Abstract: This article discusses the Bill on the Seizure of Russian State Assets in Support of Ukraine, which aims to provide the UK government with investigative powers over Russian assets in order to support Ukraine and hold Russia accountable for its aggressive actions. The Bill proposes the seizure of Russian state assets, including those of the Russian Central Bank and the National Wealth Fund, to provide financial support for Ukraine's defense and reconstruction efforts. The article analyzes the political, economic, and legal stakes involved in implementing the Bill, including the challenges of identifying attachable assets and enforcing the seizures. The article concludes by emphasizing the need to strike a balance between upholding the rule of law and addressing Russia's international crimes.
Keywords: sovereign immunity, international immunity, immunity from jurisdiction, international disputes
1. Introduction
The Bill concerning the Seizure of Russian State Assets in Support of Ukraine was presented to the UK Parliament on 23 February 2023.1 The primary objective of this Bill is to seize Russian assets as a means to aid Ukraine and hold Russia accountable for its actions. The article begins by outlining the objectives and key provisions of the Bill (part 2). It then delves into an analysis of the political, economic, and legal implications associated with the Bill (part 3). Subsequently, it provides an overview of the notable legal challenges concerning the international law of sovereign immunities (part 4). Finally, the article concludes with a set of high-level observations (part 5).
2. The Bill
The object of the Bill is to provide the UK government with investigative powers over seizable Russian assets, determine the purposes for which they may be seized, and create a trustee who will exercise custody and management of the frozen assets. A special provision will regulate the legal situation of victims of "theft" by Russia. The purposes of the Bill are as follows:
- to halt the Russian assault on the territorial integrity, sovereignty and independence of Ukraine,
- to hold Russia "accountable" for gross violations of international humanitarian and human rights law,
- to provide financial support to Ukrainian defense and reconstruction efforts.
For now, the Bill provides cursory normative guidelines in line with the expectations of its sponsor (Sir Chris Bryant). The normative contents will be provided by the Secretary of State.
The Bill vests broad investigative powers into UK authorities with respect to state assets, reserves or property, but also regarding any person holding them, directly or indirectly, for or on behalf of the Russian Federation ("RF"). The substantive scope of the Bill covers assets of the Russian Central Bank ("RCB"), the National Wealth Fund, the Ministry of Finance, as well as their instrumentalities. The assets subject to seizure include money-market instruments, foreign exchange and currency, derivatives and transferable securities. Appropriate ministers shall be entitled to enquire about the nature, amount or quantity of assets, or nature of any financial transactions entered into by or on behalf of the RF giving rise to a right to any funds, economic resources or other property.
The most novel element of the Bill is the plan to seize RCB reserves. While attempts to seize assets belonging to central banks were made in the past, the Bill provides for the first time the statutory basis and administrative procedure for seizing these sensitive assets. If such seizure is successful, the Bill provides for issuing "Seized Russian Central Bank assets certificates", which will indicate the value and location of the assets, as well as the basis upon which the assets were seized by the administration.
The Bill provides for a trustee for the Russian state assets to be appointed by an appropriate minister. The trustee will be responsible for the detention, custody and preservation of the property. The advisory committee is to support the trustee in carrying out these tasks.
The seized funds shall first be used to satisfy the payment of any court fees, proper and reasonable expenses incurred by the trustee or court orders as to the trustee's remuneration. Subsequently, the trustee will:
- make payments to support the temporarily displaced Ukrainian civilians seeking refuge in the UK from Russian military action;
- fund the ongoing repairs of Ukrainian civilian infrastructure;
- financially support the Ukrainian government's response to Russia's military threat;
- financially support the establishment of legal mechanisms for holding Russia responsible for consequences of the ongoing aggression;
- make payments due to Ukraine or any person pursuant to any final, outstanding and unpaid order of an international court or tribunal;
- make payments for any other purposes in support of Ukraine.
Lastly, the Bill calls for the establishment of legal redress for those claiming that their assets were stolen by the RF.
3. Political, Economic and Legal Stakes
The Bill should be considered both in its immediate context and from a broader perspective.
The immediate challenges it is supposed to tackle are clear. The Bill aims to curtail Russia's impunity for its international crimes committed in Ukraine. In financial terms, this means that the RF would compensate Ukraine and its citizens for the damage caused. An estimated $600 billion in Russian foreign reserves are currently being frozen in various jurisdictions, including $300 billion in the G7 countries.2
The aim of the Bill is to enable the use of these resources. However, unless Moscow chooses or is forced to cooperate, this entails a series of problems, from identifying attachable state assets to actual enforcement. According to media reports, UK authorities lack complete information on the location and value of Russian assets held in their jurisdiction. Solving these problems relates to a broader problem of sovereign immunities from jurisdiction and execution.
