2022 Ukraine Crisis

The Legal Challenges Presented by Seizing Frozen Russian Assets

By Scott R. Anderson, Chimène Keitner
Thursday, May 26, 2022, 3:09 PM

As Russia’s unlawful war of aggression continues to inflict untold devastation on Ukraine and its people, policymakers have begun to search for ways to support Ukraine’s beleaguered economy and fund its eventual reconstruction. Their attention has increasingly turned to the billions of dollars in assets that countries have frozen as part of the unprecedented array of sanctions imposed by the United States and its allies. The largest tranche of these frozen Russia-related assetsestimated at almost $300 billion—consists of foreign exchange reserves owned by Russia’s central bank, including at least $38 billion in the United States. Substantial assets also belong to other Russian government agencies, state-owned enterprises, and private corporations and individuals that have been sanctioned as a result of Russia’s actions. 

Senior U.S. officials have expressed an interest in making some or all of these assets available to Ukraine, and numerous observers have put forward proposals for doing so over the past several weeks. Some have focused on Russian central bank assets while others have sought to include the assets of other Russian entities and nationals as well. But as Paul Stephan has explained in a useful set of exchanges with Philip Zelikow and Laurence Tribe here on Lawfare, these proposals do not always take full account of the unprecedented nature of what they are proposing or the domestic and international legal questions such actions raise. And the United States ignores these questions at its own peril. The domestic and international legal protections that the United States generally extends to foreign assets—and especially foreign state and central bank assets—are a major contributor to the central role that the United States plays in the global economy. Compromising them may not only injure the U.S. economy but also limit the economic tools, such as economic sanctions, that the United States has available to it in the future. 

In this post, we provide a road map to the core legal issues that U.S. policymakers need to consider as they weigh whether and how to move forward with seizing any frozen Russia-related assets. These include whether there is existing legal authority for seizure, what constraints the Constitution puts on Congress’s ability to authorize seizure, and whether seizure will put the United States in violation of international law. While there may yet be a role for seizing assets, such measures would implicate an array of long-standing legal and related policy equities that may be particularly important in the face of increased geostrategic competition and a flagging global economy. For this reason, any such proposal warrants careful examination. 

Existing Legal Authority

The first question raised by these proposals is whether there is any existing domestic legal authority to seize, rather than freeze, Russia-related assets. Some observers have asserted that the president already has this authority under the International Emergency Economic Powers Act (IEEPA), a law that gives the president broad authority to regulate foreign assets and provides the legal basis for various Russia-related sanctions. Others have pointed to civil forfeiture as a possible route to seizure. Neither provides a silver bullet.

As Andrew Boyle has documented, Congress specifically drafted IEEPA to omit the authority to “vest” assets, meaning to change who owns assets or has title over them. Laurence Tribe has recently pointed to IEEPA’s text, which broadly authorizes steps to “regulate, direct and compel, nullify, void, prevent or prohibit” various transactions involving foreign assets. However, this language does not expressly authorize vesting or the transfer of title. The intent to withhold the authority to vest is clear from IEEPA’s legislative history. Based in part on this legislative history, the Supreme Court has recognized that “[t]he grant of authorities in IEEPA does not include the power to vest (i.e., to take title to) foreign assets” on two separate occasions. The Justice Department has similarly embraced the reading of IEEPA to exclude the authority to vest for more than 40 years. 

Congress did amend IEEPA in 2001 to allow some vesting of foreign assets at the request of the George W. Bush administration, but only in situations where “the United States is engaged in armed hostilities or has been attacked by a foreign country or foreign nationals.” This effort at legislative reform is telling, as no amendment would have been necessary if the executive branch or Congress had understood IEEPA to already provide the authority to vest foreign assets more generally. 

Notably, the examples that some commentators have cited to support the domestic lawfulness and appropriateness of seizing foreign (and particularly foreign state) assets all involve markedly different circumstances and legal authorities. For example, Congress has occasionally enacted targeted exceptions to the legal protections (or sovereign immunity) it usually provides to foreign states’ assets to allow them to be attached to enforce existing civil judgments, as it did in relation to certain Iranian assets in 2012. The executive branch has also used its statutory authority to determine whom U.S. financial institutions should recognize as the representative of a foreign government to transfer control over certain foreign state assets from one party to another, as it did in relation to Venezuelan assets in 2019  and the Afghan central bank earlier this year.  But none of these cases involved the type of seizure proposed here. Nor did any of these cases employ IEEPA or any other existing legal authority that would seem capable of facilitating the seizure of frozen Russia-related assets in the present circumstance.

