Confiscation of Russian assets: legal, human rights and political limitations?

Confiscation of Russian assets remains as relevant as it was at the beginning of a full-scale invasion. This is explained not only by the ongoing war and the colossal human and material losses inflicted on us by Russia. After all, the issue of bringing the aggressor to at least material responsibility highlighted many problems in the modern legal and political field – both at the international and national level.

In this article, we explore these problems and identify potential solutions.

The moral side of confiscating Russian assets

Russia’s full-scale war against Ukraine has been going on for more than two years. During this time, Russia committed brutal crimes against Ukrainians, which were witnessed by the international community. In February 2023, the UN General Assembly demanded that Russia stop the war and immediately withdraw its army from Ukraine. In March 2023, the International Criminal Court (ICC) issued an arrest warrant for Vladimir Putin, accusing him of being responsible for the illegal deportation of children from Ukraine, which constitutes a war crime. While Ukraine is fighting for its freedom and awaiting fair adjudication of crimes committed during this bloody war, the material losses of the Ukrainian state are growing. 

According to the World Bank, the losses caused by the aggressor amount to more than EUR 400 bln on the controlled territory alone, and after the liberation of the entire territory of Ukraine from the invaders, this amount might double. Ukraine’s economy currently functions at the expense of macro-financial assistance from partners; however, Russia must pay for the damage it caused to peaceful Ukrainians.

Voluntary compensation by the aggressor country is unlikely; therefore, a more practical solution is to confiscate the assets of Russia as a state, as well as its citizens and companies that support the Putin regime. However, prior to the full-scale invasion, there were no universal approaches to the confiscation of assets of the aggressor state with the possible aim of transferring them to the state affected by the aggression while the war was ongoing.

Historically, compensation for war losses was conducted mostly at the expense of state funds on the basis of treaties or other international acts. In most cases, the aggressor state must agree to pay compensation under such treaties since they are typically negotiated and require the consent of all parties involved. However, there are some scenarios in which compensation may be determined without the direct agreement of the aggressor state:

1. Imposed reparations: in certain situations, the victorious parties in a conflict may impose reparations on the aggressor state as part of the peace settlement, like it was after World War I with the Treaty of Versailles. These imposed reparations are often outlined in a treaty or agreement. The aggressor state may be required to accept these terms as a condition for the cessation of hostilities and the restoration of peace.

2. United Nations Actions: in cases where the United Nations is involved in post-conflict resolution, it may establish mechanisms for compensation without the direct agreement of the aggressor state. For example, the United Nations Compensation Commission (UNCC) was established to address claims for compensation resulting from Iraq’s invasion of Kuwait in 1990. The UNCC operated independently and made decisions on compensation claims, even though Iraq did not initially agree to all aspects of the process. Funds to pay for compensation were drawn from the United Nations Compensation Fund, which received a percentage of the proceeds generated by the export sales of Iraqi petroleum and petroleum products. 

The International Working Group on Russian Sanctions believes that Russia should be required and forced to pay war reparations for all the damage it has caused Ukraine the same way Iraq did. However, Russia is one of the permanent members of the United Nations Security Council, so there is an obvious risk of simply vetoing such an initiative.

3. International Tribunals and Courts: international criminal tribunals and courts, such as the International Court of Justice (ICJ), can issue judgments that include orders for reparations and compensation for victims. While an aggressor state may not have voluntarily agreed to these reparations, it is bound to comply with the decisions of these international judicial bodies. However, Russia has not recognised the compulsory jurisdiction of the ICJ.

State or private assets as the source for war compensation

Despite the fact that a lot of Russia’s state assets have been frozen worldwide due to the imposition of sanctions, allies of Ukraine have not yet confiscated them. Seven countries participating in the imposition of sanctions against Russia held nearly half of all Russian foreign reserves of USD 585 bln as of June 2021, according to the Russian central bank. Since then, Russian reserves (frozen) abroad have increased to USD 640 bln. According to the international community, the main obstacle in confiscating these funds is the doctrine of sovereign immunity of assets of a foreign central bank, enshrined at the level of national legislation of most countries. In particular, the principle of immunity is stipulated in the UN Nations Convention, according to which states and their property are immune from the jurisdiction of the courts of another State. For instance, the United States prohibits the alienation of sovereign assets by other countries. However, there were exceptions to this restriction, such as the U.S. confiscation of Afghanistan’s gold and currency reserves, the U.S. confiscation of Cuban sovereign assets, and the disposal of Venezuela’s gold and currency reserves by Great Britain. All of these cases are covered in more detail in the last section of the article.

