2022 Ukraine Crisis

Response to Philip Zelikow: Confiscating Russian Assets and the Law

By Paul Stephan
Friday, May 13, 2022, 9:44 AM

My colleague Philip Zelikow has written a thoughtful response to my recent post on this site. I endorse much of what he says. In that post, I had made two arguments. First, as a matter of statutory authority, President Biden does not currently have the legal power to confiscate any of the already frozen Russian assets, state or private, for the purpose of funding Ukrainian defense and reconstruction, without going through normal judicial processes. Second, any future legislation to authorize the selling off of these assets must overcome certain constitutional and international legal hurdles. Since I wrote that post, the President has asked Congress for legislation that will expedite the forfeiture of privately-owned frozen assets but has not indicated any immediate plans to dispose of state property, particularly the hundreds of billions of dollars deposited by Russia’s Central Bank in U.S. accounts. Zelikow focuses on the international legal issues surrounding the confiscation of these bank accounts and sees fewer problems than I do. He also argues that current domestic law might give the president all the authority he needs to transfer these assets to an international fund established to compensate Ukraine for its war injuries.

Zelikow and I agree on a lot. We both regard Russia’s invasion of Ukraine as a manifest violation of the UN Charter and an illegal act of aggression. We both think that Ukraine’s supporters in the West, led by the United States, should create a multilateral entity to distribute funds to help Ukraine meet the costs of defending itself from Russia’s invasion and to rebuild the country. We both agree that the value of capturable private assets—oligarch yachts and the like—is insufficient for this task, even if the United States and the other countries imposing sanctions could immediately confiscate them under current law. We see the Russian state assets frozen around the world, starting with the Central Bank’s deposits in the United States, as commensurate with the likely reconstruction costs for Ukraine. Finally, neither of us think that international law poses an insuperable barrier to converting the frozen state assets to Ukrainian relief. Zelikow acknowledges that doing so would be “novel”—I would go a step farther and say it’s unprecedented, at least in the modern, UN Charter era—but neither of us equates new with necessarily impermissible.

International law and Countermeasures

Zelikow argues that international law permits the United States immediately to turn over the Central Bank’s deposits and other state assets to an organization that will devote the money to the reconstruction of Ukraine. His argument has two prongs.  First, Russia’s violation of the prohibition of aggressive war represents a breach of its legal obligations to all states and, second, international law permits any state to take countermeasures against Russia to induce it to end that breach. I agree with both prongs of this, if stated in the abstract. But I do not think the United States and its allies in the anti-Russia campaign can simply start moving the money to a designated relief organization.

As Zelikow indicates, the customary international law of countermeasures works something like a get-out-of-jail-free card in this situation. When a state suffers from another state’s breach of a duty owed to it, international law allows the injured state to respond by suspending its own obligations to the lawbreaking state. Think of contract law, which shoots through international law. If a buyer breaches a contract by failing to pay in advance for goods, contract law allows the seller to delay delivery until the buyer makes payment and does not treat this delay as an independent breach.

Zelikow, in his post, confuses that part of international law that looks like contract law with that which mirrors tort law. Countermeasures are distinct from reparations, a body of international law that, like tort law for regular people, requires the law-breaking state to compensate its victim for their injuries. Countermeasures have different rules and different functions from reparations. Reparations require an explicit settlement, either agreed between the parties or imposed by an authorized international authority. Were it otherwise, a victim of an international law violation could throw over its own responsibilities and essentially exit the international legal system right away.

I said in my earlier piece that, as to the Russian state assets, the countermeasures argument is too good to be true. Zelikow elaborates on the countermeasures point, so I will spell out here why I said that in my initial piece. He cites the International Law Commission’s 2001 draft articles on state responsibility as an authoritative statement of what countermeasures are permitted. International lawyers generally treat this document as authoritative, and his summary is accurate as far as it goes. Zelikow omits, however, Article 49. This provision spells out limits on countermeasures in accordance with their curative function. It requires a state to resume the performance of its suspended international legal obligation as soon as the offending state stops its illegal conduct and in the meantime to employ “as far as possible” only measures that will not preclude the resumption of honoring its international legal duties once the illegality ends.

Article 49 seems to provide reasonably clear guidance for the seizure and confiscation of state assets. Foreign state assets generally enjoy an immunity from seizure under international law, but, consistent with the law of countermeasures, states can suspend that immunity for the duration of a seizure (or a “freeze,” as it’s sometimes called)imposed in response to a violation of international law. Confiscation, however, is irreversible: once a state transfers ownership to someone else, it cannot resume its duty to respect the foreign state’s property once the foreign state stops breaking the law. The best it can do is make reparations to the former owner for the confiscation.

It hardly could be otherwise. States perennially have beefs against other states that they claim rest on issues of international law. To pick just one example, the UN General Assembly has adopted innumerable resolutions accusing Israel of violating the Charter, with only the U.S. veto power preventing Security Council actions. According to Zelikow, a General Assembly resolution can substitute for a Security Council decision if a permanent member’s veto blocks any action. Does this mean that the many states that labeled Israel an international outlaw could have ignored its rights under international law? However one feels about Israel’s behavior over the last few decades, do we really want these General Assembly resolutions to serve as a ground for much of the world to stop respecting international law with regard to Israel? 

