty verbatim states:
“Whereby the Russian Federation continued the responsibility arising from measures of expropriation of bonds issued in France, which were taken by Soviet Russia after the 1917 Revolution.”
In this agreement, Russia is therefore considered as the continuing State of State of the Soviet Union, which was itself the “continuator” of the Russian State existing between 1917 and 1922.
The agreement provides for Russia to compensate France in the amount of $400 million in exchange for guarantees that France would not exercise diplomatic protection for claims of French Nationals and corporations against Russia arising out of the non-payment of bonds expropriated after the 1917 Revolution.
The agreement is construed as a set-off, whereby Russia agreed not to pursue claims for reparations, which the USSR had sought for many years against France. The agreement references claims linked to the Western Intervention of 1918-1922 and other military or hostile operations undertaken by the Western States (including France) against the new Soviet government for that period. This is certainly because France considered Russia to be the legal continuator of the USSR and believed that, consequently, it remained entitled to submit a claim for reparation arising from damage that occurred before the break-up of the USSR.
In reality, international law does not provide a good remedy. The majority of precedents from other international cases are based on both sides making concessions. In the history of international law such disputes never resulted in the award of the exact amount being sought between the nations.
The private bond heirs are seeking compounded repayment of 30 billion Euros and were successful in getting Vercamer’s advocacy on their behalf at the National level. Nevertheless, if a European court allows the case to proceed it could set a dangerous precedent for other nations to collect on historic bonds. It would also bankrupt the Russian National Fund.
If the European court were to set such a legal precedent, it could create a domino effect in France. The US could also demand repayment of debt and so could a myriad of other nations.