To our knowledge, the only time in recent memory that a president has used IEEPA to vest a foreign state’s assets was when the George W. Bush administration seized Iraq’s assets shortly after invading that country in 2003. But it expressly did so pursuant to the 2001 amendment to IEEPA relating to armed hostilities. Even then, the Bush administration did not divert the funds to an alternative purpose but used them to pay for part of Iraq’s postwar reconstruction.

In theory, the Biden administration might be able to argue that the United States is somehow already engaged in “armed hostilities” with Russia over Ukraine so as to trigger the conditions set out in that amendment. But it hasn’t done so yet: The April 2021 executive order that has been used to freeze various Russia-related assets identifies an “extraordinary threat to the national security, foreign policy, and economy of the United States” under the original IEEPA, but not “armed hostilities” or an “attack” under the 2001 amendment. And characterizing Russia’s actions to date, including its cyber activities, as amounting to “armed hostilities” or an “attack” on the United States would run counter to the administration’s clear policy of limiting the risk of escalation by avoiding any suggestion that Russia and the United States are engaged in a direct armed conflict with each other. Absent such a determination, reading IEEPA as authorizing the vesting of assets would, at a minimum, run contrary to its legislative history as well as the long-standing views of both the Supreme Court and the executive branch. And this seems like a risky proposition in an era in which the Supreme Court’s signature move is to reign in efforts to use broad readings of statutory authorizations to address major policy questions in ways that were not clearly intended by Congress. 

The other domestic legal authority that the executive branch has already used to seize certain Russia-related assets is civil forfeiture. This process allows federal law enforcement to initiate civil proceedings to take title to assets used in criminal activities. The Biden administration is already using this authority in coordination with foreign allies as part of an international task force to “freeze and seize the assets of key Russian elites.” The administration has also proposed legislative changes that would, among other things, expedite forfeiture proceedings, authorize the forfeiture of property used to facilitate sanctions evasions, and criminalize “knowingly or intentionally possess[ing] proceeds directly obtained from corrupt dealings with the Russian government.” Assuming that prosecutors can obtain sufficient evidence to support criminal charges, this approach could work for the frozen assets owned by Russian oligarchs and implicated in their corrupt and criminal activities. But it seems unlikely to reach the majority of frozen assets held by Russian institutions and corporations, including Russia’s central bank, that cannot be clearly tied to activities that are criminal under U.S. domestic law. Nor do many other frozen Russia-related assets seem likely to be adequately linked to the war crimes and other atrocities that Russian forces are committing in Ukraine, some of which Congress may soon criminalize.

A final set of domestic legal authorities that warrants discussion are the legal protections that U.S. law gives to foreign states and their assets through the Foreign Sovereign Immunities Act (FSIA). As discussed further below, these protections are by and large required by international law, which the FSIA is generally intended to implement. Specifically, the FSIA grants immunity to foreign states and their agencies and instrumentalities from the jurisdiction of U.S. federal and state courts, subject to certain enumerated exceptions. These include when the foreign state waives its immunity or when the claim involves commercial activities with a U.S. nexus. Congress has also removed sovereign immunity protections with respect to designated countries responsible for terrorist attacks on U.S. nationals and for certain claims by U.S. nationals relating to an act of international terrorism in the United States. The extent to which these exceptions are consistent with international law is disputed, however, and has been challenged before the International Court of Justice (ICJ).  

Foreign state-owned property in the United States is similarly entitled to immunity from “attachment, arrest, and execution,” subject to a separate set of exceptions. These exceptions notably do not apply to the property of “a foreign central bank or monetary authority held for its own account[,]” giving it even stronger protections. (That said, a separate exception for certain terrorism-related judgments that is also being challenged as inconsistent with international law before the ICJ applies to both sets of assets.) While the FSIA applies only to judicial proceedings—and thus may not apply to asset seizures that, like sanctions-related asset freezes, do not require judicial enforcement—there is an ongoing debate as to whether this is adequate for purposes of international law, as discussed below. There is also some question whether the FSIA’s legal protections apply to civil forfeiture, with one court holding they do not while legal scholars have credibly argued that this holding was in error. Regardless, depending on which route policymakers pursue, the FSIA may pose certain obstacles to seizure efforts. And pushing back against these immunities too hard may trigger overseas consequences for the United States, which cannot expect to benefit from immunities in foreign courts that it does not provide to other countries in its own courts.

