On June 15, 2023, U.S. Senators Jim Risch (R-Idaho), ranking member of the Senate Foreign Relations Committee, and Sheldon Whitehouse (D-R.I.), in conjunction with U.S. Representatives Michael McCaul (R-Texas), chairman of the House Foreign Affairs Committee, and Marcy Kaptur (D-Ohio), co-chair of the Congressional Ukraine Caucus, introduced the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act. 

The legal mechanisms proposed in the REPO bill empower the President of the United States to confiscate sovereign assets of the Russian Federation that are directly or indirectly owned by the government, the Central Bank, and the Russian Direct Investment Fund. Specifically, the REPO Act would create a domestic “Ukraine Support Fund”—consisting of Russian sovereign assets in U.S. financial institutions—that the Secretary of State would administer in consultation with the Administrator of the U.S. Agency for International Development (USAID) “for the purpose of compensating Ukraine for damages resulting from the unlawful invasion by the Russian Federation.” The bill clearly delineates the authorized purposes of the funds transferred to the account, which include: (1) Reconstruction and rebuilding efforts in Ukraine; (2) To provide humanitarian assistance to the people of Ukraine; (3) Such other purposes as the Secretary determines directly and effectively support the recovery of Ukraine and the welfare of the people of Ukraine.

The REPO Act also instructs the President to work with allies and partners to establish an international compensation mechanism to transfer confiscated or frozen Russian sovereign assets to assist Ukraine, called the “Common Ukraine Fund,” that uses assets from the domestic Ukraine Support Fund and contributions from foreign partners that have also confiscated Russian sovereign assets to allow for compensation to Ukraine. The Common Ukraine Fund would be animated by bilateral and multilateral agreements as to the mechanisms for compensating Ukraine, including orderly and transparent distribution of those assets based on determinations under that mechanism.

Among other provisions, the legislation prohibits the release of any frozen Russian sovereign asset until Russia ceases its hostilities and full compensation has been made—whether voluntarily or involuntarily—to Ukraine for harms resulting from the invasion.

The REPO Act is a timely, carefully constructed bipartisan bill that signals that the U.S. is prepared and willing to take on a leadership role for an economic counteroffensive to support Ukraine, a strong move that is strategically sound, lawfully based, and morally right. 

International Law and State Countermeasures

Some argue that international customary law safeguards state assets through the principle of sovereign immunity. This is a misconception of the doctrine of sovereign immunity. The doctrine originated and principally applies to actions by foreign courts. By contrast, one sovereign is not “immune” from the acts of state of another sovereign. Its obligation is one of reciprocal regard that one sovereign extends to another. Unless the situation is governed by a bilateral investment treaty (not present between the United States and Russia), if a state takes another state’s property, the recourse is not a claim of immunity—it is a claim for compensation. 

The defense to any Russian claim for compensation lies in the doctrine of state countermeasures, delineated in the UN International Law Commission (ILC)’s Articles on the Responsibility of States. Countermeasures provide a form of “self-help” for bringing aggressor states back into compliance with international law. As the obligation breached is owed to a group of states and the international community in their collective interest, any affected state can invoke Russia’s responsibility as if it were the primary injured state (Articles 42, 48). Thus, any state may insist that Russia perform its obligation to cease its war of aggression and compensate Ukraine or other beneficiaries (Article 48(2)(b)).

In a sense, the interests of the state inherently provide standing for it to take countermeasures in the first place. Under obligations erga omnes, all states are owed the obligation of non-aggression, and therefore all are injured by a breach of peremptory norms. In light of the International Court of Justice’s (15-1) decision last year in Gambia v. Myanmar, there appears little doubt that the grave breach of a peremptory norm of international law can give any state the basis to make a claim of injury and seek damages. Russia’s aggression has inflicted innumerable costs on a large number of states, including the costs of humanitarian assistance and disruption of commerce in essentials like food and fertilizer, further entitling such states to join or support the countermeasures.

The REPO Act is explicitly based on the principles of countermeasures, stating that: “all states are legally entitled to take countermeasures that are proportionate and aimed at inducing the Russian Federation to comply with its international obligations, including countermeasures that suspend ordinary legal obligations to the Russian Federation” (Section 101(a)(7)). 

