From Freeze to Seize: Creativity and Nuance is Needed

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Political rhetoric on sanctioned Russian asset seizure is being replaced by concrete proposals. A long legal road lies ahead.

As Vladimir Putin’s full-scale invasion of Ukraine passes 100 days, and as the imposition of Western sanctions on Russia-related assets continues, the debate surrounding what to do with these frozen assets is still high on the political agenda.

In recent weeks, the political rhetoric has become more moderated, and the process has entered a new stage, with the US, Canada and the EU all bringing forward proposals that are semantically different, but share the same goal: seizing Russia-related assets within the rule of law.

What’s on the Table, and What’s Not

There is currently a lively debate on the different mechanisms that might be employed to achieve the intended policy goal of seizing sanctioned assets – assets that, despite being frozen, remain the property of their original owner, be that an oligarch or the Russian Central Bank, and where a connection with criminality remains, thus far, undetermined.

In late April, the US opened the way, by proposing a comprehensive legislative package ‘to hold the Russian government and Russian oligarchs accountable for President Putin’s war against Ukraine’. The proposal considers establishing new authorities for the forfeiture of property linked to Russian kleptocracy, while setting up mechanisms that would allow the government to use the proceeds to support Ukraine. Among the most relevant elements of this package is the forfeiture of property used to facilitate the evasion of sanctions, and the inclusion of this offence in the definition of ‘racketeering activity’ in the Racketeer Influenced and Corrupt Organizations (RICO) Act. The legislative package also creates a new criminal offence making it unlawful for any person to ‘knowingly or intentionally possess proceeds directly obtained from corrupt dealings with the Russian government’.

Around the same time, Canada dusted off a previous proposal aimed at allowing Canadian courts ‘to take the frozen assets of foreign officials whose mis-rule creates forced displacement and other humanitarian needs’. The Frozen Assets Repurposing Act, originally drafted with the primary purpose of assisting the humanitarian needs of those forcibly displaced, essentially foresees new powers to seize and sell assets of sanctioned Russian oligarchs while repurposing the proceeds to rebuild Ukraine.

While attractive and warranted, using oligarchs’ money to help reconstruct Ukraine – rather than returning it to the original Russian victims – may not be in line with current asset recovery norms

The European Commission has also followed suit, presenting in late May a new Directive on Asset Recovery and Confiscation. The proposal seeks to modernise EU rules on asset recovery through a series of measures, including an Asset Recovery and Management Office with the powers to trace and identify criminal assets, ensure that frozen property does not lose value, and enable its sale. The proposal also allows the confiscation of assets obtained from a wider set of crimes, all linked to some form of organised criminality. Like the US proposal, the directive would make sanctions evasion a crime across the EU, triggering the potential to enforce seizure procedures. This is a significant step, considering that only 12 EU member states currently treat evasion as a crime, while in 13 more it is either an administrative or a criminal offence, and two other member states only treat it as an administrative offence.

In contrast, thus far, the UK has yet to make the transition from political theatre over the topic to a more informed debate.

Creativity (and Nuance) Needed

These proposals include a few common themes. First, the current stance is to approach recovering the assets of oligarchs from an organised crime/racketeering standpoint, with little consideration given to securing reparations from the largest source of assets, the Central Bank of Russia. Both the US and EU packages include proposals aimed at expanding their current initiatives against organised crime.

In particular, even though the EU proposal has been advertised as providing new rules aimed at confiscating sanctioned Russian assets, the full text of the proposed directive reveals that its primary target is organised crime in general, and that the Russian oligarchs are just affected by proxy. Thus, operationalising the Directive would require establishing a link between oligarch assets and organised crime. The proposed Directive has an Italian flavour. This is unsurprising as the Italian Anti-Mafia Code’s asset recovery mechanisms, albeit not perfect, have been put forward as a palatable option upon which to build tools that could help solve the puzzle of how to seize oligarchs’ assets.

Second, sanctions evasion is receiving more attention from policymakers as a possible route to seizure. In the US, existing laws related to sanctions evasion and money laundering have already been creatively deployed to seize the Tango, a yacht belonging to sanctioned oligarch Viktor Vekselberg, via civil forfeiture.

At a time when Western allies are seeking to build support for Ukraine around the world, whatever solution is brought forward is likely to invite comparison with the autocracies the West supposedly stands against

A final theme concerns asset return and repurposing. While still uncertain on how to effectively seize sanctioned Russian assets, the US and Canadian proposals already discuss their use once forfeited, and propose repurposing them for the reconstruction of Ukraine. This gives rise to a discussion over whom the recovered money should be returned to. The purpose of asset recovery is to return funds to victims and the country from which they were originally stolen. However, in the case of the oligarchs' wealth, which was originally accumulated decades ago following the collapse of the Soviet Union, the ‘rightful’ owners are, indeed, the Russian people (who might not agree with the Kremlin’s actions). While attractive and warranted, using the oligarchs’ money to help reconstruct Ukraine – rather than returning it to the original Russian victims – may not be in line with current asset recovery norms, requiring further legal exploration. A different matter would be compensating Ukraine with the money derived from penalties linked to sanctions evasion – a totally acceptable option that would achieve two goals simultaneously (ensuring that crime doesn’t pay, and that Ukraine’s reconstruction is supported).

Sanctions are Easier Said Than Done

The current proposals highlight the complications of using administrative tools (sanctions) to achieve criminal justice outcomes (asset recovery). While progress is being made, and experts are becoming more optimistic about the possibility of holding Russian kleptocrats accountable, there is a long road ahead which will require careful drafting of legal frameworks that can be used should another ‘kleptocracy crisis’ hit.

Compounding the objective complexity of designing appropriate legal mechanisms, at a time when Western allies are seeking to build support for Ukraine around the world, whatever solution is brought forward is likely to invite comparison with the autocracies the West supposedly stands against. There is also a considerable risk that a court might invalidate these mechanisms under challenge, thus handing Russia a propaganda win.

Furthermore, the current focus on seizing assets which are potentially the proceeds of historical crime from oligarchs ignores the greatest source of reparations for Ukraine, the assets of the Russian government, held primarily in the Central Bank of Russia’s frozen accounts in the West. Focusing on this dimension might yield a more profitable return.

While the emphasis on seizing oligarch assets is politically appealing, there is a long legal road ahead as considerable creativity will be needed to ensure that whatever results is sufficiently robust to withstand scrutiny from a range of legal, moral and human rights perspectives.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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Tom Keatinge

Director, CFS

Centre for Finance and Security

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Dr Maria Nizzero

Research Fellow

Centre for Finance and Security

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