The following protocol sets out a guide to seize assets of the Russian government and of Russian individuals associated with the current government of Russia where those assets are in jurisdictions outside Russia in countries applying sanctions or where those assets are not in any jurisdiction (for example, on the High Sea) but susceptible to confiscation by military actions (for example seizure of vessels by western navies).
It may seem surprising to a casual observer that not withstanding the various sanctions and asset freezing regimes imposed by a variety of western countries and by supranational institutions such as the European Union in response to the Russian invasions of Ukraine in 2014 and 2022, the assets thereby captured within the legal net of asset freezes have not been expropriated and applied to Ukrainian reconstruction and defence goals necessitated by reason of Russian military aggression.
The West is spending tens or even hundreds of billions of US dollars in military and reconstruction assistance for Ukraine from domestic taxpayer revenues yet not exploiting the substantial Russian assets frozen in their jurisdictions which would arguably be a just use of those funds given their often corrupt origins or because they are based on the exploitation of Russian state-owned hydrocarbon / secondary industry. It would also substantially alleviate the domestic taxpayer burden and thereby reduce domestic political bickering about the quantum of contributions to the Ukraine defence budget that have recently plagued certain western political capitals.
No reliable figures exist for just how much has been frozen as a result of the comprehensive international sanctions regimes imposed against Russia by the United States, the United Kingdom, the European Union, and a host of other individual states but without doubt the sums involved are colossal. Reuters has reported that the assets of the Russian Central Bank alone that have been frozen abroad just as a result of the sanctions imposed in consequence of the 2022 invasion amount to some US$300 billion. On top of that there are the assets of sanctioned individuals that have been frozen; other state asset holdings abroad that have been frozen; and assets of sanctioned individuals that might be sanctioned were they to be seized from the High Seas (for example the various Russian Oligarchs’ “super yachts” still at large); the total sum is unquantifiable but might be expected to be at least as much again. Let us therefore use the figure of US$600 billion as a working estimate for the quantity of Russian assets available for expropriation and use to fund Ukraine’s defence and reconstruction.
Ukraine’s current GDP is estimated at some US$130 billion the greater majority of which is financed using western aid and assistance funds of various kinds, principally from the United States and the European Union. An effective programme of seizure confiscation and expropriation of relevant Russian assets currently frozen could therefore finance the ongoing defence and institutional reform of Ukraine rendered necessary by reason of wholly unjustifiable military aggression for a period of no fewer than four years. This would substantially alleviate pressure upon domestic treasuries as well as call into question the Russian strategy of financial attrition of the West, which assumes that within the next 12-18 months western determination to continue financing the defence of Ukraine will diminish and thereby Russia will find herself able to negotiate preferential (and inevitably temporary) peace terms in which de facto occupied Ukrainian territory will be ceded to Russia. Such a strategy will not be successful if the West can continue to finance the defence of Ukraine using Russian assets.
The colossal exposure of Russian government and wealthy private individuals and their corporate structures to the West’s financial and corporate systems renders such a strategy of confiscation and expropriation eminently feasible. The only obstacles are legal but those obstacles can undoubtedly be overcome.
Confiscation of financial and other assets that may currently be frozen requires enabling legislation in each country that proposes to undertake such actions. Inevitably some countries - for example Hungary and Serbia - may resist. However confiscation and expropriation are outside the formal scope of European Union competencies and they are matters for individual domestic member states and their legislative procedures. Therefore Hungary would not be in a position to block or veto a multilateral initiative on the part of other EU member states to enact materially identical wholesale confiscation legislation across the greater majority of EU member states.
A conference to negotiate the terms of such enabling legislation, which would then in each member state appoint a wartime custodian to execute confiscation orders and apply the confiscated assets to designated segregated accounts, should be called between all western states with the utmost expedition. Such a conference would identify the details of the confiscation regime, which should be as similar as possible in each western state having regard to differences in legal culture, which would then be enacted in domestic legislation in each member state participant in the conference.
The principal legal obstacles to acts of expropriation are provisions contained in domestic constitutions and international legal instruments that prohibit confiscation actions on the part of state authorities without a proper public purpose and fair and reasonable compensation. There are many such legal regimes both domestically and internationally and we will mention just a few of them. The “Takings Clause” of the Fifth Amendment in the US Bill of Rights declares: “Nor shall private property be taken for public use, without just compensation.” Article 1 of Protocol No. 1 to the European Convention on Human Rights, to which all EU member states and the EU itself is party, is entitled “Right to Property” and provides: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. 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 public international law.” As the legal scholar Wortley in his famous 1947 paper Expropriation in International Law observed, the concept of expropriation as the permanent confiscation by a state of the rights of a foreign person or state in an asset has at least a 300-year history in various guises although there are few universally accepted principles of what amounts to unlawful expropriation in international law save that any confiscation must be compensated in a reasonable way related to the actual value of the asset being expropriated.
