This bill provides for creating a mechanism for confiscating sovereign assets of the Russian Federation, including the ones belonging to the Central Bank of the Russian Federation, and immediately attracted the attention of the press and experts.
What preceded it?
The topic of confiscation of Russian assets in the United States has been discussed since the spring of 2022. In particular, the Congress was considering the bill "H.R. 6930", authored by House member Tom Malinowski, and an amendment to the National Defense Authorization Act (NDAA), which suggested various mechanisms for confiscating assets related to Russia.
On December 22, 2022, the U.S. Senate supported an amendment to U.S. legislation authored by Senators Lindsey Graham, Sheldon Whitehouse, and Michael Bennet, which established a legal mechanism for the confiscation of Russian assets currently frozen in the United States with the possibility of transferring them to Ukraine. The first precedent was the confiscation and transfer to Ukraine of USD 5.4 million from Russian oligarch Konstantin Malofeev.
However, the situation with the state assets of the Russian Federation is more complicated, as they are protected by sovereign immunities, a principle that excludes a state and its property from the jurisdiction of the authorities of another state. At the same time, such assets, in particular the reserves of the Central Bank of the Russian Federation, are potentially the main source of funding for compensation for damages inflicted by the war in Ukraine.
The suggested mechanisms
The bill authored by Senators Risch and Whitehouse stipulates that the confiscation of sovereign assets of the United States is a countermeasure under international law to counter Russia and guarantee compensation for damage to Ukraine. According to REPO, the category of "sovereign assets" includes:
- funds and property of the Central Bank of the Russian Federation, the Russian Direct Investment Fund, and the Ministry of Finance of the Russian Federation;
- any sovereign assets of the Russian Federation placed in financial institutions fully or partially controlled by the Russian government;
- any other funds or property directly or indirectly controlled by the Russian government.
It is envisaged that the President of the United States will have the right to confiscate the sovereign assets of the Russian Federation, which should be transferred to the account of a special non-profit "Ukraine Support Fund". The Fund will be administered by the U.S. Secretary of State, who, in consultation with the U.S. Agency for International Development (USAID), will be able to transfer the funds directly to Ukraine or to an international compensation mechanism to be established in the future. At the same time, the Committees on Foreign Affairs and Finance of the U.S. House of Representatives and the Senate must be notified of such a transfer, and the Secretary of State must submit a report to Congress every 90 days on the exercise of his/her powers under the law.
Interestingly enough, the REPO prohibits the President of the United States from unblocking the frozen assets of the Russian Federation without the knowledge of Congress. They can be blocked if a joint resolution of both houses of the U.S. Congress is adopted.
The REPO stipulates that decisions on confiscation of sovereign assets of the Russian Federation will not be subject to judicial appeal by the Russian Federation as a state while retaining the right of individuals and legal entities to do so. This provision itself raises doubts about its indisputability, and the exception for individuals and legal entities creates risks of a long blockage of confiscation. In particular, this is possible in the case of Russian state-owned banks or companies, which can use it to prove that they act as independent entities from the Russian Federation.
At the same time, it recognizes the possibility of applying to international courts on the basis of international treaties to which both the United States and Russia are parties, which actually allows for the possibility of a dispute to be considered by the International Court of Justice.
The REPO mechanism should be in effect for 5 years or until Russia agrees to pay compensation to Ukraine.
What does it mean for Ukraine?
In general, the bill provides for a fairly comprehensive mechanism, but even its full implementation will not mean an easy and simple process of confiscation of Russian state assets. However, some of its provisions are controversial and generally provide for a significant role of the legislature, the Congress, in the confiscation process. From a political perspective, this may cause opposition from the White House and further lead to changes in the final text, if it is adopted.
For Ukraine, it is also important that the Risch-Whitehouse bill recognizes that Ukraine is subject to compensation for damages caused by Russian aggression after February 24, 2022. This confirms the approach enshrined in the Treaty on the Establishment of the International Register of Damages and its Statute but leaves open the issue of compensation for damages caused by the Russian aggression since February 2014.
The document also repeatedly emphasizes that a condition for stopping the confiscation process or terminating this mechanism is the voluntary fulfillment by Russia of its obligations to compensate Ukraine for damages. This may serve in support of the "leverage" strategy when this mechanism will be used primarily for political pressure on Russia to force it to voluntarily pay compensation to Ukraine.
This initiative is an important but not final step towards resolving the issue of sovereign immunities in respect of Russian state assets. As the Dnistrianskyi Center's experts have previously emphasized in our report, the issue of confiscation of frozen sovereign assets of the Russian Federation should be resolved at the multilateral level within the framework of an international agreement on the creation of a mechanism for compensation for damages inflicted by the war in Ukraine. A unified approach will guarantee legitimacy for all states that will carry out confiscation and stability for the international community.
The material was prepared with the support of the International Renaissance Foundation within the framework of the project "Compensation4UA / Compensation for War Damages for Ukraine. Phase II: Ensuring the effectiveness of mechanisms at the national and international levels".
