On January 6, 2023, The Guardian published an article titled “Leak reveals Roman Abramovich’s billion-dollar trusts transferred before Russia sanctions.” As part of their sanctions against Russia, the U.S. and European countries have targeted not only the offshore assets of the Russian government, but also the offshore assets of individuals known as oligarchs (oligarchic capitalists in collusion with politicians) who have close ties to President Vladimir Putin, for seizure or otherwise. That is why oligarchs like Abramovic are so eager to hide their wealth.

I have discussed this issue in detail in my book The Ukrainian War as Revenge: The Political Philosophy of War: Revenge, Retaliation, and Sanctions, in Section 6, “Questioning the Great Cause of Sanctions,” in “Chapter 7: Revenge, Retaliation, and Sanctions,” respectively (pp. 209-212), in a section entitled “Questions Regarding the Seizures.” Here, we would like to summarize the debate over whether seized Russian assets abroad can be a source of funds for Ukraine’s reconstruction.

 

Summary of Issues Concerning Sanctions

First, it must be confirmed that the concepts of freezing, seizing, and confiscation of assets are legally defined for each sovereign nation. Therefore, the freezing, seizure, and confiscation of Russian government, corporate, and individual assets in each country as part of sanctions against Russia must be conducted on the basis of compliance with the main principle of the rule of law in each country.

However, the actual sanctions against Russia are being implemented in the form of international cooperation, with the U.S. taking the lead. Specifically, the International Working Group on Sanctions against Russia, chaired by Andriy Yelmak, Director of Ukraine’s Presidential Administration, and Michael McFaul, Director of the Freeman Spogli Institute for International Studies (FSI), has developed an action plan and roadmap for sanctions and is influencing sanctions in other countries.

In October 2022, this group published a paper entitled “Why and How to Confiscate Russia’s Sovereign Assets to Help Rebuild Ukraine” (https://drive.google.com/file/d/1cBAR-tpJSqU8R1nVPHSKcSTFKeSEWbfi/view). The paper only argues for the confiscation of “Russia’s Sovereign Assets,” a view that is favorable to the U.S. and Ukrainian governments. At the end of the paper, as an “alternative source of funding,” another approach to financing Ukraine’s reconstruction is the movement to claim compensation for losses suffered by individual Ukrainian companies. Mention is also made of moves to force the Russian oligarchs to liquidate and transfer their assets, either forcibly or voluntarily. However, these developments are “civil” in nature, so to speak, and must be discussed separately from the issue of the return of property over a sovereign nation.

 

Russian Central Bank Reserves Targeted

The paper, published under the name “International Working Group on Russian Sanctions,” expresses the position that “Russia ought to pay substantial reparations to Ukraine after this horrific and senseless war.” However, as to why, it says only that “the moral and practical answer is clear.” What is puzzling is the dogmatic attitude that does not specify the answer.

As I have emphasized on this site and in my book The Ukrainian War 3.0, I would like to say that, for me at least, “the moral answer is not clear at all,” as I believe it is wrong to attribute moral responsibility for the Ukrainian war to Russia alone. For example, are you saying that the governments of the United States and European countries have no moral responsibility for supporting the war by providing arms to the Ukrainian military and contributing to prolonging the war, i.e., perpetuating the destruction of Ukraine? Or should the U.S. government be held morally responsible for its support of the February 2014 coup in Ukraine?

In relation to the “practical answer,” it is the Russian government that ordered the invasion of Ukraine. Therefore, it is the Russian government that should pay for the reconstruction of Ukraine,” the logic goes. This is merely a view that regards February 24, 2022 as the date of the outbreak of the war in Ukraine and focuses solely on its consequences. Another view is possible if we consider the February 21-22, 2014 coup in Ukraine as the starting point of the Ukrainian crisis.

This paper is merely a one-sided paper presented in a way to contain these arguments. However, because of this, the paper represents the intentions of the U.S. government and is a good source of information on what the hegemonic U.S. government has to say. That is why, the paper notes, “In response to Putin’s gross violations of international law, these funds can and should be confiscated through an international compensation mechanism and subsequent national legislation, and then diverted towards a Compensation Fund for Ukraine.” It is further noted that “in the future, other seized assets from Russian individuals, companies, and the state might also be transferred to this fund.”

