Ukraine Symposium – Seizure of Russian State Assets: State Immunity and Countermeasures

by | Mar 8, 2023

Assets

On 24 February 2023, the United Kingdom (UK) government objected to the Seizure of Russian State Assets and Support for Ukraine Bill in the House of Commons, proposed legislation that would require the government to put measures in place to seize frozen Russian State assets in the UK to aid in the reconstruction of Ukraine. The bill specifically singled out the frozen reserves of the Russian Central Bank in the UK, estimated to be worth £26 billion. Although it remains uncertain whether the bill will progress further, it is likely that more such initiatives will follow soon, as this is only the latest in a string of proposed measures aimed at holding Russia accountable for its war of aggression against Ukraine.

Earlier this year, the Swedish Presidency of the Council of the European Union (EU) announced its plan to set up a Working Group to explore the potential use of frozen Russian assets to finance the reconstruction of Ukraine. Similar initiatives have been directed at the frozen assets of Russian individuals. In December 2022, the Canadian government started the process of seizing and pursuing the forfeiture of assets of a sanctioned Russian oligarch. In the same month, the United States (U.S.) Senate passed an amendment to a sanctions package mandating the seizure of assets belonging to Russian oligarchs and transferring them to a trust fund for the reconstruction of Ukraine.

While the intent behind these initiatives is commendable, practical and legal challenges have arisen. Under international law, measures of expropriation against the assets of Russian individuals may raise questions concerning their legality under human rights or applicable investment treaty standards. However, measures such as the UK Seizure of Russian State Assets and Support for Ukraine Bill, which target the foreign reserves of the Russian Central Bank and other Russian state assets, present distinct international legal challenges, which are the focus of this post. In particular, these measures may be difficult to reconcile with the law of State immunity (or sovereign immunity, as it is more frequently know in the U.S. legal system), which exempts State property used for sovereign purposes from measures of execution.

Legal experts such as Zelikow and Webb have suggested that countermeasures could provide the legal basis for justifying these measures, while others such as Stephan and Anderson and Keitner have raised objections, citing difficulties in meeting some of the conditions of countermeasures. In this post, I argue that while there may be some challenges to seizing Russian State assets at this stage of the war, it may not be for the reasons that are commonly assumed. First, I discuss the concerns about State immunity raised by freezing and seizing these assets. Next, I explain why applying countermeasures to preclude the illegality of measures that affect State immunity may be less problematic than some assume. Finally, I examine some of the outstanding challenges that may arise from the seizure of Russian State assets.

The Law of State Immunity and Frozen Russian State Assets

After Russia’s invasion of Ukraine in February 2022, the EU and the Group of Seven (G7) States took an “unprecedented” step by freezing an estimated U.S. $300 billion worth of assets held by the Russian Central Bank as foreign exchange reserves. The international legal basis for implementing these measures remains unclear, with sanctioning States providing little information on the matter. For instance, the EU Council’s website simply states that “all EU sanctions are fully compliant with obligations under international law.” However, compliance with international law is not self-evident as State assets, even when located in the jurisdiction of the sanctioning States, remain protected by the rules of state immunity. When it comes to central bank assets, in particular, Wuerth notes that customary international law requires States to provide immunity from execution for the currency reserves of foreign central banks and near-absolute immunity from execution for all central bank assets. This is consistent with Articles 19 and 21(1)(c) of the 2004 United Nations Convention on the Jurisdictional Immunities of States and Their Property (not in force).

There are two main schools of thought on how to overcome the obstacle posed by the protection that State immunity offers to foreign State assets. One perspective, supported by scholars like Ruys and Wuerth, holds that State immunity only applies to “measures of constraints in connection with proceedings before a court” in line with the language of the UN Convention. As a result, this interpretation excludes the application of State immunity to asset freezing, which is an executive or legislative measure. However, this interpretation may place too much emphasis on the UN Convention’s language, which in its Preamble acknowledges that customary international law may go beyond its provisions. Additionally, it is not a particularly attractive policy proposition to suggest that measures taken by fiat of the executive are subject to fewer constraints than those that occur pursuant to the guarantees of a judicial process. Thus, according to a different perspective state immunity from execution applies to all measures of constraint, regardless of their judicial, legislative, or administrative nature, and therefore extends to asset freezing.