In sum, U.S. Treasury Secretary Janet Yellen was on firm legal footing when she stated recently that it would “not be legal now” for the United States to seize frozen Russian central bank assets. Nor are legal mechanisms available to seize other frozen Russia-related assets, beyond the use of civil forfeiture that the Biden administration is already pursuing. Of course, Congress might consider changing existing law to create new statutory authorities and eliminate obstacles posed by the FSIA. But in doing so, it would need to consider two potentially more difficult questions: whether such legislation would be consistent with the Constitution; and, if it is, whether acting on it would put the United States at risk of violating international law. 

Constitutional Questions

In the United States, any federal proposal to seize property raises questions under at least two provisions of the Constitution: the Fifth Amendment’s Due Process Clause, which normally requires that the federal government give property owners notice and an opportunity to object before their property is taken away; and the Fifth Amendment’s Takings Clause, which prohibits “private property [from] be[ing] taken for public use … without just compensation.” Both provisions could complicate efforts to seize frozen Russia-related assets.

Some commentators have argued that the Due Process Clause poses no obstacle to seizing Russian state assets, including those belonging to Russia’s central bank, because the constitutional provision does not apply to foreign states. But as Paul Stephan has described, this is at best an oversimplification. The Supreme Court has not decided this question, although it has suggested in dicta that a parallel might be drawn between foreign states and the 50 states of the union, which do not receive Due Process Clause protections under long-standing Supreme Court precedent. The U.S. Courts of Appeals for the D.C. Circuit and Second Circuit have embraced this analogy and held that foreign states are not covered by the Due Process Clause. But other courts have not yet followed suit, and the question remains the subject of ongoing debate.

Regardless, this conclusion is only clearly relevant to a portion of the frozen Russia-related assets whose seizure is being considered. Foreign individuals and corporations receive Due Process Rights so long as they have some “substantial connections” to the United States, a threshold that most Russian individuals and corporations with substantial assets within the reach of the U.S. government seem likely to satisfy. And both the D.C. Circuit and the Second Circuit distinguish foreign states from their agencies and instrumentalities when it comes to Due Process Clause protections. Specifically, they allow the latter, which include foreign central banks, to receive Due Process Clause protections in the same manner as private foreign corporations so long as they are sufficiently independent of the foreign government’s control.  

The Takings Clause raises similar issues. Proponents of seizure have argued that, because the plain text of the Takings Clause requires just compensation only for takings of “private property,” the Constitution does not require just compensation for seizures of foreign state property. But we are unaware of any support for this assertion, other than a pair of Office of Legal Counsel opinions dating back to 1980 that made a similar argument. The Supreme Court, however, has since held that property belonging to the 50 states and local municipalities counts as “private property” for purposes of the Takings Clause, which casts doubt on such a narrow reading—especially if one accepts the analogy between foreign states and the states of the union drawn in the Due Process Clause context. More importantly for present purposes, the Supreme Court has also held that, at least outside of wartime, the property of private foreign individuals and corporations does qualify for Takings Clause protections—a view that federal courts have even extended to property overseas so long as the owners have adequate ties to the United States. And while we are not aware of any case law squarely on this point, an agency or instrumentality of a foreign state—including a foreign central bank—might be able to qualify for these Takings Clause protections in the same manner as Due Process Clause protections: by establishing that it is independent enough from foreign government control to warrant treatment as a separate entity.

The exact constitutional constraints on the potential seizure of frozen Russia-related assets are unknown, but they are unlikely to be a null set. At a minimum, private Russian individuals and private corporations will be able to assert constitutional protections over their frozen property. And regardless of whether Russia itself qualifies for constitutional protections, Russian state agencies and instrumentalities very well might if they are adequately independent of state control. This category may well include Russia’s central bank, which is believed to own the largest tranche of the frozen assets whose seizure is being considered. The inquiry the federal courts would undertake to reach this conclusion is fact intensive and beyond the scope of this analysis. But it is a question that policymakers should examine closely.

