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  • Writer's pictureThe Paladins

Protocol for the Seizure of Sanctioned and Frozen Russian Assets, Part #2

In the first essay in this series we considered why the substantial frozen and sanctioned Russian government assets held in western countries have not been confiscated in order to finance the defence of Ukraine, humanitarian assistance to her people, and public administration reform necessitated by the 2014 and 2022 Russian invasions of Ukrainian sovereign territory; and the steps taken by the Russian government since Ukrainian independence in 1991, in particular by the Russian security and intelligence services, to perpetuate institutional impoverishment in Ukraine and thereby keep Ukraine is a vulnerable buffer state firmly within the Russian imperial orbit. The conclusion we reached was that a series of theoretical legal impediments to the confiscation of private property, existing in the domestic constitutional law and in international law governing civilised western nations, presented a psychological impediment to the notion of asset confiscation. We further suggested that fear of domestic or international litigation or arbitration might be holding back western states from taking measures to confiscate, as opposed to merely sanction or freeze, assets associated with the Russian state or her prime movers.

US constitutional law is perhaps the best place to begin in understanding why these types of fear should be considered ungrounded. The case law of the US Supreme Court in interpreting the so-called “Takings Clause” (the provision of the Fifth Amendment to the US Constitution, contained in the Bill of Rights) is fairly clear that confiscations in times of war are constitutionally permissible. To recap, the “Takings Clause” provides: “nor shall private property be taken for public use, without just compensation”. The policy basis of the provision lies in the US Supreme Court doctrine “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole”: Armstrong v. United States, 364 U.S. 40, 49 (1960). Nevertheless aliens (that is to say, foreigners) denominated as enemies (for example, by virtue of sanctions legislation) have no constitutional protection against confiscation of their property because constitutional protections do not extend to enemies of the United States: compare e.g. United States v. Chemical Found, 272 U.S. 1, 11 (1926) and Russian Volunteer Fleet v. United States, 282 U.S. 481 (1931). We believe that this distinction is the constitutional basis for the Office of Foreign Assets Control (OFAC), part of the U.S. Department of the Treasury, to freeze the assets of enemy aliens (itself a sort of prima facie violation of the Takings Clause) as long as the relevant individual is designated as an enemy pursuant to appropriate legislation; and therefore we see no reason why this line of jurisprudence could not be used to seize the assets of designated enemy aliens in a similar fashion. For this to take place Congress needs just by legislative decree to extend the jurisdiction of OFAC to include confiscation of designated natural and legal persons.

We also mention in passing the doctrine in United States v. Verdugo-Urquidez, 494 U.S. 259, 271 (1990), in which the US Supreme Court considered these issues again and concluded that constitutional protections for aliens (i.e. foreigners) including the Takings Clause may be invoked “only when they have come within the territory of the United States and developed substantial connections with this country.” This doctrine has been deployed as the constitutional basis for a number of cross-border operations by US governmental agencies; in the case at hand the Court upheld the cross-border arrest and extradition of a citizen from a Latin American country by US law enforcement officials outside the usual parameters of requests for extradition and there seems little doubt that seizure of the assets of foreign enemies of the United States could be justified under the same doctrine.

The position as regards Article 1 of Protocol No. 1 of the European Convention on Human Rights (“No one shall be deprived of his possessions except in the public interest and subject to conditions provided for in law and by the general principles of international law”) is a little more complex because there is no extraterritorial exclusion inherent in the rights conferred by the European Convention on Human Rights. Any person anywhere in the world may be a “victim” of an action by a Convention signatory state, irrespective of whether they are a citizen of that state, they have ever been to that state, or the action complained of took place in the territory of the state. Therefore the sorts of doctrine existing in US constitutional law that exclude constitutional protections to persons outside the territory of the United States do not exist in the jurisprudence of the European Court of Human Rights, and a complaint may be laid of a Convention infringement by a victim of a member state’s armed forces acting in foreign theatre outside the territory of any Convention member state (for example). In this way the Convention acts as a framework for the international laws of war for the Convention member states.

There is no doubt from the case law of the European Court of Human Rights that the permanent deprivation of a possessory right in an asset by an executive authority, even if authorised by appropriate domestic or international legislation (such as EU regulations implementing sanctions provisions), amounts to deprivation of property for the purposes of Article 1 of Protocol No. 1. The existence of a state of war does not in and of itself exclude the applicability of the right: see e.g. Application 17170/04 Kerimova v Russia, Judgment of 3 May 2011; Application 58255/00 Prokopovich v Russia, Judgment of 18 November 2004. However deprivation of property is permitted by the case law of the Court provided that three conditions are satisfied: (a) the deprivation takes place pursuant to a principle of law (i.e. there is legislation or similar permitting this to take take place); (b) there was a public purpose or legitimate aim in mind in executing the deprivation; and (c) the act of deprivation complies with the principles of proportionality which ordinarily involves fair compensation - which if granted would annul the benefits of confiscation of assets to compensate for losses incurred by the Russian invasion of Ukraine. The pursuit of goals in the context of armed conflict is regarded as a public purpose or legitimate aim: see e.g. Application 60642/08 Ališić v Bosnia and Herzegovina, Judgment of 16 July 2014. In any event it is seldom found by the Court that a confiscation did not pursue a public purpose or legitimate aim, and these concepts are very broadly construed.

