On 24 February 2022, Russia launched a full-scale war against Ukraine, an action widely recognised by the international community as a severe breach of international law. Consequently, sanctions were imposed against Russia as an aggressor state, leading various countries to seize and freeze Russian assets located abroad. There has been extensive discussion on whether states should go beyond merely freezing these assets to make them available for compensating Ukrainian war damages. We argue that these assets should also be made available for the enforcement of judgments in favour of private individuals and businesses who have suffered from Russia’s unlawful actions.
This article analyses the legal options and grounds for enforcing state judgments and/or state-recognised awards in favour of private individuals or businesses against confiscated or blocked Russian assets abroad and addresses the issue of overcoming state sovereign immunity for this purpose.
- Legal Grounds for Seizing and Freezing the Russian Assets.
Russia is accountable for breaches of international law, including acts of aggression against international humanitarian and human rights laws. These actions are based on customary international law and the principles outlined in the UN Charter.
Under customary international law, a state is liable for actions that violate international norms, creating an obligation to provide reparations. This principle has been recognised by the UN General Assembly in several instances
The Permanent Court of International Justice (the “PCIJ”) held that “it is a principle of international law, and even a general conception of law, that any breach of an engagement involves an obligation to make reparation”.[1] The Articles on State Responsibility for Internationally Wrongful Acts (the “ARSIWA”) of the UN International Law Commission (the “ILC”) provide that “the responsible state is under an obligation to make full reparation for the injury caused by the internationally wrongful act”.[2] Moreover, Article 1 of the United Nations Charter (the “UN Charter”) outlines one of the purposes of the UN as the “suppression of acts of aggression or other breaches of the peace”. The prohibition on the use of force is articulated in Article 2(4) of the UN Charter.[3]
Further, the International Court of Justice (the “ICJ”), one of the principal institutions of the United Nations, has deemed Russia's actions unlawful and issued provisional measures directing their immediate cessation. On 16 March 2022, the ICJ granted measures requested by Ukraine, instructing Russia to “immediately suspend the military operations that it commenced on 24 February” and recognising that these provisional measures “impose international legal obligations” on Russia.[4]
Private Ukrainian investors also benefit from international protection against losses incurred due to the Russian war under the Bilateral Investment Treaty 1998 between Ukraine and Russia (the “BIT”). In addition to the BIT, customary international law’s minimum standard of treatment applies, which includes the fundamental prohibition against expropriation without prompt, adequate, and effective compensation.[5]
Thus, Russia is obligated to provide comprehensive reparations and compensation to investors for the harm caused by the war it initiated against Ukraine. These reparations should aim to mitigate all repercussions of the unlawful actions and restore the situation in Ukraine to what it would have been before the invasion, to the greatest extent possible. However, it is unlikely that these damages will be voluntarily paid by Russia in the near future. Therefore, mechanisms for compulsory enforcement using Russian assets located abroad should be established to indemnify war damages at the governmental level and to compensate private investors who have suffered due to the war.
One significant issue is that states enjoy immunity from the enforcement jurisdiction of domestic courts, meaning that measures of constraint cannot be imposed on their property (including central bank assets) unless the state has explicitly consented to such measures or if one of the few exceptions applies.
Additional challenges include the lack of a legal foundation within domestic law for using seized or confiscated state assets for these purposes. This necessitates the enactment or modification of domestic legislation. Other difficulties involve procedural fairness concerns, particularly when assets belong to private individuals, and international regulations regarding the protection of property rights, including those of central banks.
- Difference Between Confiscation and Freezing/Seizure.
Before proceeding further, it is important to distinguish between confiscated and frozen/seized assets from a legal perspective:
- Freezing involves imposing measures on liquid assets such as bank accounts and other financial holdings, which prohibits the owner from relocating, accessing, transferring, or converting these assets. This action does not transfer ownership.[6] Returns generated by the affected asset (e.g., dividends or interest) are typically also frozen.[7]
- Seizing is similar to freezing but applies to movable or immovable property, preventing the owner from selling or transferring it. The interest accrued on the property can also be seize.
- Confiscation is a measure that results in a tangible transfer of ownership and can be applied to any asset type. Persons or entities that hold an interest in the funds or other property at the time of the confiscation lose all rights to those funds or assets.[8]
It is important to understand these distinctions because, theoretically, Russian assets that have been frozen or seized should be returned to Russia once reparations are paid. Confiscation, however, results in a change of ownership, which permits the sale of the assets and the use of the proceeds.
Domestic legislation generally allows for the freezing of foreign assets but not their confiscation. Therefore, many states will need to amend their legislation to permit the use of proceeds from the sale of Russian assets. Nonetheless, there have been legislative efforts in the US, Canada, and the UK to amend laws to enable the confiscation of Russian assets, including, in some cases, assets held by central bank.[9]
- Russian Origin of Assets as a Basis for Their Seizure in the Absence of Ongoing Criminal Proceedings or Other Justification.
