Europe's uphill battle to confiscate Russian assets

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Europe's uphill battle to confiscate Russian assets

The European Commission is exploring legal options to confiscate Russian state and private assets as a way to pay for Ukraine's reconstruction, according to a document seen by POLITICO.

The goal would be "identifying ways to strengthen the tracing, identification, freezing and management of assets as preliminary steps for potential confiscation," according to the document.

The potential bounty would consist of nearly $300 billion frozen Russian central bank assets, as well as assets and revenues of individuals and entities on the EU's sanctions list. The idea was floated already in May, and is supported by Kyiv, as well as Poland, the Baltics and Slovakia. EU leaders in October tasked the Commission to look into legal options to seize Russian assets currently frozen under sanctions.

But the conundrum is that there's currently no legal mechanism to confiscate Russian assets — as pointed out by U.S. Treasury Secretary Janet Yellen back in May. It would need to be created.

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"There may be a path for the EU to validly confiscate frozen assets under international law, but it is likely a narrow, a long and an untested path," said Jan Dunin-Wasowicz, a lawyer at Hughes Hubbard & Reed.

That isn't deterring the Commission from looking into it.

With regards to private assets belonging to sanctioned people or entities, Brussels is readying proposals to make sanctions evasion an EU crime, a step which would facilitate their confiscation — but only in case of a criminal conviction. Even then, the EU would need to argue each case in court, likely having to litigate for years.

That's because a lot of these assets would be considered foreign investments, which enjoy protection against expropriation without compensation and a right to fair and equitable treatment under international treaties that Russia has with a lot of EU countries.

The confiscating authority would also need to draw a clear link between the property owner and the conflict in Ukraine.

"To ensure proportionality, you would need to look at who are the owners, what did they do, et cetera," said Stephan Schill, professor of international and economic law and governance at the University of Amsterdam.

With regards to frozen foreign reserves of the central bank, the largest money pot, the EU executive writes in the document that "these are generally considered to be covered by immunity," with a footnote pointing to a U.N. convention on jurisdictional immunities of foreign states and their property, which is however not yet in force.

"From an international law perspective, it's pretty clear that without Russia's consent you can't use Russian central bank assets," said Schill.

As for assets of Russian-owned state enterprises, the paper notes that these wouldn't be "in principle" covered by such convention, but grabbing them may raise problems linked to the confiscation of private assets, "in addition to the need to demonstrate a sufficient connection to the Russian state."

The EU is also mulling an "exit tax" on the assets or proceeds from assets of sanctioned individuals that want to transfer their property out of the EU. This could run into legal problems of its own, as it would target a specific group of individuals — which runs counter to non-discrimination provisions in international law — and they in turn could 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 member states are trying to introduce new criminal law," he said.

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