The prohibition on expropriation of a foreign investor’s assets - including where the foreign investor is a foreign state or an emanation of a foreign state - is recognised in the complex international network of bilateral investment treaties between states in which each state acknowledges and undertakes to protect the investments of parties from the other member state in individually negotiated treaties between individual member states. The wording of each such treaty is slightly different, precisely because they are negotiated bilaterally; but typically expropriation is classified as unlawful in the context of these treaties (known as “BITs”) unless it is in the public interest, non-discriminatory, undertaken pursuant to due process of law and with prompt, adequate and effective compensation. According to UNCTAD, a United Nations agency in Geneva that collates information about BITs and cross-border investments, Russia remains party to some 85 BITs including with very many of the western antagonists now funding the defence of Ukraine and voicing international condemnation of Russian military aggression. It would seem apposite that all of these BITs be denounced by western countries standing in opposition to Russia’s invasion of Ukraine and it is not clear why this has not happened so far but it should take place as soon as possible.
The argument that expropriation of frozen and other Russian assets in the West would be met with reciprocal actions on the part of the Russian authorities against western assets in Russia is undermined by the fact that the greater majority of western companies operating in Russia have already terminated their operations in consequence of the international public outrage over Russia’s invasion of Ukraine threatening to damage their market reputations; therefore there is very little for the Russian government to freeze in reciprocal retribution. It is true that there remains a small and inglorious list of western businesses continuing to operate in one form or another in Russia but it must by now be clear that they do so very much at their own risk and without any reasonable prospect of consular or other protection by the governments of the states of their seats. The Russian legal system was always a “wild west” environment and that has only been accentuated by Russia’s moves towards neo-totalitarianism as the country’s economy has evolved since February 2022 to a full war footing.
Many or even most BITs contain “arbitration clauses”: that is to say, agreements to refer disputes as to whether (for example) an expropriation was unlawful to a committee of (typically) three arbitrators who will issue a binding decision and, if they make a finding of unlawful expropriation, they may issue awards of compensation for very substantial sums of money that, at least in principle, are enforceable across all the member states to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards and/or the 1966 ICSID Convention (the International Centre for Settlement of Investment Disputes). The prospect of panels of private arbitrators (arbitrators are just well-known lawyers specialising in the field; they are not appointed by governments, as are Judges, and there is very little judicial oversight of their activities as a general rule) making findings of unlawful expropriation against western states in favour of the Russian Federation, her government agencies or private Russian companies or individuals associated with the Russian President’t inner circle, together with damages awards in the billions of Dollars, may be a significant reason why regimes of Russian asset confiscation have not so far been implemented into the legal systems of the West.
Nevertheless there are many responses to this. First and foremost, every branch of domestic and international law that creates a right to private property, whether the US Constitution, the European Convention on Human Rights or the various BITs, articulates caveats to the rule against unlawful expropriation on various grounds including those relating to national security and the promotion of legitimate foreign policy. The details of those various exceptions will be articulated in subsequent essays in this series but suffice it to say that there are always such exceptions and western states wishing to act in a determined way to confiscate Russian assets ought to act robustly and use these exemptions to justify their actions.
This is a war, and the expropriation of assets of a hostile foreign power with whom one is effectively at war is a routine feature of wartime legal activities. There are mechanisms for putting to one side the usual rules against foreign confiscations in both domestic and international legal systems and they ought to be deployed in extreme situations such as the international outcry relating to the Russian invasion of Ukraine.
Then if Russia or Russian persons initiate a flood of tendentious lawsuits complaining about these things, these lawsuits should be fought using every means available to the state. Arbitrators who participate in such procedures might be sanctioned, as might western lawyers acting for the Russian government or her emanations or proxies. The 1958 and 1966 Conventions might be abrogated in respect of claims brought by the Russian government or her proxies, so that even if Russia does succeed in some of these claims they will be unenforceable. Moreover these legal procedures take years - many, many years - and this war is a matter of outlasting the Russians. They are trying attrition tactics with us so we are justified in using attrition tactics against them. We confiscate their assets and leave them with a series of empty lawsuits that they can spin in wheels for many years to come but without the assistance of western lawyers arbitrators or enforcement mechanisms all of which will be withdrawn from them through legislative measures agreed between. Western member states.
What is being proposed in this the first of a series of essays about how to engage in lawful confiscation of Russian assets to fund the western war effort to support the West’s natural ally Ukraine and to alleviate the burden on the western taxpayer is effectively an exercise in entirely freezing out Russia, the Russian government, wealthy Russian individuals, and private and publicly owned Russian companies, from the international legal system that they have persistently sought to take advantage of over the past decades. Granted, it involves a dramatic transformation of the regime of international law but this is an international war of the utmost moment and the global legal community must catch up with political and public opinion.