Of course, constitutional limitations are not necessarily fatal to proposals for seizing Russia-related assets. One could imagine Congress setting up a procedure that provides Russian property owners notice and an opportunity to be heard to satisfy Due Process Clause concerns. There may also be ways to structure seizure in a way that will not be considered a “taking” entitled to just compensation under the Takings Clause—for example, by tying it to the enforcement of foreign or international judgments. Regardless, the key point is this: There are constitutional considerations that Congress and other U.S. policymakers need to take seriously when assessing whether and how to move forward with any seizure.

International Legal Concerns

The other set of constraints that policymakers must take seriously comes from international law. While the U.S. domestic legal system allows Congress to enact laws that violate international law, doing so comes with serious risks. Foremost is the risk of further compromising U.S. credibility as an enforcer of international law. Among other benefits, U.S. credibility has played a major role in the Biden administration’s ability to rally international support in confronting Russia over its invasion of Ukraine. Pursuing unlawful seizures could also expose the United States to international legal liability, trigger reciprocal measures against the United States and its nationals, and deter foreign states and nationals from investing in the United States or keeping their assets here in the future. For these reasons and more, international legal concerns should be taken seriously.

There are at least two potential international legal concerns with proposals to seize Russia-related assets: unlawful expropriation and violations of foreign sovereign immunity. International law generally protects foreign private property from seizure (or “expropriation”) by requiring that expropriating states abide by certain standards of treatment and provide fair compensation to the foreign property owner. These protections form a cornerstone of foreign investment law, and failure to comply with these requirements can lead to international claims between states or by private parties. At present, there does not appear to be any international tribunal that would have compulsory jurisdiction over a potential claim by Russia or Russian nationals against the United States for unlawful expropriation, meaning that any claim would have to be resolved diplomatically. Several allies of the United States, however, have international agreements with Russia that could allow Russian investors to bring claims for unlawful expropriation before an international tribunal. Not surprisingly, Russia has made clear that it would regard any seizure of its assets for the benefit of Ukraine as “outright theft” requiring “an appropriate response.” 

As mentioned above, states are also legally required to extend certain legal protections to foreign states and their property (but not to private property) in the form of sovereign immunity. The United States does this primarily through the FSIA. Among other restrictions, international law does not permit one country to be sued in another country’s courts, except in specified circumstances usually relating to the defendant state’s conduct of commercial activity. These international legal protections are particularly strong when it comes to foreign central bank assets. As Ingrid Wuerth has explained, “[C]ustomary international law requires that forum states provide immunity from execution for the currency reserves of foreign central banks, and it arguably requires near-absolute immunity from execution for all central bank assets.” Some observers may argue that efforts to seize Russian state assets can evade sovereign immunity concerns if they do not involve judicial proceedings that place one state in the position of judging a sovereign equal, similar to sanctions-related asset freezes. But others will almost certainly disagree, on the grounds that sovereign immunity is supposed to protect foreign governments and their assets from all manner of interference, not just that arising from judicial proceedings. Regardless, it is in the interest of the United States and its allies to explain the international legal rationale for asset seizures in these exceptional circumstances, because future stability of the sovereign immunities that the United States relies on around the world depends on preserving common understandings of the applicable legal framework. 

Even if the United States articulates a legal basis for seizing Russian state assets, Russia will likely still claim that the United States has violated international legal rules governing expropriation or sovereign immunity. It would then fall to the United States to justify that conduct. Like domestic law, international law provides certain defenses to liability, which it generally refers to as “circumstances precluding wrongfulness.”  

One such set of circumstances is the use of “countermeasures,” which are actions that would otherwise be unlawful under international law but are lawful because they are designed to encourage another state to come back into compliance with its own international legal obligations. Some have suggested characterizing asset seizures as countermeasures that are designed to force Russia to come back into compliance with its international legal obligations not to invade Ukraine or commit atrocities on Ukrainian territory. But this appears to be a poor fit, as international law sets clear and deliberate limits on how countermeasures may be used in order to prevent their abuse. Most relevant here, countermeasures must be temporary and, as far as possible, reversible once the state they are being used against comes back into compliance. But this is impossible with seized assets, especially if they are transferred to a third party. Paul Stephan and Evan Criddle have argued that the United States and its allies might be able to refuse to “unfreeze” frozen Russia-related assets, including central bank assets, as a countermeasure until Russia complies with its international legal obligations, which include the obligation to provide Ukraine with full reparations for the harm it has inflicted. While this proposal has merit, this is not the same as seizing Russian assets and would not provide Ukraine with access to Russian funds in the immediate term.

