Following Russia’s invasion of Ukraine, much of Russian state-owned and private wealth has been frozen around the world. This includes an estimated $300 billion of foreign exchange reserves that belong to Russia’s Central Bank, as well as a certain amount of oligarch-held property, likely in the tens of billions of dollars. A significant proportion of this wealth has been frozen in the United States, France, Germany, and the U.K.
In light of the vast destruction and ongoing war crimes that Russia is responsible for, a spirited discussion has been unfolding as to whether these frozen assets can be permanently seized and, more important still, used for Ukraine’s benefit. The debate has been playing out on legal blogs and mainstream media alike, with contributions covering a wide range of issues, typically with a focus on the United States or, to a lesser extent, the U.K.
The moral appeal of repurposing Russia’s treasure as a compensation fund for Ukraine is readily apparent. It would, in the words of a Financial Times editorial, involve “a certain poetic justice.” On the other side of the scale is the concern that, no matter the circumstances, taking Russia’s or its oligarchs’ property would be politically unwise or legally problematic. It is the former aspect of the issue, the political feasibility of going after Russia’s Central Bank assets, that I will focus on here. In short, while the political and legal complications of using frozen Russian assets to compensate Ukraine are by no means trivial, they do not appear insurmountable.
To date, legal concerns have been used as a “get out of making a difficult decision” card, which attenuates the need for a serious public discussion of the underlying policy. In late May, Treasury Secretary Janet Yellen made the following remark at a G7 meeting: “While we’re beginning to look at this, it would not be legal now in the United States for the government to seize [central bank assets].”
As a matter of existing law, that is probably correct (see here, here, and here), despite some dissent. However, that also begs the question of whether U.S. law could – or should – be amended. According to New York Times reporting, Treasury officials were skeptical of doing so:
Ms. Yellen and others have argued that it could make nations reluctant to keep their reserves in dollars, for fear that in future conflicts the United States and its allies would confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer significant sanctions relief to Moscow once the reserves have been drained from its overseas accounts.
These essentially political concerns would seem to be the crux of the matter. One might also speculate that the risks of Russian retaliation for such a seizure — for instance, harm to U.S. citizens — are likewise part of the calculation, especially now that negotiations are ongoing to exchange a convicted Russian arms trafficker for U.S. basketball star Brittney Griner and another U.S. citizen detained in Moscow. Russia has suggested that confiscation of its assets by the United States may lead to a “permanent damage” in bilateral relations.
These considerations ought to be assessed carefully, not only in the United States but also in other countries that have frozen Russian state assets. But it is far from obvious that these issues are as significant as the U.S. government holds them to be, based on the New York Times reporting. For one thing, the desire of nations like Russia and China to minimize their reliance on the U.S. financial system is nothing new. In fact, in the 1950s the Soviet Union resolved to hold part of its dollar reserves in the U.K. precisely to shield them from potential confiscation by the U.S. government, thus giving rise to the “Eurodollars” market. Russian and Chinese attempts to move away from the U.S. dollar in international transactions are likewise decades old. The implications of these developments for U.S. financial hegemony have long been pondered by policymakers, as reflected by, among others, Juan Zarate in his book Treasury’s War. Most recently, the development of central bank digital currencies by Russia, China, and Venezuela appears to have pursued, at least in part, the objective of sanctions-proofing their economies.
Therefore, to the extent that the United States and other Western nations retain their financial primacy, this is not because Russia remains oblivious to the threat, but rather because it has not been able to do much about it. Unless other factors that policymakers are privy to suggest otherwise, the notion that confiscating Russian state assets will meaningfully change this state of affairs is open to doubt.