Regardless of one’s view on State immunity, the freezing of foreign State assets may be reconciled with international law under the countermeasures framework. According to the International Law Commission’s (ILC) Articles for Responsibility of States for Internationally Wrongful Acts (ARSIWA), the wrongfulness of measures that prima facie constitute breaches of international legal obligations may be precluded when these are taken in response to prior breaches of international law in order to induce the wrongdoing State to comply with its international obligations. Substantive and procedural conditions (such as proportionality and the duty to notify the target State) are in place to prevent abuse, but in the case of freezing foreign State assets, these do not ordinarily pose insurmountable obstacles. While some have questioned the applicability of countermeasures to the rules of State immunity, I have argued in a separate article that the wrongfulness of measures taken in breach of jurisdictional immunity may in fact be precluded according to the general rules of State responsibility governing countermeasures. In a similar vein, the rules of immunity safeguarding State assets from execution may be temporarily suspended if it is necessary and proportionate to induce the wrongdoing State to comply with its international obligations. The only exception to this is property used by diplomatic or consular missions, which is considered “inviolable” and excluded by the countermeasures mechanism under Article 50(2)(b) ARSIWA.

However, as Stephan notes, freezing and seizing are two distinct legal concepts, and the legal justification for freezing State assets may not necessarily apply to seizing them. In the next section, I will delve deeper into the issue and explore whether the seizure of foreign State assets can be reconciled with the countermeasures framework.

Countermeasures and the Seizure of Russian State Assets

The proposed Seizure of Russian State Assets and Support for Ukraine Bill seeks to place frozen Russian State assets in the UK under the control of a trustee, who would use the funds to make payments in support of Ukraine’s compensation and reconstruction efforts. While introducing the bill in the House of Commons, Sir Chris Bryant did not provide a detailed explanation of its legal basis but stated that Russia’s failure to comply with its international obligations justifies an exemption from State immunity. A more comprehensive justification for similar proposals has been put forth in literature. In the United States, Zelikow has argued that a mechanism of this nature would serve as a countermeasure aimed at enforcing Russia’s compliance with its international obligations, including compensation. However, this opinion has been met with some criticism.

As Stephan highlighted, while asset freezing can be suspended and property returned to its owner, a seizure is permanent—once the property is transferred to another owner, there is no turning back. This contradicts the nature of countermeasures as coercive measures designed to induce compliance with international law rather than to punish wrongdoing states. To maintain their coercive purpose, Article 49 ARSIWA prescribes that countermeasures must be temporary in character and reversible. For this reason, Anderson and Keitner, among others, have pointed to the non-reversibility of asset seizure as the main obstacle to the application of the countermeasures framework to similar measures.

However, the extent to which non-reversibility poses such a major hurdle to countermeasures in the form of asset seizures can be debated. While reversibility is an important concept, as Crawford has suggested, it should be interpreted broadly. According to Article 49(3) ARSIWA, countermeasures only need to be reversible “as far as possible.” The ILC’s Commentary to Article 49(3) acknowledges that the coercive nature of countermeasures is not necessarily compromised even if it is not possible to fully reverse their effects. This is particularly true when a State is enforcing a judgment of an international court or tribunal.

The unsuccessful attempt by the UK to seize Albanian assets in its territory to enforce International Court of Justice’s (ICJ) judgment in the Corfu Channel case serves as a well-known example. As Schachter noted, there was no question raised about the propriety of the procedure. The logic is clear; there is no reason to remove the effects of a measure that achieves the result that the wrongdoing State should have implemented itself to comply with its international obligations. This is not so much a punitive measure as it is a measure aimed at ensuring full implementation of international responsibility.