Considering the confiscation of sovereign assets, international partners are also wary of economic risks, which are weaponising the financial system. In particular, the possibility that in the future, the precedent of confiscating Russian sovereign assets 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. Moreover, the European Central Bank warned the European Commission in Brussels against confiscating frozen Russian assets, claiming it could dent confidence in the euro as a global currency and hurt financial stability.

Another potential source of compensation for the damages caused by Russia to Ukraine is the private assets of Kremlin supporters. Ukraine’s international partners, such as the USA, the EU, Great Britain, Canada, Switzerland, Australia, and Japan, imposed sanctions in the form of asset blocking on more than 14,000 individuals and entities. Such sanctions are designed to put pressure on individuals and legal entities that are close to the Putin regime and can potentially influence decision-making. It is important to stress that sanctions are the means of political influence and, therefore, cannot usually be considered a legal way to seize assets. 

However, some of Ukraine’s allies have developed legislation aimed at confiscating these funds and transferring them to Ukraine: last summer, the Canadian Senate passed amendments to the Special Economic Measures Act, allowing the confiscation of Russian assets and their use for the benefit of Ukraine. Grounds for confiscation according to this Act are a call of an international organisation of states or association of states of which Canada is a member, grave breach of international peace and security, gross and systematic human rights violations in a foreign state, or acts of significant corruption involving a national of a foreign state. 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. So far, this mechanism has not yet been applied, and the funds have not been transferred to Ukraine.

Sanctions Mechanism in Ukraine

Meanwhile, in Ukraine, confiscation of Russia-related assets as the next step after sanctions were imposed is a rather new but already actively used mechanism. Currently, there are 39 cases of confiscating private assets of individuals and legal entities that supported Russia’s war against Ukraine and more than 1,000 assets confiscated.

This mechanism envisages the confiscation of assets as a new punishment that can be applied to individuals and companies that created a significant threat to the national security, sovereignty, or territorial integrity of Ukraine or significantly contributed to it, including by financing the commission of such actions by other persons. The sanction can be applied only by the decision of the High Anti-Corruption Court (HACC) and during the period of martial law.

When it comes to the confiscation of private assets, the question of observing human rights in this process is crucial. A right to property is guaranteed and protected by law both at the national and international level in most countries, including Ukraine. According to international standards, a state can violate the right to property by confiscating it without providing mandatory compensation to its owner when it is determined that the property was obtained through illegal activities. Confiscation of private assets in proceedings other than criminal is rather an exceptional practice (for example, unexplained wealth orders in the UK). That makes the Ukrainian mechanism unusual and might contain some risks since (1) the confiscation is conducted in administrative proceedings by the imposition of sanctions and (2) without any compensation to the owner. However, in its decisions, the High Anti-Corruption Court, which is authorised to consider confiscation cases, points to three criteria of the European Court on Human Rights, which must be met when restricting the right to property: the restriction must be 1) in accordance with the national law, 2) pursue a legitimate goal, and 3) be proportionate to the legitimate purpose. If everything is clear with the first two criteria because confiscation takes place based on the Law “On Sanctions” to protect national security, then the last criterion is more complicated. Thus, Article 1 of the First Protocol of the European Convention on Human Rights states that no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. Thus, for the criterion of proportionality, the proportionality between the public interest and the restriction of property rights is important. 

The HACC found that the application of the confiscation is commensurate with the damage caused by Russian proxies to the interests of society. In all cases, to argue such a position, the court cites data on the losses of the civilian population after the full-scale invasion of Ukraine by Russia, which are published by the Office of the UN High Commissioner for Human Rights. The court emphasises that the confiscated assets would be used to cover the losses of Ukraine caused by the illegal actions of Russia and by the sanctioned persons in particular, which is also in the public interest.

In international courts’ practice, there are no relative cases regarding the confiscation of private assets due to their owner’s support of their state’s military actions. However, the HACC references each of its decisions to the standards of the European Convention on Human Rights, and we see a sufficient legal basis in this approach.

Confiscation and human rights

In addition to the issue of protecting property rights, there are other human rights that are important for the state to observe in the process of confiscation of private assets. For example, the European Convention on Human Rights guarantees everyone the right to a fair trial (Article 6) and the right to an effective remedy (Article 13). Yet, the new Ukrainian mechanism has some shortcomings that may be considered a violation of these standards. 

For instance, the procedure does not guarantee mandatory notification of third parties about the consideration of the case; the terms for filing a defence and appealing the decision of the first instance are insufficient (5 days from the date of announcement or publication of the court decision). It can result not only in potential violation of the rights of defendants but also of third parties, which are often Ukrainian enterprises or citizens. For example, the HACC Appeals Chamber has overturned the confiscation of two quarries that were allegedly indirectly owned by Russian oligarch Oleg Deripaska since Ukrainian entrepreneurs managed to refute the connection between the quarry and the Russian oligarch. Ukrainian enterprises managed to prepare and submit an appeal in 5 days, while the case was considered in court for months.