There is No “Peace” Without Accountability, Which Includes Full Compensation

There is no scenario in which Russia gets its money back while its victims of aggression do not receive full compensation to which they are owed. There is also no scenario where the cost of Ukraine’s reconstruction is less than the amount of frozen central bank assets. Even if one takes the World Bank’s conservative estimate of March 2023 that the cost of reconstruction and recovery would be $411 billion, that would still be more than twice Ukraine’s pre-war GDP of about $200 billion. This number does not even factor in the destruction of the Kakhovka Dam, resulting in complete flooding of towns and villages, infrastructure, destruction of such as water treatment plants, and the disruption of agriculture in one of Ukraine’s most fertile areas for years to come. The economic cost of the war in terms of lost output and productive potential continues to rise with every attack. But this is not just the physical rebuilding costs: what of the reparations for the hundreds of thousands of Ukrainians killed, injured, kidnapped, and tortured? 

Russia has ample financial resources to pay. As economist Timothy Ash calculates, Russia has an annual GDP of approximately $1.8 trillion and annual energy export earnings of around $250 billion. Its CBR FX reserves are reported at close to $600 billion with close to $200 billion in its National Wealth Fund. Private sector capital flight out of Russia amounts to approximately $1.3 trillion since 1991, which in conjunction with sovereign assets, brings the total number of Russian assets which could be frozen and seized close to $2 trillion. It would be a gross injustice to simply excuse Russia from its obligations while it is well within its means to compensate Ukraine. 

The Unsubstantiated Issue of Due Process

Nearly every article that expresses various misgivings about U.S. confiscation of Russian assets cites purported constitutional obstacles presented by the Fifth Amendment’s Due Process and Takings Clauses. However, the REPO Act legally comports with the Fifth Amendment.

The REPO bill is constructed to be an “act of state” under international and domestic law. Such acts of state are not generally regarded as justiciable in either U.S. or general Western jurisprudence. In the U.S. legal system, matters concerning foreign relations are largely within the purview of the executive and legislative branches, “exclusively entrusted to the political branches of government as to be largely immune from judicial inquiry or interference.” Harisiades v. Shaughnessy, 342 U.S. 580, 589 (1952). Thus, the REPO Act’s provision stating that “the confiscation of Russian sovereign assets shall not be subject to judicial review” (Section 104(e)(1)) is consistent with constitutional law. 

Nevertheless, the Russian government and its state property have no due process rights under U.S. law. Most obviously, the Russian Federation is not a “person” under the plain language of the Fifth Amendment. But even if one were to still insist on a deeper legal debate, holdings of the Second and District of Columbia Circuits, the two most relevant in this legal domain, overwhelmingly support the proposition that foreign states are not “persons” for due process clause purposes. Although the U.S. Supreme Court has indeed only implied that foreign states do not receive due process protections, there is no circuit split on this question and thus no real ambiguity. The only support for this idea that regularly arises, rather inexplicably, is a policy-based article by Vanderbilt Professor Ingrid Wuerth-Brunk, in which Wuerth-Brunk concedes that federal case law since 1992 uniformly holds that foreign states are not entitled to due process, but it is her belief that the courts are “wrong” on this. Unlike what some commentators seem to assert, there is no true “ongoing debate” to cause this persistent hand-wringing.

For the sake of argument, even if Russia could claim to be a “person,” it does not follow that the “process” it is “due” be an automatic right to a federal court judicial review. The Due Process Clause of the Fifth Amendment merely requires that the federal government provide property owners with notice and an opportunity to challenge confiscations in court. In plain language, the REPO Act does both: 

“The Russian Federation is now on notice of its opportunity to comply with its international obligations, including compensation” (Section 102(3)); and 

“Nothing in this subsection shall be construed to limit any private individual or entity from asserting due process claims in United States courts” (Section 204(e)(2)).

In which case, if Russia were to file suit against the United States in a U.S. court for a return of its money, it would certainly be interesting to watch it try its luck. 