The most noteworthy argument is the following one: “the Central Bank reserves should be the first and most appropriate target.” They and their owners have been identified, they are undisputed property of the Russian Federation, they are highly liquid, and they have minimal administrative and legal work.

As to its legal basis, the paper considers the obligation to make reparations for violations of international law to be a well-established norm and, accordingly, applicable to Russia.

A specific example is that Iraq was forced to pay significant reparations to Kuwait following Iraq’s unprovoked invasion and attempted annexation of Kuwait in 1990. In February 2022, the UN Reparations Commission, established by the UN Security Council to handle reparations to Kuwait, announced that it had processed the final claims and concluded reparations totaling $52.4 billion. Likewise, Russia should be required and forced to pay war reparations for all the damage it has inflicted on Ukraine.

However, there are two major ways in which Russia differs from Iraq. The first is the opinion that Russia cannot be defeated militarily because it possesses nuclear weapons, and that only those who clearly lost the war will pay reparations. Second, there is the concern that Russia, as a permanent member of the UN Security Council, will always have veto power over international proposals for reparations. The International Working Group on Russian Sanctions is of the opinion that these two problems can be overcome by confiscating Russian government assets already frozen outside Russia. Since the Russian Central Bank’s assets are already secured outside Russia, “they should be confiscated now and transferred to Ukraine,” the group argues.

 

Liquidation of Foreign Government Assets

Next, I would like to examine the views of U.S. jurists. First, here is an opinion piece (https://www.nytimes.com/2022/04/15/opinion/russia-war-currency-reserves.html) in the April 15, 2022 New York Times by Harvard Professor Emeritus Lawrence Tribe and the young Professor Jeremy Lewin in the League. They note that the reserves of the Central Bank of Russia, which have been seized virtually indefinitely, “liquidating them now would not only be likely the fastest way to increase American aid to Ukraine without further burdening and fatiguing American taxpayers.” In their view, the President of the United States has sufficient legal authority to liquidate Russian assets under a section of the International Emergency Economic Powers Act (IEEPA) of 1977.

Importantly, the Bank of Russia’s reserves in the U.S. are Russian state property. Hence, unlike the oligarchs’ assets, they do not enjoy the usual legal protections afforded to private property. According to them, the Fifth Amendment to the U.S. Constitution prohibits government seizure of property “without due process of law,” but this applies only to “individuals,” not foreign governments, as the Supreme Court suggested in 1992 and several federal courts have since held. Similarly, protection against “taking” property without just compensation applies only to “private property.” In contrast, this means that Russian reserves are clearly exempt from the application.

However, the Russian government may object to the seizure and liquidation of assets. Russia may be able to avoid asset confiscation if it looks not to the constitutions of individual countries, but to sovereign immunity, which states that the government is immune from liability under certain circumstances. However, “that immunity protects foreign assets only from judicial process — not from liquidation by the combined action of Congress and the executive branch,” according to two Harvard professors.

Nevertheless, we would like to clarify that there is a criticism that to treat the matter as closed, as do Tribe and Lewin, dodges an important and very much open question (see https://www.lawfareblog.com/giving-russian-assets-ukraine-freezing-not-seizing). Paul Stephan, an expert in international law at the University of Virginia, the chief critic of this critique, wrote, ” I agree with Wuerth that, in appropriate cases, the Supreme Court is likely to hold that the recognized government of a foreign state with which the United States is not in an armed conflict is constitutionally entitled to some sort of judicial review when the U.S. government seizes its property for disposal at the discretion of the president.” In other words, some argue that the Russian government can fight the law over sovereign immunity.

I would also like to share the opinion (https://www.lawfareblog.com/legal-approach-transfer-russian-assets-rebuild-ukraine) of Philip Zelikow, a professor of history at the University of Virginia and advisor to former Secretary of State Condoleezza Rice. He notes that “the safest legal approach for the U.S. might be one that transfers traceable Russian state assets to the international compensation fund, not to the U.S. Treasury Department.” Since the debate over sovereign immunity is by no means settled, they are calling for the need to transfer the funds to a fund and then be able to return those funds if necessary, assuming that a court battle will ensue.