In another case against the Russian oligarch Mikhail Shelkov, the HACC Appeals Chamber decided to confiscate the assets belonging to a non-sanctioned person — a citizen of Ukraine in addition to the assets belonging to the sanctioned oligarch. The court indicated in this case that the interests of third parties (in particular, minority shareholders) that may be violated in sanction cases can be protected by means of private law. Despite the fact that in this case, the defendants do not refer to the practice of the ECHR, there is a relevant decision in the case of Batkivska Turbota Foundation v. Ukraine. The court noted that “requiring the applicant to file a claim for damages either as part of the proceedings against the applicant or by filing a separate lawsuit will impose an excessive burden on him.”

When implementing a new confiscation mechanism, ensuring procedural guarantees is no less important than material guarantees. Changes to the existing sanctions mechanism in Ukraine are necessary; otherwise, there is a risk of successfully challenging confiscations in international bodies. In this regard, ECHR judge Jeremy McBride, who analysed the confiscation procedure in Ukraine for compliance with the European Convention on Human Rights, also expressed his concerns. The experience of Ukraine should also be considered by its allies, who are only working on new solutions.

Criminal proceedings

During Russia’s full-scale invasion of Ukraine, Ukraine’s allies showed the greatest willingness to confiscate Russian assets through criminal proceedings since it is a proven and reliable confiscation mechanism. Confiscation in criminal proceedings can only be applied to the person who committed the crime under the national legislation of a specific country, so it is narrowly focused and very unlikely to cover all the damages caused by Russia in a timely manner. Because of this, international partners are trying to expand and strengthen their criminal legislation. 

In May 2022, the European Commission submitted a draft proposal for the revision of the Asset Recovery Directive of 2014 to widen its scope and to unify the legislation of the EU members on the confiscation and recovery of assets. The changes are needed since the system of asset recovery differs significantly in various countries of the Union and contains a number of gaps; moreover, the authorised bodies are often underfunded. This proposal focuses primarily on providing the legal basis for asset confiscation for organised crime, money laundering and corruption. That is, it is aimed mostly at Russian kleptocrats without necessary reference to their support of Russia’s military aggression.

Another important legislative initiative in the EU is the criminalisation of sanctions evasion at the block level. The new draft law presented by the Council of Europe defines the conduct member states will need to criminalise: (1) helping persons subject to Union-restrictive measures to bypass an EU travel ban, (2) trading sanctioned goods and running transactions with states or entities which are covered by EU restrictive measures.

Confiscation of assets due to circumvention of sanctions has also proven its effectiveness in practice. In February 2023, the U.S. court confiscated USD 5.4 mln from Russian oligarch Konstantin Malofeev for circumventing the sanctions imposed on him. The U.S. is determined to transfer these funds for the reconstruction of Ukraine.

Recently, the Dutch court sentenced a Russian businessman to 18 months and fined his company EUR 200,000 for circumventing EU sanctions targeting Russia, which is not a common practice in the EU. However, the national legislation of the Netherlands does not provide for the confiscation of assets for sanctions violations and, even more so, their possible transfer to Ukraine. Moreover, at the EU level, violation of the sanction is still not criminalised, so there are states that only provide for an administrative fine.

Also, from September 2023, in Latvia, Lithuania and Estonia, it was allowed to confiscate cars with Russian license plates, because in the territory of these countries there is a ban on the entry of Russians within the limits of the sanctions policy, and it also applies to cars. It is planned that the confiscated cars will be handed over to Ukraine.

Apart from exceptional grounds for confiscation (commission of a crime), another major disadvantage of criminal proceedings is its lengthy nature. The case can take years, while the need for funds in Ukraine is urgent. 

However, confiscation of assets through criminal proceedings is a proven practice that should be applied in the situation with Russian assets. EU legislative initiatives to criminalise sanctions evasion at the bloc level are currently the most promising in terms of confiscation mechanisms. The same is confirmed by the practice of the U.S. in confiscating the assets of Russian kleptocrats who have bypassed sanctions. If entering the sanctions list is not a ground for asset confiscation, then the evasion of restricting measures should be, since it is a deliberate act of a person against the law.

Political and legal limitations

Based on the above, we can make an interesting observation that in the face of Russian aggression, it seems that Ukrainian allies resist the idea of confiscating private Russian assets less than sovereign assets, despite the fact that the question of proportionality and human rights will not arise in the second case. Such dynamics involuntarily suggest the idea of political weight in legal matters of confiscation.

