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Confiscation as the last argument: How does the United States see the mechanism of transferring Russian assets to Ukraine?

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A year ago, in June 2022, Canada passed special legislation called the Special Economic Measures Act, which introduced the procedure for the confiscation of Russian assets.

At that time, this step was seen as an important milestone towards ensuring compensation for Ukraine. And most importantly, it served as a precedent for other countries, primarily the United States.

Almost a year later, on June 15, 2023, a bill titled Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (REPO) was introduced to the consideration of the US Senate.

It provides for a mechanism for confiscating assets belonging to the government and the Central Bank of the Russian Federation, and there are even higher expectations for it.

However, the content of this project is broader than just the creation of formal instruments, and its political significance may be more far-reaching than its legal one.

Confiscation as a last argument

Although the mechanism for confiscating private assets of Russians was adopted in the United States earlier this year, state assets of Russia still remain the “Holy Grail” as they are protected by sovereign immunities.

These immunities shield foreign property of states from the jurisdiction of the host country: such assets can be frozen but not confiscated or sold.

Other countries friendly to Ukraine have faced the same problem. Previously, we discussed how the United Kingdom intends to address this issue.

A similar approach is being proposed in the United States as well.

A bipartisan bill, introduced by Senators Jim Risch and Sheldon Whitehouse with the support of Representatives Marcy Kaptur and Michael McCaul, aims to address this issue.

“Given the cruelty of Russia and its ongoing war crimes against the Ukrainian people, it is only fitting that the funds of the Russian government in the United States be confiscated and repurposed to assist Ukraine,” Senator Risch stated in a press release of the Senate.

This bill was very positively received in Ukraine. Irina Mudra, Deputy Minister of Justice and government spokesperson on compensation for damages from Russian aggression, referred to this step as a “legal precedent that opens a legal and legally justified path to the confiscation of sovereign assets of the Russian Federation.”

See also: External funding of post-war recovery in Ukraine: it may be significantly less than necessary and vastly less than the expectations of Ukrainian citizens

The legal mechanisms proposed in the REPO bill empower the President of the United States to confiscate sovereign assets of the Russian Federation that are directly or indirectly owned by the government, the Central Bank, and the Russian Direct Investment Fund.

The received funds are “repurposed” to compensate Ukraine for the damages caused by Russian aggression and are transferred to a special Ukraine Support Fund.

From there, at the discretion of the US Secretary of State, the funds can be transferred to a future compensation mechanism or directly to Ukraine.

There are still a number of important legal details to consider, but the most underestimated aspect is the motivational part of the REPO bill, which captures the political arguments in favor of its adoption.

Clearly, the political motives outlined in this bill do not represent an official position of the US government. However, they reflect the debates taking place in the United States Capitol and capture the positions of certain factions within Congress.

The main conclusion that can be drawn from the arguments presented in the bill is that the confiscation of sovereign assets of Russia is not seen as an inevitable or even a priority scenario.

Compensation for the damages inflicted by the aggression against Ukraine is recognized as an obligation, but it is emphasized that Russia has the opportunity to independently acknowledge this obligation and, through negotiations and the conclusion of a treaty, agree to compensate Ukraine.

And only if Russia does not agree to fulfill this obligation, the United States and other states should explore other ways to ensure compensation to Ukraine, including “confiscation and repurposing of the assets of the Russian Federation.”

In this case, these steps will be considered as “vital security interests of the United States”.

Precedent, but not a panacea

Despite the importance of the proposed solutions, the Risch-Whitehouse bill is not guaranteed to be passed.

It is worth noting that the creation of a mechanism for confiscating private Russian assets in December 2022 was preceded by at least two unsuccessful legislative initiatives. It is also important to remember that the potential lengthy legislative procedure will depend on the changing political circumstances in the United States and Ukraine.

Furthermore, despite its bipartisan nature, this bill may not receive support from the White House.

According to the proposals, despite the granting of new powers, the President and the Secretary of State of the United States will be significantly constrained in their implementation by Congress. Virtually every step must receive the support of the committees on foreign affairs and finance of both houses of Congress. Additionally, the executive branch must provide regular reports to Congress on its implementation.

Furthermore, this law deprives the President of the ability to determine the fate of frozen Russian assets without the knowledge and consent of Congress.

Ultimately, Republican co-sponsors of the bill argue for its adoption, citing the alleged inefficiency of the policies of the Democratic government.

“Unfortunately, we have seen time and time again how the Biden’s administration acts weakly and is too eager to make significant concessions in negotiations with our adversaries… Therefore, Congress must take action and pave the necessary path for the United States to work with our allies to utilize these funds for recovery,” stated Republican Congressman Michael McCaul in the same Senate press release.

See also: “Ukraine’s losses will amount to trillions of dollars” —  economist on the consequences of the war

However, this is not the biggest issue.

Even if this bill is passed, it will not be a universal solution for Ukraine.

Firstly, the United States only controls a portion of Russian state assets and central bank reserves – we’re talking about tens of billions of dollars.

Secondly, while this decision may serve as a signal to other custodian states of frozen Russian assets, it does not necessarily guarantee similar actions by the EU, UK, Japan, Switzerland, and others.

The main obstacle to the confiscation of sovereign assets of Russia is that such a step would be an unprecedented interference with property rights at the international level and could lead to uncontrolled consequences for international relations.

Other states may use this precedent without reason or even in the event of a crisis in bilateral relations.

This creates risks for the global economy, which is already experiencing a recession.

Therefore, a multilateral international treaty involving Ukraine and its allied states, which would set out a decision to derogate from the principle of sovereign immunities in respect of these assets, looks much more promising.

Ultimately, the bill itself emphasizes this point: “The United States should collaborate with international allies and partners on the confiscation and repurposing of Russian sovereign assets as part of coordinated multilateral efforts, including with G7 countries and other countries where Russian sovereign assets are located.”

In this context, it is important to note that the Risch-Whitehouse bill contains provisions that justify the exceptional nature of Russia’s violations of international law against Ukraine and the legitimacy of confiscating sovereign assets of Russia in accordance with international law in this regard.

These arguments are crucial to prevent the uncontrolled repetition of such actions in the future and can be further utilized and developed.

There have actually been relatively few successful precedents in the year that has passed since the creation of the first special mechanisms for the confiscation of Russian assets.

The confiscation of $5.4 million from Russian oligarch Konstantin Malofeev and the likely transfer of a Russian AN-124 aircraft to Ukraine through Canada are isolated cases. And even if the REPO bill is passed in the near future, it does not mean that the confiscation process will occur in an avalanche-like manner.

Originally posted by Ihor Horodynskyy on European Pravda. Translated and edited by the UaPosition – Ukrainian news and analytics website

See also: 5 steps towards Russian funds for reconstruction of Ukraine

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