In their co-authored article for Foreign Affairs, “How Ukraine Can Build Back Better: Use the Kremlin’s Seized Assets to Pay for Reconstruction,” Philip Zelikow and renowned international economist and MIT professor Simon Johnson essentially argue for the diversion of Russian state assets seized in the United States to fund Ukraine’s reconstruction.

 

Cautious Arguments

Compared to the arguments of “Tribe & Lewin” and “Zelikow & Johnson,” which seem to be driven by emotionalism, Stephan, introduced earlier, is relatively cautious in his arguments.

Here I would like to present his views based on his paper ” Seizing Russian Assets” published in June 2022 (https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID4129862_code1293257.pdf?abstractid=4129862&mirid=1). The first thing that must be ascertained is the difference between “freezing” and “seizing” assets. “Under a freeze, the sanctioning state forbids, under penalty of law, anyone within its jurisdiction from transacting in any way with assets belonging to designated persons,” Stephan said. As a result, an asset freeze immediately destroys the economic value of property owned by the sanctioned party, but does not, however, alter its ownership. The sanctioned countries will take possession of the property but have indicated that it will be returned if a satisfactory settlement is reached. Put another way, seizure or forfeiture implies a dispossession, the original owner is no longer able to use (dispose of) the seized property. The assets would be transferred to another entity. This dispossession may require a court decision and has limited immediate effect. Freezing and confiscation are widely used means of preventing ill-gotten resources from continuing to be used by criminals.

This basic premise implies a major difference between freezing assets and seizure and confiscation. Hence, Stephan’s point that “although anything is possible, I doubt that any country aside from Ukraine (the only country at war with Russia) will take this step until the United States does” is considered a very suggestive statement. Asset freezing is a relatively simple legal action, but seizure and confiscation are legal actions that involve the transfer of ownership and are not so simple. No matter what a politician insists on doing with his emotions, if there is a “rule of law,” the law should be able to reject such a politician’s claims. However, Stephan’s view is that if the U.S., as the hegemonic power, steps up to the level of seizure and confiscation, the measures could be applied to other European countries and Japan as well. In this sense, the reality is that even at the level of international law, the political decisions of the hegemonic U.S. power have a great influence. That is why the legal issues the U.S. faces in moving from freezing to seizure are an issue to consider.

 

Current Authority of the U.S. President to Seize Foreign Assets

Based on our understanding thus far, it is necessary to consider the current authority of the U.S. President to seize foreign assets. At issue at this time are the Trading with the Enemy Act of 1917 (TWEA) and the aforementioned “International Emergency Economic Powers Act” (IEEPA). Regarding these two laws, I wrote the following in my book The Ukrainian War as Revenge (p. 197).

 

“President Carter’s signing of the law on December 28, 1977, will amend the Trading with the Enemy Act (enacted October 6, 1917) to limit it to wartime. No longer would the declaration of a peacetime emergency alone be sufficient to exercise the emergency power over the national economy as it had been in the past. But at the same time, Congress passed a new law, the International Emergency Economic Powers Act (IEEPA), which reinstated most of the provisions of section 5(b) of the old law. The President can no longer invoke the Trading with the Enemy Act in peacetime, but can now rely on IEEPA for nearly the same authority. However, Congress added some restrictions: under IEEPA, the president can “freeze but not seize” foreign property, but cannot target purely domestic transactions, and must consult with Congress before issuing a new emergency declaration.”

 

At issue is the scope of the authority granted to the President by the IEEPA. It is empowered to freeze foreign-owned property, i.e., to “nullify, void, prevent, or prohibit the acquisition, possession, withholding, or use” of such property. The Act also gives the President the power to “direct and enforce any transfer [of property]” with respect to that property. Some jurists have argued that the term “transfer” includes a forced change of ownership. They consider “transfer” to be a broad concept that is not limited to ownership but includes all rights in property. In their view, IEEPA would have given the President all the authority necessary to transfer frozen assets to Ukraine or to an international organization established to assist in Ukraine’s reconstruction.

