According to a document seen by POLITICO, the European Commission is studying legal options to seize Russian state and private assets to fund Ukraine’s reconstruction.
The goal, according to the document, would be “to identify opportunities to strengthen asset tracking, identification, freezing and management as preparatory steps for possible seizure.”
The potential bounty would consist of almost $300 billion in frozen assets from the Central Bank of Russia, as well as assets and earnings from individuals and entities on the EU sanctions list. The idea was floated already in May and is supported by Kyiv, as well Poland, the Baltic States and Slovakia. EU heads of state and government in October instructed the Commission to examine legal options to seize Russian assets currently frozen under sanctions.
But the conundrum is that there is currently no legal mechanism to confiscate Russian assets – how pointed out by US Treasury Secretary Janet Yellen back in May. It would have to be created.
“There may be a way for the EU to validly seize frozen assets under international law, but it’s probably a narrow, long and untried way,” said Jan Dunin-Wasowicz, attorney at Hughes Hubbard & Reed.
That doesn’t stop the Commission from looking into it.
With regard to private assets belonging to sanctioned persons or entities, Brussels is prepare proposals making evasion of sanctions an EU crime, a move that would facilitate their collection – but only in the event of a criminal conviction. Even then, the EU would have to take each case to court and probably argue for years.
That’s because many of these assets would qualify as foreign investments, enjoying protections from expropriation without compensation and a right to fair and equitable treatment under international treaties that Russia has with many EU countries.
The confiscating authority would also need to establish a clear link between the property owner and the conflict in Ukraine.
“To ensure proportionality, one would have to look at who the owners are, what they have done, etc.,” said Stephan Schill, professor of international and business law and governance at the University of Amsterdam.
Regarding the central bank’s foreign reserves freeze, the largest pot of money, the EU executive writes in the document “these are generally considered to be covered by immunity,” with a footnote referring to a UN convention on the judicial immunity of foreign states and their property, which is not yet in force.
“From the point of view of international law, it is quite clear that you cannot use assets of the Central Bank of Russia without Russia’s consent,” Schill said.
As for the assets of Russian state-owned companies, the paper notes that these would “in principle” not be covered by such a convention, but accessing them could raise issues related to confiscation of private assets “in addition to the need to demonstrate a sufficient Connection to the Russian state.”
So is the EU brooding an “exit tax” on the assets or proceeds from the assets of sanctioned individuals wishing to move their assets outside the EU. This could create legal problems of its own, as it would target a specific group of people – contrary to the non-discrimination provisions of international law – who could in turn invoke the human right to property as a defence.
To Schill’s knowledge, there is no recent and valid precedent for any of these options.
“The EU and the Member States are trying to introduce a new criminal code,” he said.