Legal Basis of Sanctions against Russia and Asset Confiscation

Present-day political deliberations warrant new objectives and methods: to make reparations to Ukraine – damage of which is estimated at more than 600 billion euros only by December 2022 – through confiscation of frozen Russian funds. Western governments initiated the exploration of avenues to execute permanent asset seizures with the objective of identifying methods to enhance the tracing, identification, freezing and management of assets as initial steps toward potential confiscation.

Changes in international legislation have not been absent in light of Russia's aggression: The Canadian government enabled a new legal outlet for confiscation through new amendments to the Special Economic Measures Act, which allows the seizure and forfeiture of property and assets owned by sanctioned Russian oligarchs. However, the attempted forfeiture and redistribution of the assets may trigger legal challenges in Canadian courts or through international arbitration pursuant to Canada's Foreign Investment Protection and Promotion Agreement with Russia. In the US, the Senate passed amended provisions mandating the seizure and transfer of liquidated assets from persons subject to sanctions for Russia's invasion of Ukraine and related crimes. The media has greatly dedicated itself to investigating Russian elites and searching for their assets, seizure of which could be possible within the framework of criminal proceedings. However, the value of frozen assets owned by sanctioned persons is estimated at US$30 billion, a sum trivial in comparison to the US$300 billion of assets held by the Russian Central Bank (RCB). Additionally, it would be necessary to establish a link with criminal conduct and while some of the funds may be connected to pertinent crimes, very little would contribute towards the substantial relief needed for Ukraine (Emmanuel Joel Aikins Abakah, David Adeabah, Aviral Kumar Tiwari, Mohammad Abdullah, 2023).

Although these measures of expropriation preclude little to no wrongdoings under contemporary legal systems, a matter absent of easy circumvention is that of the Russian state assets. Notably, proposals such as the UK Seizure of Russian State Assets and Support for Ukraine Bill have been accused of muddying the legal doctrine with wishful thinking. Central bank assets are protected by the principle of State immunity, which is derived from the principle of sovereign equality of states and would require further legal justification. Frameworks, which entertain the concept of seizure of state assets under the existing legal basis, belittle its significant footprint on the future of international law.

While the term ‘sanction’ is not officially used in the EU's legal terminology, it is commonly employed in political discussions, having the same legal meaning as ‘restrictive measures’. The EU first introduced economic restrictive measures against Russia on 31 July 2014 via Regulations (EU) 833/2014 and on 17 March 2014 via Regulations (EU) 269/2014 in the form of targeted sanctions. These consisted of freezing assets and travel bans on Russian and Ukrainian persons and entities for their involvement in the annexation of Crimea, deemed responsible for threatening Ukraine's territorial integrity. Asset freezing ensures that the funds of targeted entities and persons cannot be accessed, and travel bans prohibit their entry into senders' states. The scope of those sanctions, however, became massive and unprecedented in history after February 2022, in response to Russia's act of aggression and the illegal annexation of Ukraine's Donetsk, Luhansk, Zaporizhzhia and Kherson regions. As of March 2022, Russia became the world leader in the number of imposed sanctions, surpassing Iran. As of June 2023, an estimated €21.5 billion worth of assets were frozen in the EU and €300 billion worth of assets from the RCB were blocked in the EU and G7 countries. Table 1 provides an overview of various types of sanctions imposed on Russia or Russian nationals on multiple grounds by the EU.

Within the EU's sanctions policy, it is important to distinguish between restrictive measures that are imposed in accordance with the UN Security Council resolutions and sanctions that are adopted by the EU independently. The sanctions on Russia have a few distinct features with those on Bush's denominated Axis of Evil. In contrast to Iran and North Korea, there are no UN sanctions against Russia. The partisans of the sanctions are the EU and the US, which became a point of reference for all other states and in this way preserved alignment to a certain extent in the absence of a multilateral design. Because Russia is an economically crucial player, even in the absence of the Security Council, there was stronger global motivation to take immediate action for its breaches of international law. The above-mentioned features thus distinguish and raise questions about their legal character, outside of political realities.

As of July 2023, EU Member States have adopted 11 packages of sanctions against Russia which are not adopted independently but as a part of the 2014 sanctions. The sanctions aimed to weaken Russia's ability to finance the war, produce and buy weapons and ammunition and specifically target the political, military and economic elite responsible for the invasion. In the present case, legal experts who invoke the principle of noninterference, should not disregard that Russian policies are prima facie violations of prohibition of use of force in international law, which is an erga omnes obligation, that is, an obligation it holds not only to Ukraine but to all countries. Thus, asset freezes have a strong legal basis under the justification of third-party countermeasures. ‘Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties’ (Article 5(2) TEU). According to Article 23 of the TEU within the framework of Common Foreign and Security policy (CFSP), the Union may ‘provide for the interruption or reduction … of economic and financial relations with one or more third countries’. In such cases, the Council has the power to adopt restrictive measures targeting individuals, groups, non-State entities or legal persons, as explicitly mentioned in Article 215(2) TFEU. The legal basis for the adoption of EU sanctions is Article 29 TEU, as well as Article 215 TFEU.

