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Buildings of the Security Service of Ukraine (SBU), the State Unitary Enterprise of the National Police and the Kharkiv National University in the Kharkiv, second largest city of Ukraine is struck by a Russia army missile at about 08:10 on March 2, 2022. (State Emergency Service of Ukraine/EYEPRESS)
Report

Proposals to Seize Russian Assets to Rebuild Ukraine

Session 22 of the Congressional Study Group

Editor's Note:

The following is a summary of the 22nd session of the Congressional Study Group on Foreign Relations and National Security, a program for congressional staff focused on critically engaging the legal and policy factors that define the role that Congress plays in various aspects of U.S. foreign relations and national security policy.

On June 9, 2022, the Congressional Study Group on Foreign Relations and National Security convened over Zoom to discuss the legal and policy debate taking place over whether the United States and its allies may be able to use Russian assets—in particular, Russian central bank assets—that are currently frozen pursuant to U.S. and multilateral sanctions in order to support and fund the reconstruction of Ukraine. Seizing foreign assets in this manner raises a number of serious legal and policy questions and may have consequences for the broader international system.

For this session, the study group was joined by three outside experts: Paul Stephan of the University of Virginia School of Law; Evan Criddle of the William and Mary Law School, and Chimène Keitner, a former Counselor for International Law at the State Department who is now at the University of California Hastings College of Law.

Prior to the discussion, the study group circulated the following background readings:

The presenters discussed the history of domestic authorities allowing the U.S. government to seize assets of another state. The Trading with the Enemy Act of 1917 (TWEA) rendered the property of an enemy state subject to confiscation during a declared war. Subsequent legislation empowered the President to exercise related TWEA authorities in other types of emergencies. But in 1977, amidst an environment of skepticism about executive power, Congress passed the International Emergency Economic Powers Act (IEEPA) to constrain presidential authority to declared national emergencies and limit it to blocking, not seizing or vesting, economic assets. Following the terrorist attacks of September 11, 2001, Congress amended IEEPA to permit seizures when the U.S. is in a state of armed conflict. While an armed attack is currently a necessary condition for any seizure, the definition of “armed attack” is unclear and has been the subject of some debate. That said, given the Biden administration’s focus on avoiding escalation with Russia, it may not be practically useful in the present circumstances. Finally, the presenters noted the availability of civil and criminal forfeiture laws, which allow the federal government to seize assets that have a substantial nexus to certain criminal activity.

The presenters also discussed the constitutional implications of asset seizures. While the process of freezing assets may generally occur without judicial pre-clearance, and judicial review of a freeze of assets after the fact has generally been held consistent with due process requirements, it is unlikely that a seizure of assets would be legally permissible without judicial notice. The extent of due process protections associated with the property of a foreign state is a major, unresolved question with obvious relevance to policy proposals to seize assets of Russia’s central bank. While the Second Circuit and District of Columbia Circuit appellate courts have held that foreign states do not enjoy due process rights, the issue is the subject of ongoing debate. As a result, there is at least a colorable argument that foreign states should be treated as persons for seizure purposes as well.

The presenters also discussed the ramifications of these policy proposals for the health of the rules-based international order. A seizure of state assets that violates tenets of international law would erode the credibility of that order and arm its opponents with the talking point that international law is merely a matter of convenience rather than obligation. There are two international legal prongs implicated by a decision to seize Russian assets: international investment law and international law of countermeasures.

Asset seizures are expropriations, which are prima facie forbidden by existing international investment treaties. The presenters observed that the United States has invested substantial time and energy into the international investment legal regime and should consider the impact of a prima facie violation of international investment law on the overall health of the system. The presenters urged that careful consideration be given to the impact that seizures could have on the global importance of the dollar and the broad economic effects in the United States that seizures could create.

International countermeasures are a legal form of self-help that states can use to induce other states to resume compliance with international law by suspending the performance of certain international legal obligations toward them. Countermeasures are coercive but not punitive or compensatory; instead, they are supposed to be proportional to the international law violation being corrected and reversible once the state that is in violation changes course. The presenters cited asset freezes as an example of international countermeasures that are reversible, proportionate, and nonpunitive, though this framing is sometimes the subject of dispute. By contrast, the confiscation of foreign assets would qualify as an expropriation that would not satisfy requirements for countermeasures. A confiscation would be punitive and, if the funds were provided to Ukraine, the confiscation would be an irreversible, permanent deprivation.

Seizures could also set a precedent for future confiscation of the property of U.S. investors if a foreign country perceived a violation of international law by the United States. Asset seizures could also deter foreign investors from investing in the United States out of fear that their assets could be seized. The presenters noted that the United States maintains a strong hand as long as Russian assets remain frozen and Russia wants them back, meaning they could be used as leverage in negotiations. In addition, the United States and its allies could reasonably decline to return frozen assets as a countermeasure until Russia not only ceases its aggression towards Ukraine but pays Ukraine reparations.

Following the outside experts’ initial remarks, the session moved to open discussion. Topics discussed included the role of international judgments and their relation to seizures and potential reparations; the relationship between countermeasures and international legal obligations; and the roles in this area played by international organizations.

Visit the Congressional Study Group on Foreign Relations and National Security landing page to access notes and information on other sessions.

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