The problem of sovereign immunities is both frustrating and well-known. Suffice to recall that the International Court Justice, in the 2012 judgment on Jurisdictional Immunities of the State (Germany v. Italy), upheld Germany's immunity in a dispute regarding the crimes committed by the Third Reich. While international law may have evolved since 2012, the ICJ proceedings at the time did not even concern merely the immunity from jurisdictions, let alone the immunity from execution. This distinction is important because the evolution of international law of immunities is largely limited to immunities from jurisdiction, while the Bill in question mostly concerns execution proceedings. Accordingly, even a more liberal approach to international law may prove insufficient.
Various governments are trying to find a legal way to address the immunities challenge. For instance, in February 2023 the Swedish Presidency of the Council of the European Union announced the establishment of an EU Working Group to look at using frozen Russian assets for reconstruction of Ukraine.3 Canada4 and the US5 adopted legislation allowing the use of assets confiscated from sanctioned individuals for the reconstruction of Ukraine. The last two examples concern private assets, which raises additional legal issues, including the protection of private property under domestic (constitutional) and international (human rights, investment treaties) law. Furthermore, in June 2023, the US tabled the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act.
It did not take long for Russia to react to this wave of legislative actions that could have huge consequences for its budget. By way of a presidential decree, Russia established temporary administration over foreign public or private property from countries that expropriate or restrict Russian assets.6
The broader context of the Bill includes economic, political and legal considerations.
Financially, London is one of the world's hubs for holding central bank foreign reserves. As a result, when the UK parliament considers seizing the estimated £26 billion of RCB reserves, the world holds its breath. Although, as one MP argued during the parliamentary debate, the law clearly defines the extraordinary nature of Russian aggression, as a result, with the exception of dictatorships planning similar crimes, no other central bank should be concerned about the possible passage of the law.
More difficult is the legal dilemma, familiar if only from the period of the so-called "War on Terror." How to fight to restore the rule of law against an adversary that undermines the very pillars of the international legal order.
4. Legal Challenges
While the law of international immunities is both vague and in a state of flux, the UK is one of only eight states that are party to the 1972 European Convention on State Immunity ("ECSI"). To that extent, the legal analysis of this legislative initiative is relatively simpler. At the same time, any action taken by the UK authorities will fall under the State Immunity Act 1978. A few comments are necessary here from the perspective of public international law.
4.1. Judicial proceedings
The immunity question arises only in cases of judicial civil law proceedings against the RF or its property. The act of imposing an assets seizure—asset freezing—can occur without judicial preemptive control. However, the ultimate-irrevocable seizure and certainly any permanent transfer of the title to property are subject to judicial control. For instance, proceedings for compensation for the victims of theft (as provided for in the Bill) clearly fall within the category of judicial powers.
Judicial powers are defined functionally in international law: by the nature of the powers performed rather than their formal status or classification under domestic law. This means that immunity can arise even if "expropriation" and "compensation" powers are granted to the Secretary of State. The immunities law, however, does not regulate administrative proceedings or the exercise of administrative (non-judicial) function by judges. The judicial function includes resolving disputes and answering legal or factual questions.
According to the Bill, during the investigation phase, the Secretary of State will consider types of assets to be seized, purposes of such action and, ultimately, the allocation of the assets. This raises the question of how the Secretary will use this authority and what will be the legal nature of such actions. Two modes of conduct seem most likely: "seizing" and "allocation" of assets can either be combined into a single operation or separated into two, independent steps.
If seized assets are earmarked for specific purposes (i.e., combined seizure and allocation), then at least some of the Bill purposes clearly involve exercise of judicial power (notably holding Russia responsible for its military operation) or relate to the exercise of judicial power (enforcement of a final order of an international court or tribunal). Others fall into a "gray category" (support for temporarily displaced civilians seeking refuge as a result of Russian aggression depending on the procedure applied). Lastly, funding reconstruction needs and the Ukrainian government's response to the Russian aggression most likely constitutes an executive action. Such an action should be viewed similarly to the second scenario, i.e., separation of seizure and allocation. In that latter case, the same legal test shall apply to the act of seizure (its purposes). Most often, however, it will not be possible to determine the origin of the allocated funds. As a result, the legality of the seizure (which may be questionable) will not affect the legal evaluation of the distribution-allocation of funds.
4.2.Immunity from jurisdiction and execution
The key legal difficulty concerns the immunity from enforcement. Both the ECSI (articles 23 and 26) and the State Immunities Act (SIA, section 13(4)) provide for the immunity of state assets from enforcement of judgments and arbitral awards. According to the ECSI, enforcement will be lawful for proceedings related to Russia's industrial or commercial activity in which it is engaged in the same manner as a private person, against property used exclusively in connection with such activity. Under the SIA, the immunity hurdle can be bypassed when the property in question is "for the time being in use or intended for use for commercial purposes." Accordingly, the key question concerns the commercial nature of the property in question.