Any seizure of assets must comply with international law, including principles of sovereignty and due process. The European Union (the "EU") has established a comprehensive framework for imposing sanctions on individuals and entities associated with Russia, particularly in response to actions deemed to violate international law or undermine EU interests. Asset-freezing measures are commonly employed as part of these sanctions regimes.
While the EU sanctions framework provides legal authority for asset freezing, it is essential to adhere to established legal norms and procedural safeguards to ensure the legitimacy of such actions. The European Union and its member states typically impose sanctions and freeze assets based on specific criteria related to behaviour or actions that violate international law or threaten the EU's interests or security.
The following case law illustrates the factors considered by courts when deciding which Russian assets to freeze abroad.
Relevant case law
In the English case of Dalston Projects Limited, Sergei Georgievich Naumenko, Prism Maritime Limited v Secretary of State for Transport, which was heard together with Eugene Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2024] EWCA Civ 172, the Court of Appeal unanimously dismissed both appeals on 27 February 2024. These cases concerned decisions made by the Secretary of State under the Russia (Sanctions) (EU Exit) Regulations 2019 (the “2019 Regulations”).
The Dalston case is particularly noteworthy. In this instance, the Secretary of State for Transport had detained a motor yacht named Phi on the grounds that it was a ship “owned, controlled or operated by a person connected with Russia”.[10] The Phi was beneficially owned by Mr Naumenko, a Russian national and resident.
Evidence showed that Mr. Naumenko had accumulated his wealth through various businesses in Russia. However, he denied having met President Putin, participating in political organisations, or holding positions in the Russian Federation’s state or municipal authorities. Regulation 57D empowers the Secretary of State to issue a detention direction for a ship owned by “persons connected with Russia"; similarly, Regulation 57C allows for a movement direction under comparable circumstances.
The claimants did not dispute that Mr. Naumenko, as the ultimate beneficial owner of the Phi, was a “person connected with Russia” under the 2019 Regulations. The challenge focused on the lawfulness of the detention, specifically on the grounds of (i) improper purpose and (ii) breach of Article 1, Protocol 1 (the “A1P1”) of the European Convention on Human Rights (the “ECHR”).
The Court held that the detention of the Phi was for a proper purpose, as the ship was a high-value asset owned by a person “connected with Russia”, namely Mr Naumenko.
As to the second ground, the appellants argued that the judge at first instance had incorrectly concluded that the detention of the Phi was a proportionate interference with their rights under Article 1, Protocol 1 (A1P1) of the European Convention on Human Rights (ECHR). The Court rejected this argument, affirming that the judge had correctly interpreted the law. The Court reviewed the judge’s application of the four-limb test from Bank Mellat v HM Treasury (No 2) [2013] UKSC 39; [2014] AC 700 at [74], which involves:
- Legitimate Aim: It was agreed that the decision had a legitimate aim.
- Rational Connection: The Court found a rational connection between the decision to detain and the legitimate aim. Additionally, the patronage system in Russia and the expectation of loyalty to President Putin from wealthy Russians like Mr. Naumenko provided further justification for concluding that he was likely to have benefited from the Russian regime.
- Less Intrusive Means: There was no serious suggestion that less intrusive means could have achieved the same objective if the other criteria were met.
- Fair Balance: A fair balance had been struck between the general interests of the community and individual rights.
The UK government did not claim that Mr Naumenko was directly “involved” in activities against Ukraine, nor that he had directly benefited from supporting the Russian government. Nevertheless, the Court concluded that there were “likely direct and indirect links between Mr. Naumenko’s wealth, economic activities, and the Russian state”. It was also deemed rational to consider him as an individual on whom sanctions could have the “broad and deep impact” intended by Parliament through the “connected with Russia” powers (para 84 of the High Court’s decision), thereby potentially weakening tacit support for the regime.[11]
The Court’s conclusions were as follows:
- Proportionality of Infringements: The Court deemed the infringements of Mr. Naumenko’s property rights proportionate, given the context of President Putin’s “very serious violation of international law and the need to bring the invasion of Ukraine to an end”;
- Judicial Assessment of Proportionality: The Court emphasised that it would independently assess proportionality rather than merely endorsing the Secretary of State’s analysis. It reiterated that the Russia sanctions regulations only require a person to be “connected with Russia” to fall within the scope of sanctions, not specifically designated;
- Reasoning Behind Sanctions: The Court acknowledged that the Russian patronage system and the expectation of loyalty to President Putin from wealthy Russians, like Mr. Naumenko, justified the view that he likely benefitted from the Russian regime. It reasoned that sanctioning wealthy Russians could fulfill Parliament’s intention by weakening the “tacit support” for Putin’s regime.
