Confiscation Without Borders: How Currency-based Jurisdiction Works in the US

The war in Ukraine has been going on for more than 2 years. During this time, the question of holding the terrorist country accountable for numerous crimes against Ukrainians remains open. Every day, enemy attacks target different cities of the country, which leads to compounding human and infrastructural losses. Effective defense is a top priority for Ukraine in domestic and foreign policy.

The search for sources of funding for defense and fighting the aggressor are constantly expanding. Recently Verkhovna Rada adopted a draft law on increasing the military tax for legal entities and individual entrepreneurs. Moreover, more than 50 cases have been referred to court, in which assets of Kremlin henchmen were confiscated, as well as property of Russia worth UAH 25.9 billion was forcibly seized. These assets were transferred to a separate budget program for reconstruction.

However, Ukraine remains most dependent on the financial assistance of its partners. And despite the significant aid packages, the countries of the pro-Ukraine coalition are still hesitant to take steps for more aid to come from Russia itself, rather than from the pockets of their taxpayers.

Legal and financial questions have been overcome in the long discussion on the possible confiscation of the assets of the Russian Central Bank that are frozen in Western jurisdictions. However, so far, the opportunities to act on these discussions have not been explored.

This article will expand on the legal possibility of seizing not only Russian state assets held directly in banks in Western jurisdictions, but also through correspondent banking accounts abroad, through currency-based jurisdiction. Ukraine’s partners must take more decisive action to ensure reparations for Ukraine and hold Russia accountable under international law. 

Currency Denominations of Russian Assets

The rise of globalization has led to the interconnectedness of national economies and currencies more than ever before. This interdependence also presents complex legal and economic challenges. One significant contemporary issue is the jurisdictional claims surrounding currency transactions, particularly in the context of economic sanctions.

Since the full-scale invasion of Ukraine, Western governments have frozen Russian state assets around the world. Even though the exact amounts of foreign exchange reserves are not made public by partner countries, an approximate calculation by different sources indicates about USD 300 billion located in G7 countries. The largest amount is located in the EU, which therefore receives the most pressure and attention on confiscating and transferring those reserves to Ukraine. 

According to the most recent public financial statements of Euroclear, the largest EU depository, Euroclear’s balance sheet (as of July 2024) is EUR 207 billion, of which EUR 173 billion relate to sanctioned Russian assets. However, not all of these assets are held in Euro currency. 7% of the EUR 173 billion is invested in USD (USD 13.4 billion), 8% in CAD (CAD 21 billion), and 17% in GBP (GBP 25 billion).

Practice shows that such cross-currency flow of assets opens various avenues for financial activity that are subject to differing legal frameworks, particularly those relating to sanction regimes. The presence of Russia-related assets, which are invested in foreign currency and frozen in EU and non-EU financial institutions, creates opportunities for jurisdictional claims by non-EU governments regarding these assets. 

The legal premise here is rooted in the understanding that the financial system is global but operates under various national laws that can impose significant constraints on the flow of capital. 

Cases of U.S. Jurisdiction Claims Over Dollar Transactions

For instance, in U.S. practice there have been a few cases of prosecuting persons who violated the U.S. sanctions regime through transactions with U.S. dollars in foreign financial institutions, including the case of Wanzhou Meng, the Chief Financial Officer of Huawei Technologies Co. Ltd. In 2021 Wanzhou Meng was prosecuted on charges of conspiracy to commit two charges of bank fraud and two charges of wire fraud in order to circumvent U.S. sanctions against Iran. Meng made a number of transactions on behalf of Huawei to the Iranian company that were denominated in U.S. dollars and cleared through the United States. The U.S. Department of Justice sought the forfeiture of assets tied to the alleged criminal conduct (however,the case was resolved through a deferred prosecution agreement). 

The other case involved Commerzbank AG, a global financial institution headquartered in Frankfurt, Germany. The bank concealed dollar transactions prohibited by U.S. sanctions laws on behalf of Iranian and Sudanese businesses using schemes that involved the Commerzbank branch in New York and other financial institutions in the United States. In 2015 the bank agreed to forfeit USD 563 million as part of a settlement with the U.S. Department of Justice for violations of the International Emergency Economic Powers Act (IEEPA) and the Bank Secrecy Act (BSA).

The core argument for U.S. jurisdiction over currency transactions in these cases is the role of U.S. correspondent banks in processing U.S. dollar transactions. Every such transaction necessitates dealings with a U.S. bank that acts as a correspondent. This establishes a jurisdictional footing for the U.S. government, which asserts that such transactions amount to an export of financial services from the United States. 

All U.S. dollar transactions processed by foreign financial institutions are thus scrutinized under U.S. sanctions regime. The jurisdictional claim is built upon the premise that these assets originate from or pass through the U.S. financial system, thus granting authorities a legal pathway to seize them as part of their broader sanction enforcement policy.

Since the adoption of the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (REPO Act), the U.S. president has the authority to confiscate the sovereign assets of Russia, which directly or indirectly belong to the government of Russia, the Central Bank, and the Russian Direct Investment Fund. The first step of this process provides for identification of all the financial institutions where the assets of Russia are stored and the reporting of such property to the Secretary of the Treasury. According to the currency-based jurisdiction of the U.S., the foreign financial institutions with USD investments—such as Euroclear—must be on that list as well.

Conclusion

The interconnectedness of financial systems underscores the capability of Ukrainian ally countries to utilize their financial regulations as tools for bringing Russia to justice. With significant amounts of frozen Russian assets held in EU financial institutions through correspondent banks in non-euro currencies, the discussion about their confiscation should not be limited only to calls to action from the EU.

All of Ukraine’s partners should be more active in this process and explore their own possibilities of such confiscation, in particular through currency-based jurisdictional claims. Critically important financial aid to Ukraine must come from the aggressor itself. 

Authors: 

Nataliia Sichevliuk, legal advisor at Transparency International Ukraine

Yuliya Ziskina, Attorney& Senior Legal Fellow, Razom for Ukraine