Scholars agree that it is time to move away from sanctions against Russia to state countermeasures since the atrocious acts of the aggressor contradict everything in international law. According to James Crawford, a countermeasure “may be defined as an act of non-compliance by a state with an international obligation owed towards another state in response to a prior breach of international law by that other state… As long as the countermeasures are proportionate to the wrongs, they do not require judicial or arbitral processes to implement compensation.” Thus, basically, what is really needed is the political will of Ukrainian allies to confiscate Russian sovereign funds and transfer them to Ukraine.

The practice of resolving the legal issue regarding assets during conflicts or international disputes through political decisions is not new, and here are some historical examples:

• 1. During the Suez Crisis in 1956, the United Kingdom, France, and Israel invaded Egypt in response to the nationalisation of the Suez Canal by Egyptian President Gamal Abdel Nasser. Although the invasion violated principles of international law, including the UN Charter, political decisions by these Western powers were driven by their strategic interests in maintaining control over the Suez Canal. Legal norms took a back seat to political considerations during this crisis.

2. The United States imposed a comprehensive economic embargo on Cuba in the early 1960s. This embargo included the confiscation of Cuban assets in the United States. While the legal basis for the embargo and asset confiscation was established in the U.S. national law, it reflected Cold War political considerations rather than strict adherence to international legal norms.
3. Recent cases of  U.S. confiscation of Afghanistan’s gold and currency reserves are more relevant for Ukraine, which, in our opinion, were also caused primarily by political will. After the Taliban’s seizure of power in Afghanistan in 2021, the presidential administration made a decision to freeze Afghan state assets. On February 11, 2022, President Biden issued the Executive Order on Protecting Certain Property of Da Afghanistan Bank for the Benefit of the People of Afghanistan. According to this Order, the USA blocked USD 7 bln of the Da Afghanistan Bank. Half of these funds (USD 3.5 bln) shall be transferred to the victims of the September 11, 2001, terrorist attack and the other half (USD 3.5 bln) to the Afghanistan Fund, established in Switzerland in September 2022, for humanitarian and economic assistance to the country suffering from the Taliban. The establishment and use of the fund were not contested legally. However, in February 2023, the New York District Court ruled that the United States was not entitled to use the Afghan state assets to compensate for the victims of the September 11, 2001, terrorist attack since U.S. courts lacked legal jurisdiction to authorise the seizure.

It seems that the creation of a fund for the post-war reconstruction of Ukraine can have the same success as in the described case of the Afghan state reserves, while compensations to individual victims of Russian aggression can be resolved within individual lawsuits.

Jan Barcz, professor of International Law and the Law of the EU, emphasises that the effective compensation on the part of Russia for the aggression against Ukraine should work through the comprehensive and coherent action of the countries that imposed sanctions on Russia, with the participation of international organisations and international financial institutions. He believes that “this is a great and complicated challenge, a fundamental test of the credibility and effectiveness of the international community.”

Artem Ripenko argues that the confiscation of Russian state assets can be conducted as a non-forcible measure of self-defence by Ukraine according to Article 51 of the UN Charter and Article 21 of Articles on Responsibility of States for Internationally Wrongful Acts.Such confiscation would meet the proportionality criteria due to the scale of Russia’s illegal acts and the necessity criteria should be considered regarding the Latin maxim in eo quod plus sit semper inest et minus, meaning the right to use force in self-defence must include the right to use non-forcible measures in self-defence. Thus, confiscation as a non-forcible measure should be aimed at repelling an armed attack by strengthening the Ukrainian military potential. However, regardless of legal criteria, Ripenko comes to the conclusion that “confiscation of assets in collective self-defence is finally subject to the political will of a state, enshrined in an administrative act issued by an authorised body.” However, this kind of confiscation is only possible during the war and does not replace the post-war reparations for the damages. 

It is common knowledge that the law does not always prescribe how to act in every circumstance of life. In such situations, legal principles play an important role, including the prohibition of aggression. The aggressor state must bear responsibility for its actions and compensate for all damages. This requires, first of all, political will, which will later create legal grounds for justice.

Moreover, in the matter of confiscating Russian assets, the example of horizontal balancing of human rights can be provided: the right to property of Russians and the right to life of Ukrainians or respect for their dignity. It depends only on the trendsetter states how it will be evaluated and compared in terms of human rights law.

The study was developed by

Head of Legal Department: Kateryna Ryzhenko, Deputy Executive Director for Legal Affairs Transparency International Ukraine

Authors of the study: 

Natalia Sichevlyuk, Legal Advisor at Transparency International Ukraine

Pavlo Demchuk, Legal Advisor at Transparency International Ukraine

Kateryna Ryzhenko, Deputy Executive Director for Legal Affairs Transparency International Ukraine

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.