The draft articles capture the logic of contemporary state practice. The consistent U.S. approach to asset seizures since 1945, and indeed for most of U.S. history, is, except when the U.S. is at war, to freeze but not sell foreign state assets. The unwillingness to take irreversible steps reflects the understanding that disputes mostly come to an end, given enough time, and that freezing suffices in the meantime. If the United States and its allies wish to break with that precedent, they need a better strategy for doing so.

A better model for funding Ukrainian reconstruction

The basic difference between Zelikow and me is one of timing. Right now, the United States and its allies are spending tens of billions of dollars to support Ukraine’s self-defense. In spite of looming economic problems in the rich world, that capacity has not been exhausted. I enthusiastically support the basics of Zelikow’s proposal to establish a fund for reconstruction. Where I part company with him is on the timing of Russia’s contribution to that fund.

The amount of Russian Central Bank money frozen by the United States and its allies might amount to half a billion dollars. As Zelikow indicates, all future dollar sales of Russian energy products to these countries will augment these sums, as the money must go to, and then stay in, the frozen accounts. The United States and its allies unquestionably remain free under international law to maintain the freeze until Russia stops attacking Ukraine.

When Russia comes to the end of its hostilities with Ukraine, the countries holding Russian assets can condition their return on the Russian government agreeing to make reparations to Ukraine. This outcome would not require a Security Council resolution, as did the fund that Iraq financed out of its frozen oil revenues to pay reparations for the Gulf War. Instead, the freezing states can insist on this step as a condition of restoring normal relations and would hold the frozen assets against Russia’s consent. Anticipating this outcome, the countries contributing to Zelikow’s proposed fund can themselves condition their payments on a refund out of Russia’s later contributions. If faced with a choice between normal relations and continued sanctions, Russia reasonably might agree at some future time to the surrender of ownership of assets that it could not expect ever to see again in any event.

To summarize, Zelikow would confiscate the assets now and run the risk that the United States and its allies would face an obligation to provide restitution to Russia down the road. My approach would avoid that legal risk. The sanctioning states could hold Russia’s assets as security against reimbursement by Russia of the money paid for Ukrainian reconstruction. Either way, Ukraine’s rebuilding can proceed now and Russia almost certainly will end up paying. The difference is that my way will avoid creating a new international legal precedent that could later come back to haunt the United States and its allies.

Transferring state assets under domestic law

Zelikow also argues that the Biden administration does not need any new statutory authority to contribute the frozen Russian assets to his proposed fund. He believes that the International Economic Emergency Powers Act of 1977 (IEEPA), on which the President’s sanctioning powers rests, authorizes transfers of frozen funds to third parties. He cites as support the 1981 Supreme Court case of Dames & Moore v. Regan, which upheld the Algiers Accords, an agreement with Iran that freed the embassy hostages.

The Carter Administration had not sought to confiscate Iran’s frozen money, but rather to transfer it with Iran’s consent to a bank account that would fund compensation pursuant to the Algiers Accords. As a result, the court did not have to consider whether IEEPA authorizes transfers that destroy ownership rights, as Zelikow would have it. The Court also ruled that IEEPA did not give the President the authority to dispose of the legal rights of U.S. litigants to press their claims against Iran in U.S. courts. These legal claims, it held, did not count as “property” under that statute. Instead, the court ruled, controversially, that the President has an implied power to reach international claims settlements with foreign states based on longtime executive practice and legislative acquiescence. 

The Dames & Moore language that Zelikow quotes refers not to an argument that IEEPA gives the president a blank check to transfer frozen assets to third parties, but rather to the U.S. litigants’s claim that the IEEPA prohibits international claims agreements absent express congressional authorization. Responding to that argument, the Court said, “Although Congress intended to limit the President's emergency power in peacetime, we do not think the changes brought about by the enactment of the IEEPA in any way affected the authority of the President to take the specific actions taken here.” The actions taken here were transfers under an international agreement of the sort that the executive had used throughout U.S. history. And those agreements all involved the state whose property the U.S. had seized.

What Dames & Moore makes clear is that, once the United States comes to an agreement with Russia to use its frozen assets for the benefit of Ukraine, IEEPA will allow the President to execute the transfer of that money to the anticipated reconstruction fund without going back to Congress for specific authority. Under my proposal, that money would be matched by a transfer back to the United States as reimbursement for its prior contributions. 

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The differences between Zelikow and me are subtle, but they involve important principles of international and domestic law that have a potentially significant future footprint. The United States and its allies can achieve the immediate goal of giving Ukraine the support it needs without exploding the longstanding and important distinction between seizure and confiscation of a foreign state’s property. Russia ultimately will pay, assuming that the conflict with Ukraine comes to a negotiated end. Expanding the role of countermeasures to cover the present situation exposes the United States, Israel and other allies to significant new legal risks whenever they undertake military operations that some other states regard as violating the UN Charter. That road is better left untaken.