This is particularly difficult with the most important class of assets, namely those of the RCB and the National Wealth Fund. Today, it is no longer considered that the mere fact of placing funds in a bank account of a monetary authority automatically means that they are non-commercial assets. However, there is still a long way to go before recognizing that none of the central bank reserves has a public character.
Although the UN Convention on Jurisdictional Immunities of States and Their Property stipulates that the central bank and monetary authorities' assets should be considered non-commercial, the ECSI does not regulate this issue, and the SIA (sect. 14(4)) takes the opposite view, i.e., that central bank assets shall not be regarded as in use or intended for use for commercial purposes. Lastly, if English courts come to the conclusion that RCB assets have a commercial character, then it should follow that they enjoy protection under the Russian Federation–United Kingdom 1989 BIT.
4.3. Practical consequences
Several important consequences arise from the immunity restriction on the exercise of judicial powers.
A positive consequence is that under the temporal rules, while the Russians' actions (international crimes) will be judged in light of the substantive rules in effect at the time of the war, Russian immunity from jurisdiction and execution will be assessed in accordance with the procedural rules in force at the time of the proceedings. Given the current intensive legislative work in various countries to allow the compulsory use of Russian assets for the reconstruction of Ukraine, it is possible that international law of sovereign immunities will have already changed by the time of relevant proceedings.
On the downside, the procedural nature of sovereign immunities comes into consideration prior to any substantive law consideration. This may prove important to English judges faced with an argument regarding violation of jus cogens attributable to Russia. Sovereign immunity can bar proceedings even before such an argument is raised. The ICJ stressed unique circumstances of the 2012 judgment, and that immunity should not be confused with impunity. The judgment was also heavily criticized, also by the present author.
The immunity challenge will arise only at the adjudication phase. Notably, Article 31 states that ECSI does not affect immunities and privileges enjoyed by the RF with respect to actions of or related to its armed forces on the Ukrainian territory. Following the CJEU judgment in Lechouritou, a claim for damages resulting from military operation of another state does not qualify as a civil or commercial law matter.7 According to the prevailing view, military actions constitute emanation of sovereignty—acta de jure imperii—independently of their legality.
To challenge the legality of the Secretary's acts, Russia would have to waive its immunity from jurisdiction, which would constitute a partial success in ascertaining the legality of seizures and allocations. However, a waiver of immunity from jurisdiction does not entail an automatic waiver of immunity from enforcement. One could argue that the judicial review and the respective waiver concern enforcement action, but much would depend on the wording of the challenge.
Lastly, the question of jurisdiction arises independently of the issue of immunity, i.e., the lack of jurisdiction of English courts does not mean that the RF does not benefit from sovereign immunity, but also that the lack of immunity does not mean that English courts (in the functional sense of the term) have jurisdiction. Finally, whether the Secretary of State would exercise judicial or executive powers does not prejudice the international legality of such actions. This may entail further questions about earmarking the assets to be spent in the UK (support for the refuges), the vague nature of such actions ("other" types of support), or legal challenges to the development of a special dispute resolution body itself.
5. Concluding Remarks
Russian aggression against Ukraine is an existential threat to that country as well as a systemic challenge to international law. Under these extraordinary circumstances, the law must adapt to new challenges.
With regard to the Bill on the Seizure of Russian State Assets and Support for Ukraine, the starting point must be an awareness of the systemic goals of international law, the sovereign equality of states and its consequences in the form of sovereign immunities: the peaceful coexistence of states.
In this sense, Ukraine, the UK or the international community cannot expect to formalistically interpret the vague and variable (sic!) norms of sovereign immunity law in a way that provide Russia with protection while it commits the gravest international crimes.
At the same time, the response measures should prompt international law to evolve, not lead to its marginalization when it is needed most. It is in everyone's interest to submit Russian actions to the judgment of independent courts and re-examine the law of immunities in light of the systemic principles of law. The Bill, which attempts to evade the test of international law at the domestic level, neither legitimizes the government's actions, nor provides an incentive for Russia to halt unlawful conduct, nor, finally, will it serve the ultimate peace agreement and global order.
Footnotes
1. https://bills.parliament.uk/bills/3415. Under English law, a bill is a proposal for a new law. Once approved by the Parliament (and the monarch), a Bill becomes an Act.
6. http://en.kremlin.ru/acts/news/70986
7. C-292/05 Eirini Lechouritou et al. v. Germany, 15 February 2007.
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