In the absence of an international judgment or award establishing Russia’s compensation obligations, the challenges associated with applying the countermeasures framework to the seizure of Russian State assets may stem more from practical than legal considerations, as the next section will show.

Outstanding Challenges

The challenges arising from the seizure of Russian State assets are primarily related to its timing and complexity rather than its potential non-reversibility. Determining the entity of reparation that a State owes for its breaches of international law, especially serious breaches of peremptory norms, is a difficult task. The exceptional magnitude of damages resulting from an ongoing armed conflict makes their calculation even more challenging.

The recent ICJ reparations judgment in DRC v Uganda is a testament to these complexities. To mention but one of the many issues involved, while reaffirming the Chorzow Factory standard according to which full reparation should wipe out all consequences of the internationally wrongful act, the ICJ held that it “may, on an exceptional basis, award compensation in the form of a global sum, within the range of possibilities indicated by the evidence and taking into account equitable considerations” (para. 106). In DRC v Uganda, this resulted in the Court awarding just around 3% of the amount claimed by the DRC. It is true that the delay between the conclusion of the conflict and the awarding of reparation, resulting in evidentiary uncertainties and challenges in quantifying damages, contributed to some of the difficulties faced by the ICJ. This would weigh in favour of initiating the reparation process as soon as possible. However, an ongoing armed conflict may present additional challenges in determining and implementing reparations.

In the case of Ukraine, current estimates of the costs for reparations range anywhere from U.S. $138 billion, to $349 billion, to over a trillion dollars. This uncertainty is problematic as it must be possible to quantify the amount owed by Russia as a result of its internationally wrongful conduct before its secondary obligations can be implemented by means of countermeasures. This does not necessarily disqualify the legality of unilateral measures against Russian State assets, but it does make the calculations behind such measures—which are necessarily self-judging and are taken at a State’s own risk—complex and precarious. Multilateral coordination may be required to ensure a consistent approach among sanctioning States.

If sufficient support can be mustered for a coordinated approach, it may also be wondered whether, given the sheer scale of the damages in question, more creative solutions may have a better chance to provide full reparation for Ukraine. The United Nations Compensation Commission (UNCC) established following the 1990 Iraqi invasion of Kuwait is a much-cited precedent in this respect. With its ability to draw income from the revenues of the Iraqi oil industry, the UNCC directed the payment of U.S. $52 billion in compensation to 1.5 million claimants in over 30 years. If a similar solution can be achieved with respect to Ukraine, countermeasures consisting in the seizure of Russian State assets may have a more clearly defined role to play in enforcing Russia’s compliance with its international obligations.

Conclusion

Supporting the Ukrainian cause requires all efforts that can help restore peace and provide full reparation for the damages inflicted by Russia’s aggressive and unlawful war. Further economic restrictions on Russia may be necessary to achieve these goals. The seizure of Russian State assets is a measure that, given the exceptional nature of the situation created by Russia’s aggression against Ukraine, defies easy legal categorization. On the one hand, it is difficult to ignore that seizing frozen Russian State assets may be the best opportunity for Ukraine to obtain some form of reparation for the damages inflicted upon it by Russia. On the other hand, the uncertainty resulting from the continuation of the conflict makes the application of international legal rules particularly complex. The primary concern when considering the application of the countermeasures framework to the seizure of frozen Russian State assets is not so much whether this measure is reversible, but rather whether there is sufficient consensus on the content of the obligations being enforced and the objectives being pursued through them.

What is undeniable is that frozen Russian State assets can play a crucial role in inducing Russia’s compliance with its international obligations. Alternatives to seizing Russia’s State assets, which have been suggested, also recognize that these assets may provide a strong incentive to bring Russia to the negotiating table. When pursuing all these options, it is important to view international law not as an obstacle, but as a tool to achieve meaningful solutions that can help restore the very international order that Russia has disrupted.

***

Daniel Franchini is Lecturer in International Law and Deputy Director of the Sheffield Centre for International and European Law at the University of Sheffield.

 

Photo credit: Unsplash

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