At some point, an international tribunal may award Ukraine reparations against Russia. Ukraine has already requested such reparations in its ongoing cases against Russia before the International Court of Justice (ICJ) and European Court of Human Rights (ECtHR). Ukrainian nationals may also be awarded reparations as part of proceedings against individual perpetrators before the International Criminal Court, Ukrainian domestic courts, or other bodies, which Ukraine could then seek to enforce on their behalf. While such judgments are not commonly enforced against foreign state assets involuntarily, doing so may be a more comfortable fit with international law than outright seizure. The enforcement of international judgments is different from an expropriation and does not necessarily raise the same international legal concerns. As reflected in the FSIA, international law may also provide for at least some limited exceptions to sovereign immunity for the enforcement of arbitral awards against a foreign state, on the logic that the defendant state has consented to the proceedings that resulted in the award. That said, there are jurisdictional reasons why the current proceedings before the ICJ and ECtHR may not result in judgments for sufficient reparations to cover all of Russia’s unlawful conduct. And even if they do, this process may take years. This in turn may provide a good reason to explore other avenues to international accountability, such as the possibility of an international claims commission.

Of course, international law is not static. As Philippa Webb—a member of a legal task force advising the Ukrainian government—has noted in her individual capacity, the legal views and practice of states that create customary international law can change over time, including in ways that might permit seizure more readily. For example, Webb suggests that international legal principles of collective self-defense might be interpreted by some to allow other states to seize assets on Ukraine’s behalf, although it’s not clear how this would square with the requirement of necessity for measures taken in self-defense. Likewise, she notes that a supportive resolution from the U.N. General Assembly might help build support for removing international legal barriers in exceptional circumstances, perhaps even in ways that have traditionally been seen as beyond the General Assembly’s authority. In a similar creative vein, Philip Zelikow has put forward a novel proposal for a trust mechanism that would require some fundamental shifts in how countermeasures are usually understood to operate. In addition to building new customary international law, states may also enter into treaties that create new legal regimes and obligations among treaty members. For example, the Ukrainian government reportedly has plans to pursue an international agreement that would provide it with access to Russian assets, even though a treaty without Russia’s participation would not normally be able to remove Russia’s international legal protections.

All of these proposals warrant continued discussion, especially if they can secure a critical mass of support within the international community. But there should be no illusions: Each would entail rethinking how certain core aspects of international law operate, with reverberations well beyond the current conflict in Ukraine. For this reason, they require careful consideration and narrow framing before moving forward.

Conclusion

Rebuilding Ukraine will require massive financial resources. In the short term, the most straightforward and legally sound way to provide Ukraine with these resources is by allies supplying foreign assistance, much as the United States—not the defeated Axis powers—funded the Marshall Plan that rebuilt Europe after World War II. But as the political appetite for such expenditures wanes, it is perhaps inevitable that policymakers will look for alternatives. 

The seizure of frozen Russia-related assets may yet have a role to play in these efforts. Lawyers and policymakers should continue to examine the best ways to accomplish the various policy goals that might be served by such actions, including punishment, deterrence and restitution. But no one should operate under the illusion that achieving these goals will be easy or cost free. The central role that the United States plays in the global economy—including as a major depository for foreign central banks—is built in substantial part on the strong legal protections it has in place for foreign assets and the degree to which it respects relevant international law. If the United States further changes the rules of the game, it will need to anticipate and live with the consequences.

In light of these concerns, the Biden administration deserves credit for approaching the issue carefully and actively engaging in conversations with other countries about the best way to proceed. Decision-makers should exercise caution in changing the same legal rules that have made the United States a global economic power and not overestimate the degree of support they can expect from non-European countries. As for international law, the United States must balance expedient interpretations with the reality that, the more that international law is treated as dispensable, the harder it may be to use it to enforce collective standards of behavior—including those that Russia’s invasion of Ukraine violated in the first place.   

Thanks to colleagues including Ben Heath for useful discussions in formulating this piece, and to Adam Silow and Etta Reed for their research assistance.