Based on these conclusions, the assets of Russian individuals can be frozen or seized from the UK’s perspective, even if the individual is not a designated person in Russia but is deemed to be connected with Russia due to their benefits from the regime. This approach aligns with the EU’s stance, suggesting that the origin of assets can be relevant in determining involvement in sanctioned activities. Thus, assets may be subject to freezing or seizure based on their association with Russia, even in the absence of ongoing criminal proceedings or other specific justifications.
- Managing the Russian assets frozen by States: Scope of the Assets Frozen
- Management of Seized Assets in the EU and UK
In the UK, the Office of Financial Sanctions Implementation (the “OFSI”) and in the EU, the Central Securities Depositories (the “CSDs”) oversee the management of assets seized or frozen in response to the Russian invasion of Ukraine. They implement procedures to ensure compliance with relevant regulations and legal obligations.
The OFSI is tasked with enforcing financial sanctions imposed by the UK government and the EU. It ensures that financial institutions and other entities adhere to the sanctions regulations and communicates with stakeholders, including investors, issuers, and regulatory authorities, regarding the status and management of seized or frozen assets. Restrictions are imposed on transactions involving these assets, including prohibitions on their transfer, sale, or other disposition without proper authorization.
Typically, any profits generated from frozen assets remain frozen or are held in escrow until the sanctions are lifted or otherwise resolved. These profits may be subject to legal proceedings or returned to the rightful owner once the sanctions are lifted.
As of the latest available data, the EU and G7 countries have collectively frozen approximately EUR 300 billions of Russian central bank assets in response to the invasion. However, the utilisation of these funds remains uncertain.
The following provides an overview of the types of Russian assets that could potentially be used to pay reparations to Ukraine and compensate Ukrainian individuals or businesses affected by the war.
- Seized Russian Oligarch Assets: Private Property, Bank Accounts and Private Entities
A significant portion of the assets frozen since February 2022 belongs to Russian oligarchs and private corporations and includes a variety of financial instruments and property. These assets comprise bank accounts, real estate, stocks, bonds, luxury items, and various investments owned by Russian entities and oligarchs. The United States, the United Kingdom, and the European Union have imposed sanctions on over a thousand Russian individuals and entities, most of whom were sanctioned following Russia’s invasion of Ukraine.[12]
As these assets are privately owned and not state-owned, they do not benefit from state immunity protections. This generally facilitates their seizure for purposes such as reparations to Ukraine and enforcement of judgments or awards in favour of Ukrainian businesses. However, the legality of confiscating these assets still requires adherence to due process and specific domestic legislation in each relevant country.
Potential targets for seizure include assets traceable to Russian oligarchs, linked to President Putin's misuse of Russia’s public resources.[13] For example, in the UK, a deal was reached between the Office of Financial Sanctions Implementation and Roman Abramovich, resulting in the sale of Chelsea Football Club for GBP 2.5 billion in May 2022. The proceeds were placed in a frozen bank account, with the intention of redirecting the funds to victims of the conflict in Ukraine.[14] Similarly, in the US, a superyacht owned by Viktor Vekselberg, a political ally of Putin, was seized,[15] and Vekselberg was ordered to forfeit USD 5.4 million, potentially for use in Ukraine.[16] Ukraine has also confiscated the assets of four Russian oligarchs,[17] and Canada has initiated proceedings to seize and pursue forfeiture claims for Abramovich’s assets.[18]
Switzerland, having adopted all EU sanctions against Russia, has frozen billions of francs in assets belonging to Russian nationals. The Swiss National Bank estimates these assets to be worth approximately CHF 10 billion, though some reports suggest the actual figure, including assets held by anonymous sanctioned Russian oligarchs, could reach CHF 150 billion.[19] The Bank of Italy’s anti-money laundering unit updated its estimate to EUR 2 billion by the end of June 2023.[20]
There is potential for using these assets for Ukraine, especially considering that no state immunity doctrine applies to them. Thus, if the seizure is related to the war Russia started in Ukraine, the interest earned on the seized bank accounts may be earmarked for reparations or compensation to private investors for damages. It is also possible that states will agree on mechanisms through which the sums in the bank accounts themselves will be used for that purpose.
- Russian Central Bank Assets: Possibility of Using Taxes Imposed on Them.
States are immune from the enforcement jurisdiction of domestic courts, meaning that measures of constraint cannot be imposed on their property (including central bank assets) unless the state consents to the measure or one of the limited exceptions applies. This principle has been confirmed by the ICJ, included in international agreements, and reflected in numerous domestic laws and customary international law.