The question of whether the assets of a foreign state or of persons associated with a foreign state that has engaged in internationally unlawful acts may be taken by a Convention member state without compensation is one that remains open in the case law of the European Court of Human Rights but there are a number of pointers in the jurisprudence beyond the general principle that states have a “wide margin of appreciation” in determining whether and if so how to assess appropriate compensation for acts of seizure of property. It is difficult to divine broad general principles from the case law. The Court does seem to accept that in circumstances of warfare deprivation of property without compensation may sometimes be inevitable and may not involve violation of a Convention right: see Ališić, supra. It is not an inviolable principle, as it is under some domestic and international legal regimes, that compensation must be paid in order that Article 1 of Protocol No. 1 to the Convention be observed in a confiscation action. In practice Article 1 claims seldom succeed precisely by reason of the wide margin of appreciation afforded to member states about whether and if so how much to compensate in respect of a confiscation. The right to property under European human rights law is not a particularly strong one.

Nevertheless the argument of the Russian private citizen or corporation whose assets are seized is likely to be that they should not be held responsible for the actions of their government in invading Ukraine, an action with which they do not necessarily agree. This sort of argument is unlikely to find much sympathy where the entity or individual whose assets are seized is either the Russian government or an emanation of the Russian state, or an individual employed by the state or with an official position. In their case the argument is simply that they are part of a collective state of institutions that have engaged in unambiguously internationally unlawful actions in that invasion of Ukraine that have caused substantial losses, and the assets are being seized - pursuant to clearly drafted legislation - by way of a compensatory regime, just as it is not a violation of Article 1 of Protocol No. 1 to enforce a court judgment ordering compensation for losses incurred by a wrongdoing by seizing the defendant’s property: this is explicitly recognised by Article 1(2) of Protocol No. 1. (The Article “shall not … impair the right of the State to enforce such laws as it deems necessary to control the use of property … to secure the payment of taxes or other contributions or penalties”). Seizing Russian government assets might be viewed as a 100% tax on Russian government breaches of international law including the European Convention on Human Rights, itself undoubtedly constituting multiple Convention infringements.

In the case of confiscating the assets or private Russian individuals (whether natural or legal persons), the burden upon the confiscating state will surely be much the same as where a sanctions regime is imposed: to demonstrate a sufficient connection of the individual with the Russian state that there ought to be a level of accountability on the part of the individual for the actions of the Russian government. In this context a close connection between the assets or wealth of the person complaining of a Convention violation and prior actions of the Russian government, especially those of a criminal or rogue nature, may well be relevant. Given that most of the Russian Oligarchs, the few dozen billionaires or otherwise similarly wealthy, hold assets formerly owned by the Russian government in one form or another and acquired those assets through illegitimate regimes of international asset stripping of Russian government structures, this ought not to be hard to establish. Moreover it has been well documented that Oligarchs maintain those assets or even their lives on the whim of the Russian authorities and in particular the Russian President, and therefore it is a short leap of legal logic to the conclusion that those persons are in fact emanations of the Kremlin.

In this context one ought to be aware of the voluminous case law of the European Court of Human Rights granting its imprimatur to all manner of actions of Convention states to confiscate the proceeds of crime. It is unrealistic to seek to summarise the jurisprudence about this subject but one generalisation we might make is that in virtually every case, subject to procedural safeguards such as providing adequate reasoning and an opportunity for an individual to respond to allegations made against him upon due appeals or complaints, the Court has upheld the right of confiscation of assets deemed to be the proceeds of crime. There need be no judgment of conviction: see Application No. 36862/05 Gogitidze v Georgia, Judgment of 12 May 2015. General principles of preserving international legal order may suffice to justify confiscation of assets without compensation, for example to uphold international anti-money laundering principles: see e.g. Application No. 61233/12 Karapetyan v Georgia. It is also the opinion of the Court’s secretariat that “… the Convention generally does not prevent States from having recourse to presumptions” (paragraph 396 of the Guide on Article 1 of Protocol No. 1, Protection of property, 31 August 2022). In other words a confiscating state may issue a series of reasoned presumptions about the association of a particular apparently private person or corporation with associations with Russia to have illicit connections with the Russian government, and these may be used to justify confiscation actions provided that a reasonable right of recourse to appeal or review is offered to the individual or corporation in question.

This is precisely the procedure that has been used by the European Union and by other member states in sanctioning individuals and companies so far and in freezing their assets and preventing them from doing business in Convention member states or undertaking their banking or similar transactions. Perhaps the most important lesson that emerges from the Court’s case law is not just the need for a review procedure to be available tor an aggrieved victim of sanctions or confiscation, but also that confiscation orders must be more than mere lists of names of individuals and companies. Rather reasons must be given in each case for why the person or entity whose assets are subject to confiscation deserves such a course. They have the right to an explanation of why their assets are being confiscated to fund the Ukrainian war effort, and in each case the reason will be that they are associated with illicit activities on the part of the Russian government which is notorious in the comprehensive international criminality of its actions.

This then forms the basis in both US constitutional law and in European human rights law for a regime of comprehensive confiscation legislation and subsequent executive decrees to confiscate assets of the Russian state, and individuals, and companies, to support the war in Ukraine and to compensate Ukraine and her people for the damage and harm done but the internationally unlawful actions of the Russian government. Provided sufficient care and attention is given to each individual case, and rights of review and appeal are not overlooked, we see the legal and policy case for a comprehensive confiscation regime to be overwhelming from the perspective of both US courts and the European human rights architecture. Each country will have its own principles and jurisprudence to take into account; but a common international structure can already be discerned for agreeing a legal modus operandi for the confiscation of assets associated in any way with the Russian state and thereby to freeze Russia out of the international legal order and compel her to pay for the international crimes she is committing. This is the international legal order Russia has rejected, and the rest of the world should pull together to embrace it.

The third in this series of essays will discuss how to remove Russia from the system of bilateral investment treaties and similar international investment protection instruments that Russia should never have been permitted to become privy to and that must now be dismantled to the extent necessary to expel Russia from the international legal system.

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