Now, in different countries of the world, russian assets worth about USD 500 billion are frozen: these are funds, real estate and other property of individuals, and gold and foreign exchange reserves of the Central Bank of the Russian Federation.
The full-scale war prompted not only our authorities but also other countries to look for the fastest and most effective ways to confiscate russian assets.
At the same time, freezing assets does not equal confiscation. Moreover, confiscation of assets is much more difficult in legal terms due to the fact that the institutions of confiscation and recovery of assets themselves are quite new (they are only 20-30 years old). Their main point is the termination of property rights, which, like any other human right, cannot be terminated without sufficient grounds. And the situation is further complicated by the fact that there is an urgent need to confiscate russian funds for the post-war reconstruction of Ukraine. However, our international partners have been active in searching for effective solutions, and below we will look at some of them.
The European Union is now improving legislation on the recovery and confiscation of assets to unify approaches to these processes at the level of all member states. Thus, on May 25, the European Commission suggested strengthening the Directive on the recovery and confiscation of assets, in particular through:
- expanding the powers of asset recovery offices to quickly track and identify them,
- expanding the possibility of confiscation of assets from a wider range of crimes, including violation of sanctions,
- establishment of asset management offices in the EU member states, where there are no such institutions.
In addition to criminalizing the circumvention of sanctions by individuals to whom they are applied in the EU countries, the European Union also proposed to expand the possibility of imposing sanctions on people, companies, organizations, or bodies that help circumvent EU sanctions outside the bloc. Such an extraterritorial approach will help cover those cases when, for example, individuals import prohibited russian goods into the EU through a third country, hiding their true origin, or export prohibited goods from the EU to moscow.
EU lawmakers were guided by the belief that the application of sanctions alone is not a mechanism for the confiscation of assets, since it is primarily a measure of administrative influence, and it is more political than legal in nature. Thus, the imposition of sanctions against individuals and legal entities of russia can only result in the seizure or freezing of their assets. At the same time, circumvention of sanctions is a violation that should be qualified as a crime, and the assets of the sanctioned person who committed this crime may be confiscated within the framework of criminal proceedings.
Another potential way to quickly alienate assets in the EU is non-conviction-based confiscation, which is applied in exceptional cases (such as death, serious illness or escape of the offender). Expansion of the grounds for such confiscation is necessary when it is impossible to obtain a guilty verdict. That is why more attention should be paid to this issue at the international level, given cases where the offender is outside the jurisdiction of the state in which they can be brought to justice (as is now the case with russian oligarchs, for example).
In June, the Canadian Senate passed amendments to the Special Economic Measures Act, which allow the confiscation of Russian assets and their use for the benefit of Ukraine. Such changes are aimed at both state assets and assets owned by an individual or legal entity that is on the sanctions list of the Federal Government of Canada. Previously, the Canadian authorities could confiscate only assets obtained by criminal means, and now with the help of the updated Act they can confiscate the assets of persons subject to sanctions, regardless of whether they were acquired legally or illegally.
At the same time, the procedure itself is not easy and, according to Adrien Blanchard, a spokesman for Canada’s foreign minister, provides for a system of “necessary checks and balances,” including formal legal proceedings to confiscate any assets at the submission of the Government of Canada. At the same time, government officials neither exclude the possibility of future appeal of confiscation under this procedure to international courts.
Canada was the first country to enshrine the possibility of confiscating assets due to violations of international peace and security, gross and systematic violations of human rights in a foreign country, etc. at the legislative level. In the future, the new mechanism is designed not only to overcome the consequences of the russian war in Ukraine, and therefore the grounds for confiscation are formulated in a generalized way, but it was this war that became the impetus for its adoption.
In April of this year, the US House of Representatives considered a similar to the Canadian bill H.R.6930 (Malinowski-Wilson), which was supposed to allow the Biden administration to confiscate the assets of russians if:
- russia continues seizing the territories of Ukraine;
- the President imposes sanctions on the owner of the assets for reasons related to corruption, human rights violations, malicious influence, or conflicts in Ukraine;
- assets are estimated at over USD 5 mln.
According to the bill, these assets could be sold, and the seized funds, in particular, transferred to Ukraine for military and humanitarian assistance, as well as post-war reconstruction. However, due to the warnings of the American Civil Liberties Union about the unconstitutionality of such a confiscation mechanism, which would have resulted in its successful appeal to the court, lawmakers decided to significantly “soften” the bill.
Thus, its goal was to create a working group that would determine the constitutional mechanisms by which the US president could seize and confiscate the assets of putin’s associates.
Moreover, this month, senators have proposed a new approach to confiscate the assets of russian oligarchs, which considers the requirements of the US Constitution. It is aimed at:
- letting the president unlock certain powers after the declaration of a state of emergency in the country, establishing that the actions of the russian government threaten the peace and security of Ukraine;
- creating a new administrative confiscation procedure that allows confiscation of property received from criminal income;
- the confiscation taking place as a result of legal proceedings with notifying the owner of the asset and the right to appeal;
- funds from confiscated property being used to provide humanitarian assistance to Ukraine.
Such a mechanism is outlined by senators in an amendment to the defense authorization bill, which is due to pass later this year.
Gold and foreign exchange reserves of russia
Currently, from a legal perspective, the most promising way for the confiscation of russian assets in favor of our state is the confiscation of russia’s gold and foreign exchange reserve, since such confiscation will not raise the issue of respect for human rights and the principle of proportionality.
However, there is an obstacle in the form of the doctrine of sovereign immunity of assets of a foreign central bank, which is fixed at the level of national legislation of most countries. In particular, the United States prohibits the alienation of such assets by other countries, but there were exceptions to this restriction. Thus, in early February this year, the United States confiscated the assets of the central bank of Afghanistan, which were frozen after the Taliban seized power. These funds are planned to be used for humanitarian assistance to Afghans, as well as compensation for the victims of the September 11, 2001, attacks.
However, considering this option, international partners are also wary of economic risks. In particular, the fact that in the future this will force countries to abandon the storage of their reserves in foreign currencies due to fears that in potential conflicts these reserves will also be confiscated.
Thus, international partners have different legal opportunities for confiscation of russian assets and use them to find effective solutions. In all cases, there is a risk of appealing against the confiscation of assets by their owners to national and international courts due to possible violation of both the national legislation of the country and several international standards that states must adhere to in case of termination of a person’s ownership right. As for the confiscation of russia’s gold and foreign exchange reserve, this path seems riskier for countries from an economic perspective.
We appreciate the efforts that Ukraine’s international partners are currently making to find justice for Ukraine after the terrible damage that russia has caused to our country. We are open to international cooperation in all areas to ensure that this happens as soon as possible. We believe that optimal solutions for both us and our partners will still be found!
This publication was prepared with the financial support of the European Union. Its contents are the sole responsibility of Transparency International Ukraine and do not necessarily reflect the views of the European Union.