The largest portion of the frozen Russia-related assets consists of foreign exchange reserves owned by Russia’s central bank (the “RCB”), estimated at almost USD 300 billion.[21] Roughly two-thirds of these assets are located within the EU, with the majority held by Belgium's clearing house Euroclear. Currently, only taxes imposed on these assets in Belgium have been allocated to a designated fund intended for Ukraine, overseen by the Belgian government.[22]
Imposing a windfall tax on frozen Russian state assets, depending on the terms of the relevant contracts regarding Russia's ownership of the taxed funds (e.g., interest gained on invested assets), could provide a basis for successful enforcement of awards against Russia. This is an option that EU countries are actively discussing as a potential means to accumulate funds for Ukraine. However, several potential issues are associated with this approach:
- The expected annual return from the RCB fund is approximately 5%, which may be insufficient given the scale of damages Russia is required to pay.
- There is significant uncertainty regarding potential consequences if the assets depreciate in value.
- Due to the lack of differentiation between Russia's property rights in the principal and its entitlement to returns generated from the principal investment, state countermeasures (as explained below) may not be a feasible justification, as Russia's property (i.e., the returns) could be permanently transferred to Ukraine.
EU Plan to Transfer RCB-Derived Profits to Ukraine
Recently, the European Commission established an Investment “Common Fund” to manage RCB assets and generate profits to be transferred to Ukraine. This can be achieved based on the law of state immunity and the principles of property and financial services law in the relevant jurisdictions.
Furthermore, on 29 January 2024, the EU member states unanimously approved the allocation of billions of euros generated from windfall profits derived from frozen RCB assets in Europe. Under the agreement, the profits generated will be earmarked separately and will not be distributed as dividends to shareholders until EU member states collectively decide to establish a “financial contribution to the budget derived from these net profits to aid Ukraine”, as outlined in a draft text. Subsequently, the European Commission will be responsible for transferring the funds to the EU budget and eventually to Ukraine. This initiative could potentially generate an estimated EUR 15-17 billion over four years, which could then be allocated to Ukraine. It is important to note that this proposal will not be applied retroactively and applies only to institutions holding over EUR 1 million of the RCB’s assets.[23] In theory, the funds transferred should be made available for the enforcement of judgments or arbitral awards rendered in favour of Ukrainian businesses as well; however, the exact mechanism for this has not yet been established.
- Russia’s Sovereign Wealth Funds
Many states have broadened the scope of their central banks' activities to include the management of sovereign wealth funds. These funds differ from conventional central bank assets; they are defined as “investment funds owned or governed by a state” and are often funded through proceeds from natural resources like oil. They serve various purposes, such as “advancing state monetary policies or optimizing returns with objectives, approaches, and timeframes akin to those of private investments”.[24]
According to the Russian Finance Ministry's report as of October 2023, the Russian National Wealth Fund (the “RNWF”) held approximately USD 140 billion.[25] The fund’s operations involve receiving funds from investment returns and any surplus from oil and gas revenues.[26] Its establishment dates back to Russia’s division of its former petrodollar stabilization fund in 2008 into two distinct sovereign wealth funds with separate mandates: the Reserve Fund, aimed at mitigating budget deficits resulting from oil price declines, and the RNWF, focused on generating long-term returns.[27]
Another fund is the Russian Direct Investment Fund (the “RDIF”).[28] For instance, in 2015, the RDIF allocated USD 1.75 billion of Russian pension funds from the National Wealth Fund to Sibur, a large petrochemical company owned by Russian oligarchs, in the form of a low-interest rate bond.[29] Both of these funds possess assets located abroad, some of which are currently frozen and subject to sanctions.[30]
Based on a recent example of state practice, discussed further below, if a sovereign wealth fund overseen by a central bank is administered similarly to any other active and long-term asset managed by a private investor, it may not be considered held for “central banking” or non-commercial purposes, and thus may not enjoy state immunity.
- How to Overcome International Law Hurdles for Enforcement
- State’s Sovereign Immunity as a Justification for Non-Enforcement
To secure compensation pursuant to an arbitral award under a BIT, Ukrainian investors must convince courts in a foreign jurisdiction to attach Russian assets found there. However, a significant obstacle is that nearly all such assets are protected from attachment by sovereign immunity. This doctrine of international law shields state property in foreign courts, with only a few exceptions.[31]
There are two types of immunity under consideration: jurisdictional immunity and immunity from enforcement or execution. According to international law, state-owned assets located in a foreign state are protected from legal measures such as attachment or arrest as part of a judicial process. Immunity from enforcement is a procedural obstacle rooted in the principle of sovereign equality among states.
Two pertinent treaties address this issue and are also considered customary international law, thus binding even on parties not directly involved in the treaties. The 2004 United Nations Convention on Jurisdictional Immunities of States and Their Property (the “UNCSI”) stipulates in Article 18 that no pre-judgment measures of constraint, such as attachment or arrest, can be undertaken against a state unless that state has explicitly consented or has designated or set aside the property for the resolution of the particular claim. Further, Article 19 introduces an additional exemption for post-judgment measures of constrain: “it has been established that the property is specifically in use or intended for use by the state for other than government non-commercial purposes and is in the territory of the state of the forum, provided that post-judgment measures of constraint may only be taken against property that has a connection with the entity against which the proceeding was directed”.