Similar to the EU's sanctions, the US has implemented sanctions against Russia in reaction to the conflict in Ukraine. Economic sanctions pertaining to the Russian invasion of Ukraine are currently executed via two mechanisms: the Ukraine-/Russia-related Sanctions programme and the Russian Harmful Foreign Activities Sanctions programme. Although OFAC upholds sanctions against Russia under the Magnitsky Sanctions programme and the Countering America's Adversaries Through Sanctions Act of 2017, these programmes have not been employed as a response to the 2022 invasion. The Ukraine-/Russia-related sanctions include the sanctions that were issued by the former US President Obama based on Executive Orders (EO) 13660, 13661, 13662 and 13685. These orders authorise the freezing of assets, and imposing travel bans on individuals and entities from Russia and Ukraine who were involved in the annexation of Crimea. EO 13685 also includes a provision that prohibits the trading of goods, services or technology to or from the Crimean region of Ukraine. Additionally, it forbids US persons from making new investments in the Crimean region of Ukraine. This programme also encompasses the EO 14065 that pertains to the 2022 invasion, alongside the Ukraine-/Russia-related Sanctions Regulations found in 31 C.F.R. Part 589.

In the US, the legal basis for sanctions is rooted primarily in two statutes: the National Emergencies Act and the International Emergency Economic Powers Act (IEEPA). Enacted in 1977, IEEPA authorises the president to block property, prohibit transactions or otherwise regulate assets in which a foreign person has an interest, in response to the president's declaration of a national emergency. The US and EU have historically taken different approaches in enforcing economic sanctions, with the US adopting a more aggressive stance compared with the EU. However, in a bid to make joint Western economic and financial punishments more effective against Russia and other countries, both the US and EU are now making new efforts to coordinate their sanction policies. The economic sanctions imposed on Russia serve as a tool of nonrecognition policy, by underscoring that the countries which impose these sanctions do not recognise the Russian annexation of Crimea. The mere freezing of Russia's state assets, that is, the property of the central bank, is placed under scrutiny in legal debate. Despite the general dissatisfaction by Russian authorities, neither the RCB nor the government has made any official statements or actions to enact legal challenges regarding the freezing of assets. This follows from the context of sovereign immunities, in which only measures imposed by the judiciary provide protection to assets of a sovereign state from being confiscated to satisfy court judgements. On the other hand, the extrajudicial freezing of assets based on sanctions refer to actions taken by states or international bodies outside the realm of judicial proceedings – thus not implicating immunity under domestic or international law, since it is not related to the enforcement or execution of a court judgement. In other words, because temporary freezing of assets on the basis of executive action are sufficiently distinct from attachment of property, sovereign immunities are irrelevant to sanctions. Claims of an illegitimate nature are unfounded as they imply that the expansion of the law of immunities to encompass any sanctions directed at assets of a foreign government, signify a notable deviation from established state practices. A conclusion that the aforementioned asset freezing and asset freezing of similar nature violated international customs, would therefore be illogical.

Brussels' plans to confiscate Russian assets as a substitute for reparations or assistance, though motivated, raise questions about the legal avenue for such a direction. By criminalising any form of transaction or benefit derived from sanctioned Russian assets, their present economic value is obliterated but does not in any way change ownership.

The customary laws of warfare do allow for the confiscation of enemy state property and countermeasures permit the state against which the unlawful activity was directed to engage in otherwise unlawful actions against the responsible state. In the hypothetical event that the assets of Russia's central bank were discovered within Ukrainian territory, Ukraine, as a belligerent state engaged in conflict with Russia, would have the right to seize such assets. While Russia's immoral act of aggression allows Ukraine to take countermeasures, the EU itself has not been attacked by Russia, thus it cannot avail this provision.

In the attempt to consolidate freezing of assets as a preliminary step towards seizing them, legislation also presents a significant pitfall. Measures that aim to change the ownership of sovereign assets, rather than temporarily freezing them as mentioned earlier, require judicial action under domestic law. However, invoking such action is precluded due to the principle of sovereign equality of states. As a result, the assets of RCB are shielded from court proceedings and execution in another state unless an explicit waiver is provided. For example, assets blocked under the Council Regulation 833/2014, based on the CFSP, are justified as a countermeasure against Russia's war of aggression. However, their definitive taking is not justified under the current legal framework.

Under Article 48 of the Articles on Responsibility of States for Internationally Wrongful Acts, any State may claim from the responsible state ‘performance of the obligation of reparation… in the interest of the injured state’ in two cases: 1)

Such that the obligation breached is established for collective self-defence;

However, in the case of Russia, the above-mentioned exceptions do not apply, and there are no existing precedents for such novel approaches. The invocation of collective self-defence would not come without consequences, as it has a far-reaching modus operandi. Russia could retaliate in a targeted manner, leading to further destabilisation of financial markets and a loss of faith in transnational protections of sovereign rights. Confiscation, as an irreversible action, would signify a departure from the objective of incentivising Russia to cease its aggression. Furthermore, seizing assets and directly allocating the proceeds for Ukraine's reconstruction is distinct from seeking reparations on behalf of the affected state. Therefore, confiscation lacks the essential attributes of a countermeasure and cannot be classified as such.