Current U.S. Legal Landscape

It is important to note that current U.S. law sufficiently authorizes the president to carry out the primary objectives articulated in the REPO Act. Specifically, existing presidential authority under the original 1977 International Emergency Economic Powers Act (IEEPA) permits the president to transfer the frozen assets into a domestic holding account (such as the Ukraine Support Fund) for subsequent distribution according to international agreements with our G7 partners (such as the Common Ukraine Fund), as envisioned by the REPO Act. 

The proposal to seize frozen Russian assets under existing presidential authority was first advanced by Laurence Tribe, and recently built upon by a comprehensive Multilateral Asset Transfer legal research report published by the New Lines Institute. A forthcoming report by Kaplan, Hecker & Fink LLP on behalf of the Renew Democracy Initiative, slated for publication in August 2023, will further expand on these legal foundations. 

Common misconceptions about presidential authority to transfer versus confiscate assets typically arise from the 2001 amendment to IEEPA. In 2001, Congress amended the IEEPA, adding a narrow provision authorizing the president, “when the United States is engaged in armed hostilities or has been attacked by a foreign country or foreign nationals” to “confiscate foreign-owned property and to dispose of it as he sees fit.” This amendment is in contrast to the original 1977 IEEPA, which explicitly grants the president authority to “direct and compel . . . any . . . transfer, . . . with respect to” [foreign] property — even in the absence of wartime. In the 1981 case Dames & Moore v. Regan, the U.S. Supreme Court upheld, in an 8-1 decision, the president’s broad authority under IEEPA Section 1702(a)(1)(B)to “transfer” certain Iranian assets into an escrow account at the Bank of England, where the disposition of the funds was determined under the terms of separate international agreements.

Unlike “seizing” or “confiscating” assets, transferring them into an escrow or other holding account would not require the government to “vest” ownership of the assets, and the U.S. need not take title to them. Tribe even argues that it’s disputable that the 2001 IEEPA amendment applies to monetary assets and is not simply limited to physical property. Nevertheless, the crucial distinction is that existing authority involves control over the movement of the assets rather than ownership over them. If the U.S. were to claim ownership over the frozen Russian state assets, additional legislation—such as the REPO Act—might more likely be necessary. 

The REPO Act is a Legally Sound and Timely Way Forward 

Although it is now more widely accepted among legal experts that the President has sufficient authority to transfer Russian state assets for the ultimate benefit of Ukraine, the REPO Act removes any possible remaining ambiguity about the validity for the President to take these measures. The bill judiciously states that “All right, title, and interest in Russian sovereign assets confiscated shall vest, if necessary, in the Government of the United States while being held in the Ukraine Support Fund.” The REPO Act dually ensures the President has the authority necessary to facilitate the transfer of funds to Ukraine by lawfully creating confiscation powers while prompting the Administration to take action. 

At some point the war will end and the sanctions against Russia might be lifted, but it is unrealistic to assume that Ukraine will be compensated for its losses if the West does not confiscate Russian sovereign assets by then. Even if Russian money remains blocked after the war, this will not benefit Ukraine. The reconstruction of critical infrastructure, such as the Kakhovka Dam and countless other material losses, cannot wait for the end of the war. While not all losses can be compensated and Ukraine will also need to begin the long road towards psychological recovery, it is impossible to heal when surrounded by physical damage. 

Confiscation of Russian state assets is the most immediately viable way of holding Russia accountable for its destruction of Ukraine. Despite a growing push and increased clarity regarding the perceived legal constraints for the U.S. and its allies to use the approximately $350 billion of frozen Russian assets for the benefit of Ukraine, the Biden administration has consistently stalled on taking meaningful action. However, the necessary funds to finance Ukraine’s reconstruction are required immediately and without delay. The REPO Act would unambiguously provide the U.S. government with the tools aimed at swift confiscation of Russian state assets as envisioned months ago by the United Nations General Assembly Resolution on November 14, 2022. 

Bio:

Yuliya Ziskina is currently Legal Counsel at Razom and an attorney at Quinn Emanuel Urquhart & Sullivan. She is a former criminal prosecutor and was previously with the World Bank Integrity Vice Presidency, the U.S. Department of Justice, and the New York City Conflicts of Interest Board. 

The publication was prepared with the support of the International Renaissance Foundation as the part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase II: ensuring the effectiveness of mechanisms at the national and international level" project.