Additionally, the 1972 European Convention on State Immunity (the “ECSI”) provides immunity from “execution or preventive measures” unless the state has provided explicit written consent.
Overcoming this concept is challenging; however, there are exceptions to state immunity, which are discussed below.
- Default Rule and Exceptions to the Default Rule
Exceptions to immunity from enforcement include instances of express consent,[32] allocation of property, and property in use or intended for use for commercial purposes.[33]
The last means that typically, immunity from enforcement applies solely to property utilised or designated for public, rather than private, purposes. The implementation of immunity rules varies based on the nature of the property under consideration. The fundamental principle is that immunity applies solely to property owned by a state; property belonging to distinct entities may not be shielded from enforcement immunity.[34] Assessing whether the property is being used for commercial purposes can pose challenges, as “some activities combine in an inseparable way aspects of both public and private character either in parallel or in sequence, and others lack either aspect as a distinguishing factor”.[35]
To ascertain this, courts typically examine whether a particular activity involving the assets in question could be undertaken by a private individual rather than solely by the sovereign. Furthermore, the aforementioned criterion and, consequently, the measures of constraint can apply to assets typically utilised for state purposes (such as central bank accounts) if they have also been utilised for commercial purposes.
For example, in the case The Russian Federation v Franz J Sedelmayer, Decision of the Swedish Supreme Court, Case No. 6170–10, it was found that a sovereign debtor was advertising its former US embassy building for long-term private let, and thus immunity protection was waived. In addition to seeking rental offers through its official website, the state's foreign ministry had enlisted a sales agency to create a polished marketing document. This document outlined property specifications, pricing options, and provided room-by-room photographs. All of this served as crucial evidence for counsel aiming to persuade a judge that the building was no longer serving protected diplomatic functions.
Although exceptions apply, the war is an actum jure imperii and all war-related claims may come under the general rule of sovereign immunity. As mentioned, oligarch assets do not enjoy the protection of state immunity as they have a commercial, non-government nature, and therefore can potentially be used for payment of reparations and enforcement of state-recognised awards to compensate Ukrainian businesses. Below, we will consider approaches taken on this issue concerning central bank assets and national wealth funds to evaluate the prospects for successful enforcement of judgments against them.
Central Bank Assets
Due to their crucial economic significance and the sovereign duties they fulfil, central bank assets receive particularly increased legal protection under immunity law. For instance, Article 21(1)(c) of the UNCSI provides that the “property of the central bank or other monetary authority of the state” is considered immune from all forms of constraint, unless the state has explicitly consented or designated central bank assets for claim satisfaction. There is a widely held belief that assets held by central banks enjoy immunity regardless of whether the bank is considered a governmental department or a separate entity.[36] Moreover, there is typically an assumption that they are held for non-commercial purposes, thus granting them immunity from enforcement.[37]
According to English law, a central bank must hold some form of interest, either as a property or contractual interest, in the asset to be qualified as the property of a central bank. [38] Foreign currency reserves undeniably serve a monetary function, and states have concurred that such assets merit protection through immunity from execution.[39] Unfortunately, there have been no instances where the foreign currency reserves of foreign central banks have been subjected to enforcement measures.[40]
It is worth underlining that military and cultural property is also granted immunity from enforcement on the presumption that it is utilised for non-commercial governmental purposes.[41]
Russia’s National Wealth Funds
The legal status of sovereign wealth funds regarding state immunity is ambiguous. A recent ruling by the Swedish Supreme Court determined that the assets of the National Fund of Kazakhstan, a sovereign wealth fund overseen by the Kazakh central bank, did not enjoy immunity. [42] The Court reasoned that the investment portfolio was managed similarly to “other active and long-term asset management on the international capital market.”[43] Similarly, a Belgian court ruled that assets belonging to the NFK were utilised for commercial purposes and therefore were not eligible for immunity.[44]
Drawing from the Swedish and Belgian perspectives, it might be possible to enforce against assets owned by the Russian National Wealth Fund that are unrelated to central banking functions, without infringing on the principle of sovereign immunity.
To overcome immunity from execution, the claimant pursuing enforcement of an award against a state must demonstrate that neither the state nor its agencies, nor their assets, are eligible for immunity protection due to their involvement in commercial activities. Confiscation of RCB assets appears, at least for now, incompatible with the law of state immunity, which affords them elevated protection due to their presumed sovereign function. For this reason, the EU, the UK, and certain other states have suggested using proceeds from RCB assets (rather than the assets themselves) to pay reparations to Ukraine. The same funds should also be available for compensating Ukrainian businesses under relevant judgments rendered in their favour.