Despite the challenges posed by the confiscation, analogous proposals surged not only in Europe but also in the US. In June 2023, US senators have also introduced a bipartisan bill aimed at addressing the situation. If approved, this bill would grant the president the authority to ‘confiscate’ frozen Russian sovereign assets located within the US and allocate them to Kyiv. Additionally, the bill calls on President Biden to advocate for the establishment of a ‘common international compensation mechanism’ in collaboration with foreign partners. This mechanism would provide an additional avenue for the confiscation and redirection of funds and also calls for the establishment of an international compensation mechanism.

The IEEPA incorporates a limited exception stated in 50 U.S.C. § 1702(1)(C), which grants the president the authority to confiscate foreign-owned property and dispose it at their discretion. This exception applies specifically in cases where the US is involved in armed hostilities or has been subjected to an attack by a foreign country or foreign nationals. A notable example of the exercise of this provision occurred in 2003 during the Bush administration, when approximately US$1.7 billion in Iraqi funds held in American banks were seized and directed towards assisting the Iraqi population and compensating terrorism victims. In that particular case, the provision was applicable due to the US being actively ‘engaged in armed hostilities’ with Iraq.

An interesting question arises as to whether the latter aspect of this provision (‘attacked by a foreign country or foreign nationals’) could be relevant in the context of a cyberattack. If this interpretation is applicable in the event of a cyberattack, it would mean that confiscation could be pursued if Russia were to engage in additional cyberattacks against the US (Moisienko, 2022). However, in the case of Russia's aggression towards Ukraine, it is again important to note that this exception does not apply as Russia has not attacked the US in the context of international law, and the US is not currently engaged in armed hostilities with Russia. Thus, to confiscate Russian assets would be to violate international investment law triggering duties of repayment under the Takings Clause of the Fifth Amendment and customary international law.

Currently, the Foreign Sovereign Immunity Act does not permit parties to initiate civil actions against foreign states or enforce judgements against foreign central bank reserves for injuries sustained during armed conflicts. Some suggestions have been made to Congress proposing the elimination of Russia's sovereign immunity from civil litigation in domestic courts. The Ukrainian Sovereignty Act of 2022, introduced in the US House of Representatives in March 2022, advocates that ‘sovereign assets of an aggressor state should not be immune from attachment or execution upon a judgment entered by an American court’. However, the compatibility of this act with international law remains uncertain.

In a significant ruling in 2012, the International Court of Justice (ICJ) pronounced that customary international law grants states immunity from civil litigation in foreign courts for claims arising from war-related injuries. The ICJ upheld the principle of sovereign immunity, even in cases where war crimes committed by German armed forces during World War II violated fundamental norms of international law. Although the ICJ's opinion does not carry binding legal authority as a precedent, it has influenced the interpretation of customary international law concerning state immunities. Based on this analysis, it can be inferred that Russia would likely enjoy sovereign immunity in US courts, given that its aggression involves the exercise of sovereign powers.

Some of US primary precedents of asset ‘seizes’ outside of a warfare moulded the ruling in Zivotofsky v Kerry. This ruling determined that the president's authority, as outlined in Article II of the Constitution, to ‘receive Ambassadors and other public Ministers’ includes the exclusive power to recognise foreign states and their governments, as well as to make other decisions related to this power. Based on this recognition power, the Trump administration declared its intention to release frozen Venezuelan assets to the government it recognised, namely that of Juan Guaidó. Similarly, the Biden administration has also used its statutory authority and designated an unnamed individual to transfer control over certain Afghani state assets. These decisions can be seen as matters of recognising a government rather than confiscation, since the US did not retain control over the assets. For example, if President Biden were to recognise an alternative Russian government and grant it authority over the frozen assets, the Zivotofsky ruling might serve a mighty play. However, this remains as speculative as abhorring Russia's sovereign immunity.

A second case is that of the transfer of Irani sovereign assets as repercussions following the landmark case of the Iran Hostage Crisis. However, in negotiating the release of American hostages, the result of compensation was only attained with Iran's agreement to transfer of funds. As a result, confiscation of assets was not pertinent to the legal basis of the matter. This precedent gravely diverges from the war in Ukraine; however, it potentially gives arrangement for a bilateral claims-settlement body akin to the Iran–U.S. Claims Tribunal.

Another Iranian precedent, involving the pursuit of nuclear weapons and other chemical activities, catalysed the creation of a separate Statute Iran Threat Reduction and Syria Human Rights Act of 2012 passed by the Congress invoking the ‘state sponsors of terrorism’ exception to the Foreign Sovereign Immunities Act. This allowed frozen Iranian central bank assets to be attached to compensate victims of terrorism not pursuant to IEEPA, but because of a separate statute. Iran brought the case before the ICJ, arguing that the US breached sovereign immunity by besieging Bank Markazi assets. However, the Court found that it lacked jurisdiction to consider this claim, because a claim based on the right to sovereign immunity under customary international law did not fall within its scope.