But it should be recalled that Congress adopted IEEPA in the post-Watergate era, a time when, in general, presidents were trying to regain abused diplomatic power. Prior to IEEPA, the President could simply declare an emergency and use all the powers of the TWEA, including confiscation. In the committee report on the bill that became IEEPA, the use of emergency powers by Presidents Johnson, Nixon, and Ford were cited as examples of executive overreach, even though none of them involved confiscation. The new law clarifies in a manner not found in prior law that the President may only exercise the powers provided by the IEEPA when the TWEA does not apply. The committee’s commentary on the bill confirms that IEEPA’s authority does not extend to transfers of ownership. Furthermore, the Supreme Court has twice indicated that whatever IEEPA’s transfer authority may be, “it does not include vesting, i.e., a change in ownership,” Stephan noted.

IEEPA was amended in 2001. It was in response to the Patriot Act, which added a provision allowing the President to “confiscate” such property owned by a foreign country and “vest” it in a person or agency designated by the President as a response to the events of September 11. However, this applies only if the United States is engaged in an armed conflict or is attacked by a person or country that owned property. Thus, the type of attack that would enable the President’s right of confiscation was conceived of as a terrorist attack that could be carried out by an individual (a “non-state actor” in the jargon of international law) without state involvement and did not encompass all terrorist attacks.

Here are Stephan’s conclusions regarding this presidential authority. It concludes that “in sum, IEEPA does not authorize the confiscation of Russian assets.” However, the Biden administration has the authority, apart from IEEPA, to use “civil forfeiture,” a means of depriving lawbreakers of the fruits of their crimes. This is a measure that allows the government to “violate specified crimes (including money laundering, mail fraud, and wire fraud) … This means that the measure is based on national laws that allow the seizure of “any property . . . involved in a transaction . . . in violation of [specified crimes, including money laundering, mail fraud, and wire fraud], or any property traceable to such property.”

According to Stephan, there is already a bill based on this model that has passed the House and awaits consideration by the Senate (see https://www.congress.gov/bill/117th-congress/house-bill/6930). It would authorize the President to take all constitutional steps to confiscate assets frozen under Russian sanctions from persons whose wealth derives in part from corruption or political support related to President Putin’s regime. Note that the current civil forfeiture power covers frozen assets of state-owned enterprises, including the Russian Central Bank, but only if they are involved in certain crimes.

 

Consistency with International Law

Even the United States, a pariah hegemonic power, is not exempt from the possibility that international law may impose restrictions on the freezing, seizure, and confiscation of Russian assets. Customary international law generally includes the concept of state immunity, which protects state assets from seizure. This is the aforementioned sovereign immunity. However, because it is customary law, it lacks a codified text, and the scope of state immunity is unclear.

Stephan pointed out that neither international nor domestic law holds states criminally liable, but rather holds those acting on behalf of the state criminally liable, and then noted that “the international law of state immunity does allow an exception for the enforcement of certain money judgments against state property connected to certain business operations or torts.” Hence, for example, if one state assumes by contract an obligation, such as the obligation to repay a loan, international law probably does not prohibit another state from exercising the creditor’s right to recover the assets raised by that loan. Thus, if the Russian central bank were to defraud the Federal Reserve Bank of the United States in the process of withdrawing funds and then redeposit those funds, the Federal Reserve Bank would certainly be able to use legal proceedings against the deposits it holds to obtain compensation.

But Zelikow, introduced earlier, argues that the international law of countermeasures applies to the seizure of Russian state assets. The international law of countermeasures here refers to the “Articles on the Responsibility of States for International Wrongful Acts” adopted by the UN Commission on International Law in 2001 (but not yet a treaty). This “Article 22 Countermeasures against International Illegal Acts” provides that “the illegality of any act of a State in violation of its international obligations towards another State shall be precluded if and to the extent that it constitutes a countermeasure taken against the other State in accordance with Chapter 2 of Part 3.” In other words, the affected state can suspend its legal obligations to the infringing state as a countermeasure against the use of force, etc. Russia’s invasion of Ukraine violates international law prohibiting the use of force, which is the obligation of all states. Thus, Zelikow argues, all other countries, including the United States, may suspend their obligation not to interfere with Russian state property. Hence, Zelikow’s view that Russian assets can be frozen as well as seized and confiscated, whereas Stefan is more cautious.