- rbitration Clauses in the BITs as a Waiver of Immunity - A Legal Title for Enforcement Against Frozen Russian Assets
There is an exception to immunity for the enforcement of international judgments, particularly where the wrongdoing state has consented to the court’s jurisdiction.
As previously mentioned, sovereign immunity does not cover commercial affairs, allowing judgments and awards to be enforced against state assets. In international investment law, particularly in Bilateral Investment Treaties (BITs), acta jure imperii becomes “commercialized.” This is especially true for arbitration, which, by its nature, is less intrusive on state sovereignty compared to proceedings in the courts of another sovereign.
International investment law, particularly BITs, transforms claims arising from acta jure imperii into matters of private law, providing a foundation for arbitral proceedings based on Russia's consent. Essentially, this renders the resulting arbitral award immune from sovereign immunity, at least insofar as immunity from suit is concerned. Investment arbitration is one of the few mechanisms permitting compensatory claims by individuals for breaches of public international law.
BITs possess a dual nature and, by merging public international law with private law, they endow claims stemming from public law breaches with a commercial law essence. This commercial aspect has been acknowledged by practitioners and prominent scholars (Moses, pp. 243-45; Sweet & Grisel, pp. 72-73; Gaillard & Savage, pp. 42-43) and is also mirrored in extensive case law applying the New York Convention's principles on recognition and enforcement to investment awards.
Insofar as immunity from enforcement is concerned, the prevailing approach is that international law constraints apply to “non-commercial” assets, such as military or central bank holdings, which are purportedly immune from enforcement even if the award or judgment pertained to a commercial matter (Article 21 of CJISP).
Regulations safeguarding private investors are unlikely to extend to the confiscation of RCB assets, given that these regulations typically do not encompass the RCB as a direct “investor” under BITs, and the confiscation would not qualify as expropriation unless there was a distinct aspect of illegality linked to a judicial ruling.
On the other hand, sovereign direct investments, aircraft, vessels, and assets of individuals attributable to the state can be utilised to satisfy enforcement creditors. This suggests that a significant portion of Ukrainian war damages, including those suffered by private investors, could be submitted to arbitration, with their inclusion in an arbitral award providing a robust legal foundation for enforcement against Russian assets.
- States’ Countermeasures as a Tool to Lawfully Suspend a State’s Obligation of Non-Interference With Russian State Property (as per UN International Law Commission’s ARSIWA)
A state has the option to enact countermeasures in response to another state's internationally wrongful act, aimed at compelling the offending state to adhere to its international legal commitments. This is derived from the customary international law of countermeasures, reflected in Article 54 of the ARSIWA.
Countermeasures are inherently state actions that would typically be considered wrongful, but they are not treated as such when undertaken against another state for its violation of international law.[45] If the violation pertains to a legal obligation owed to the international community as a whole, any state can invoke Russia's accountability as if it were the primary injured state.[46] Consequently, any state can demand that Russia fulfil its obligation to cease its aggressive actions and compensate Ukraine or other affected parties in possession of a State-recognised award of damages in their favour.[47]
States intending to implement countermeasures are required to (1) urge the responsible state to fulfil its international commitments; and (2) inform the responsible state of their decision to initiate countermeasures and propose negotiations with that state.[48] Negotiations between states regarding the conflict between Ukraine and Russia have already commenced and are ongoing, suggesting that this obligation has been satisfied.
Essentially, a countermeasure would legally suspend a state's obligation of non-interference with Russian state property, as Russia's prior breach of peremptory norms of international law necessitates payment of compensation. The transfer of Russian sovereign assets to Ukraine functions as a temporary and specific derogation from the obligations concerning Russia's property that the US, the UK, and EU countries would normally owe Russia.
This obligation can be reinstated once Russia returns to compliance, meaning it satisfies its obligation to provide full reparations to Ukraine (whether voluntarily or via forced confiscation and transfer of its assets).[49]
Thus, countermeasures may serve as another approach for a state to confiscate Russian assets or their proceeds. Violations may be justified if the action is “taken in response to a previous internationally wrongful act of another state and … directed against that state”,[50] provided certain conditions are fulfilled, including the aim of inducing compliance with an international obligation, temporariness, and reversibility.[51]
States may rationalize the confiscation of RCB assets as third-party countermeasures with a contingent aspect, such as RCB assets being provided as a loan to Ukraine or its investors affected by the war instigated by Russia, repayable in principle if and when Russia fulfils its obligation to provide complete reparations/compensations.
- Conclusion: Potential for Enforcement of State Judgments or State-Recognised Awards by Ukrainian Creditors Against Russian Frozen Assets
Investors often hesitate to pursue proceedings against Russia due to several factors. Key considerations include Russia’s historical reluctance to comply with international judgments or arbitration awards and its deliberate efforts to structure investments in a way that complicates enforcement.