For its part, the suggestion that Russian Central Bank property must be kept on the table as a bargaining chip must be seen for what it really is: an concession that, instead of Russia defraying at least some of the mounting costs to Ukraine of its invasion – now upwards of $600 billion – they might be borne entirely by the taxpayers of Ukraine or allied countries, such as EU member states, that have pledged their assistance. The Ukrainian government, however, has a different view: confiscation of Russian assets is central to its proposal for an International Claims Commission for Ukraine. There is a certain unseemly quality to suggesting that Ukraine should be denied immediate access to a $300 billion pool of property to fund such claims because the West feels, contrary to Ukraine’s position, it is in Ukraine’s best interests for that money to be used to appease Russia down the road.
Finally, there is little doubt that, for as long as Western support for Ukraine persists, Russia will continue to engage in asymmetrical and malicious responses, ranging from “hostage diplomacy” to weaponizing exports of natural resources. Any tangible measure directed against Russia carries a risk of escalation in that sense, but that alone cannot be a solid basis for foregoing action against the much greater threat that Russia’s ongoing war presents.
Of course, this discussion would be moot if confiscating central bank assets were indeed a legal impossibility. It is not. There are two main sets of rules that are likely to constrain legislatures should they wish to authorize permanent seizure of Russian state-owned assets. The first of these is domestic constitutional rights (especially in the United States) or human rights guarantees (especially in European states), such as those that deal with the right to property or due process. The second is international law, and in particular the law of sovereign immunities.
The applicability and effect of relevant constitutional and human rights provisions have to be analyzed in each country contemplating confiscation. In the United States, for instance, the current orthodoxy is that foreign states are not entitled to due process protections, although this view has recently been subject to doubt.
Under international law, several viable options exist for overcoming sovereign immunity barriers, as identified by various commentators and summarized in a policy paper I co-wrote. The international legal justifications for seizing Russian state-owned assets could include third-party countermeasures in response to Russia’s breach of a peremptory international norm (jus cogens); collective self-defense in response to Russia’s unlawful armed attack, which can involve non-military measures; or, perhaps more controversially, arguing that sovereign immunities only preclude judicially mandated confiscation as opposed to measures ordered by the executive (on the basis that the law of state immunity has evolved to prevent the courts of one state from ruling on another state’s behavior). For states that have valid investment treaties with Russia, of which the United States is not one, analysis of their implications may also be required.
So far, we have seen little attempt by governments to use the room for maneuver that these rules provide. Instead, proposals tabled in the United States and the European Union in the context of Russia’s war on Ukraine focus squarely on the questions surrounding seizure of private property, as did the recent hearing in the U.S. Senate Judiciary Committee. This is notwithstanding that due process concerns are likely to be greater in relation to private property. Unlike state-owned property, it does not have a direct connection to Russia, the state that bears international legal responsibility for Ukraine’s wartime losses.
Commendably, the U.K.’s All-Party Parliamentary Group on Anti-Corruption and Responsible Tax has defied this trend by including the following observation in a write-up of its recent roundtable:
There is need for primary legislation for the recovery of state assets, given the fundamental principle of sovereign immunity. The main concerns over confiscation of state assets hinged on a reticence to create an unfortunate precedent that could be misused in other contexts.
This speaks to the legitimate concern that potential confiscation of state assets be limited to exceptional circumstances and not resorted to lightly, so as to minimize disruption to international finance. That would require careful legislative drafting. One might also be wary of other states misusing their powers to confiscate Western nations’ assets in the future, but that is already an ever-present risk, tempered by most countries’ desire to present themselves as attractive investment destinations.
So far, Canada is the only country that has revamped its sanctions laws to enable confiscation of frozen public and private assets alike. The amount of frozen Russian assets in Canada is unknown, and the impact of these changes remains to be seen. A skeptic might say they are bound to remain negligible because Canada has less to confiscate, and therefore less to lose from possible repercussions. The Canadian government has not yet indicated which of the international law justifications for the seizure of Russian state-owned assets it would rely on, but Professor Robert Currie has pointed to third-party countermeasures as the likely option.
At this stage, the real lesson from Canada’s experience is that legal reform to allow for confiscation is far from unthinkable. And, as relates to the underlying policy concerns, the question remains of what exactly those feared repercussions are, and whether they are indeed to be feared.