This is because freezing is quite different from seizure and confiscation, which involve the transfer of ownership. The latter is an “irreversible act,” so to speak, and once ownership has been changed, it is not known whether it will return to its original state. Once those assets are sold, it will no longer be possible to restore the status quo. Thus, Stephan holds that “States may use countermeasures to induce a state to end its unlawful conduct, but they may not use this exception to take irreversible steps to punish a state for violating international law.” Stephan argues that “confiscating the frozen central bank assets is not something that can be done lightly, if at all (see https://www.lawfareblog.com/giving-russian-assets-ukraine-freezing-not-seizing)”.

To be somewhat technical, the United States has the Foreign Sovereign Immunities Act (FSIA), which grants foreign countries and their agencies and organizations immunity from the jurisdiction of U.S. federal and state courts, with certain enumerated exceptions. However, Congress has abolished the protection of sovereign immunity for certain claims by designated countries responsible for terrorist attacks against Americans and by Americans related to acts of international terrorism in the United States. However, the extent to which these exceptions are consistent with international law is disputed and has been challenged in the International Court of Justice (ICJ). Note that the FSIA applies only to judicial proceedings and may not apply to asset seizures that do not require judicial enforcement, such as sanctions-related asset freezes.

 

Civil Forfeiture Issues Regarding Companies and Individuals

The general understanding is that the domestic legal authority already used by the U.S. government to seize Russia-related assets is civil forfeiture. This procedure would allow federal law enforcement agencies to initiate civil proceedings to obtain title to assets used in criminal activity. The Biden administration is already using this authority in coordination with foreign allies as part of an international task force to freeze and seize the assets of key Russian elites.

In addition, the Biden Administration has also proposed legislative changes that would expedite forfeiture procedures, permit forfeiture of property used to facilitate sanctions evasion, and criminalize knowingly or intentionally possessing proceeds directly derived from corrupt transactions with the Russian government. Conversely, “it seems unlikely to reach the majority of frozen assets held by Russian institutions and corporations, including Russia’s central bank, that cannot be clearly tied to activities that are criminal under U.S. domestic law,” Scott Anderson and Chimène Keitner note in their co-authored paper (https://www.lawfareblog.com/legal-challenges-presented-seizing-frozen-russian-assets). There are also various other issues in international arbitration awards, and there are many challenges to civil forfeiture.

Abramovich, one of the Russian oligarchs mentioned at the beginning of this article, used the mechanism of trusts to change the names of their beneficiaries to their seven children (the youngest being nine years old) to avoid the confiscation of their property. According to an article in The Guardian, the children will be the ultimate beneficiaries of assets such as luxury real estate, superyachts, helicopters, and private jets worth at least $4 billion. What countermeasures are the United States and its allies trying to take against these sanctions’ evasions? This is an issue that needs to be resolved.

I have discussed the transition from “the principle of territorial jurisdiction ” to “the principle of nationality (according to which an offender should be tried in accordance with the law of nature)” in my book, The Ukrainian War as Revenge (pp. 163-164). The reality is that individuals and corporations are not punished because they are prevented by the “jurisdiction” of sovereign nations, even though they are of the same earth. On the other hand, an individual who merely represents a sovereign nation can cause a situation of war between sovereign nations. Even then, it is not so easy for another sovereign state to get its hands on the assets of a sovereign state. The issue of seizure and confiscation of Russian assets seems to raise fundamental questions about the relationships among states, companies, and individuals.

The “rule of law,” as it stands now, is only within the scope of sovereign nations, and there is no “rule of law” that covers the entire planet. Capital and funds can easily move beyond sovereign nations, yet there is no “rule of law” to govern such things as a global whole. Despite the growing solidarity among people of the earth in the wake of the climate change issue, the path to the “world republic” that we should aspire to is not yet clear. Even so, I hope that young people at least know where the problem lies.