Moreover, the strategies outlined above demonstrate that utilising RCB assets for Ukraine will encounter legal hurdles, primarily stemming from state immunity. Nonetheless, there is widespread acknowledgment of the necessity to hold Russia accountable for its obligations to pay reparations and compensate Ukrainian individuals and businesses.
In summary, the most viable approaches in relation to assets held by Russia as a state, which would appear legal under international law, include: 1) States justifying the confiscation of RCB assets and their proceeds as third-party countermeasures, contingent upon Russia’s compliance with reparation obligations, such as providing a loan to Ukraine, repayable if and when Russia fulfils its reparation duties; 2) States seizing RCB assets and their proceeds based on exemptions to immunity for enforcing international judgments mandating damages and using proceeds from them as a basis to pay reparations to Ukraine and damages awarded for investors under judgments and arbitral awards.
Finally, in cases where the UK and EU states ignore the state immunity doctrine when freezing Russian assets belonging to it as a state, these assets should be treated as available for enforcement of state-recognised decisions and investment arbitration awards as well.
Apart from that, seized or frozen assets of Russian oligarchs and private companies with Russian roots can be sold and used to compensate private investors under state-recognised judgments and arbitral awards. This includes proceeds from bank accounts and dividends from shares in companies belonging to Russian nationals.
[1] Permanent Court of International Justice, Factory at Chorzów (Germany v Poland), Jurisdiction, PCIJ Series A 1927, No 9, p. 21.
[2] ILC Articles on Responsibility of States for Internationally Wrongful Acts, Art. 31.
[3] Charter of the United Nations 1945, 1 UNTS XVI, Art. 1(1)., Art. 2(4) (https://treaties.un.org/doc/publication/ctc/uncharter.pdf).
[4] International Court of Justice, Allegations of Genocide under the Convention on the Prevention of the Crime of Genocide (Ukraine v Russia), Order of 16 March 2022, ICJ Rep 2022, p. 211, para. 86(1), para. 84 (https://www.icj-cij.org/sites/default/files/case-related/182/182-20220316-ord-01-00-en.pdf).
[5] Jennings and Watts, Oppenheim's International Law, pp. 911–927.
[6] “Confiscation and Freezing of Assets”, European Commission website (https://commission.europa.eu/law/cross-border-cases/judicial-cooperation/types-judicial-cooperation/confiscation-and-freezing-assets_en).
[7] Al Qaeda Sanctions Committee, Asset Freeze: Explanation of Terms, United Nations, 2015 (https://www.un.org/securitycouncil/sites/www.un.org.securitycouncil/files/eot_assets_freeze_-_english.pdf).
[8] https://star.worldbank.org/glossary-asset-recovery-terms.
[9] See, for example, UK Seizure of Russian State Assets and Support for Ukraine Bill, February 2023 (https://publications.parliament.uk/pa/bills/cbill/58-03/0245/220245.pdf) (under consideration); Canada Special Economic Measures Act 1992 (https://laws-lois.justice.gc.ca/eng/acts/s-14.5/page-1.html#:%7E:text=3.1%20The%20purpose%20of%20this,international%20peace%20and%20security%20has).
[10] Dalston Projects Limited and others v Secretary of State for Transport of 21 July 2023 [2023] EWHC 1885.
[11] https://www.judiciary.uk/wp-content/uploads/2024/02/Dalston-and-Schvidler-v-Sec-State-Press-Summary.pdf.
[12] https://www.bbc.com/ukrainian/features-61130343.
[13] Chimène Keitner, 'Expert Q&A on Asset Seizure in Russia's War in Ukraine', Just Security, April 2023.
[14] Tariq Panja and Rory Smith, 'Inside the Chelsea Sale: Deep Pockets, Private Promises and Side Deals', New York Times, May 2022.
[15] Johanna Chisholm, 'US seizes its first Russian oligarch mega yacht worth $90m in Putin crackdown', Independent, April 2022.
[16] Luc Cohen, 'Russian oligarch ordered to forfeit $5.4 ml to U.S., Ukraine may get funds', Reuters, February 2023.
[17] Maksym Savchuk, Heorhiy Shabayev, and Nadia Burdyey, 'Ukraine's Confiscation of Russian Assets Stymied By Bureaucracy, Investigation Finds', Radio Free Europe, March 2023.
[18] Canada starts first process to seize and pursue the forfeiture of assets of a sanctioned Russian oligarch, Government of Canada website, 19 December 2022.
[19] https://www.swissinfo.ch/eng/business/the-russian-oligarchs-billions-frozen-in-swiss-banks/47399240.
[20] https://www.reuters.com/world/europe/italy-has-frozen-russian-oligarchs-assets-worth-25-billion-2023-07-04/.
[21] https://www.lawfaremedia.org/article/legal-challenges-presented-seizing-frozen-russian-assets
[22] “EU takes a step closer to using frozen Russian assets profits for Ukraine”, Euractiv 13 February 2024 (https://www.euractiv.com/section/europe-s-east/news/eu-takes-a-step-closer-to-using-frozen-russian-assets-profits-for-ukraine/).
[23] “EU takes a step closer to using frozen Russian assets profits for Ukraine”, Euractiv 13 February 2024 (https://www.euractiv.com/section/europe-s-east/news/eu-takes-a-step-closer-to-using-frozen-russian-assets-profits-for-ukraine/).
[24] Ingrid Brunk Wuerth, “Central Bank Immunity, Sanctions, and Sovereign Wealth Funds”, George Washington Law Review, 2023, pp. 1-40, p. 2.
[25] 'Russia's National Wealth Fund down 55.3 bln rubles to 13.65 trln rubles in Sept, liquid assets 4.8% of GDP', Interfax, October 2023 (https://interfax.com/newsroom/top-stories/95154/).
[26] 'Ukraine bailout could derail Putin's drive to boost Russian economy', Financial Times, 2013.
[27] https://globalswf.com/fund/NWF
[28] The RDIF is a US$10 billion sovereign wealth fund, with over RUB2.1 trillion (one million million) invested in the Russian economy. See https://www.rdif.ru/Eng_About/
[29] John Hyatt, “How Putin Used Russia's Sovereign Wealth Fund to Create a “State-Sponsored Oligarchy”, Forbes, March 2022.
[30] Joint Statement from the REPO Task Force, US Department of the Treasury, March 2023; “US, EU and UK maintain pressure through Russia sanctions”, Shearman & Sterling, September 2023.
[31] Drake, “Sovereign Immunity for Russia's Rocket Engines? Enforcing the “Yukos” Award” (2019) 45 Brook J Int'l L 367, pp. 3-4 (https://brooklynworks.brooklaw.edu/bjil/vol45/iss1/8/?utm_source=lawnotes&utm_medium=print&utm_campaign=spring20).
[32] (Article 7(1) of the UN Convention on Jurisdictional Immunities of States and Their Property (the “CJISP”).
[33] Article 10 of CJISP.
[34] Boru Hatlari Ile Petrol Tasima AS v Tepe Insaat Sanayii AS [2018] UKPC 31, para. 21.
[35] Fox and Webb, “The Law of State Immunity”, p. 415.
[36] See, e.g., UK State Immunity Act 1978, Section 14(4).
[37] see Ingrid Brunk Wuerth, 'Immunity from Execution of Central Bank Assets' in Tom Ruys, Nicolas Angelet and Luca Ferro (eds), The Cambridge Handbook of Immunities and International Law, Cambridge University Press, 2019. Some countries though like Australia, Canada, and Israel do not provide immunity from enforcement for central bank assets if they are used for commercial activities.
[38] Thai-Lao Lignite Thailand Co. Ltd, HongsaLignite (Lao Pdr) Co. Ltd v Government of the Lao People's Democratic Republic, [2013] EWHC 2466 (Comm), para. 25; AIG Capital Partners Inc. and Another v Republic of Kazakhstan, [2005] EWHC 2239 (Comm), para. 92. Cited in Ingrid Brunk Wuerth, 'Immunity from Execution of Central Bank Assets', pp. 279-280.
[39] Ingrid Brunk Wuerth, 'Immunity from Execution of Central Bank Assets', p. 281.
[40] ibid, p. 282.
[41] International Court of Justice, Jurisdictional Immunities of the State (Germany v Italy: Greece Intervening), Judgment, ICJ Rep 2012, p. 99, para. 119; UNCSI, Art. 21.
[42] Ascom v Kazakhstan (2021) 2021-11-18 Ö 3828-20, Supreme Court of Sweden. Cited and discussed in Ingrid Brunk Wuerth, 'Central Bank Immunity, Sanctions, and Sovereign Wealth Funds', p. 2.
[43] Ibid, p. 4.
[44] Republic of Kazakhstan v Stati, 29 June 2021, 2018/AR/1209 & 2018/AR/1214, Belgian Court of Appeal, cited and discussed in Ingrid Brunk Wuerth, 'Central Bank Immunity, Sanctions, and Sovereign Wealth Funds', p. 4.
[45] ARSIWA art. 22.
[46] ARSIWA arts. 42, 48.
[47] ARSIWA art. 48(2)(b).
[48] ARSIWA, Art. 52(1)(a)-(b).
[49]https://www.lawfaremedia.org/article/the-repo-act-confiscating-russian-state-assets-consistent-with-u.s.-and-international-law.
[50] International Court of Justice, Gabčikovo-Nagymaros Project (Hungary/Slovakia), Judgment, ICJ Rep 1997, p. 7, para. 83.
[51] ILC Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, Ch. II.
