The Economist - USA (2022-06-11)

70 Finance & economics TheEconomistJune11th 2022

estimates  that  Russians  under  sanctions

hold  some  $400bn  of  assets  abroad.  But,

he says, only $50bn of that is frozen. Hav­

ing been targeted by sanctions after Russia

invaded  Crimea  in  2014,  the  wiliest  oli­

garchs  now  hide  their  foreign  assets  be­

hind  20­30  layers  of  shell  companies.

Some  physical  assets  have  been  moved  to

friendlier territory. More than 100 Russian

private  jets  landed  in  Dubai  in  the  weeks

after the invasion of Ukraine. 

Moreover,  the  enforcement  of  sanc­

tions  falls  on  the  private  firms—from

banks to marinas—that serve the rich. Not

all  have  the  expertise  to  see  through  ty­

coons’  obfuscation.  Whoever  freezes  the

assets  may  also  have  to  look  after  them,

which drains resources. Houses need to be

tended to; yachts cost 10% of their value in

yearly maintenance. 

These  difficulties  pale  into  insignifi­

cance  when  compared  with  the  problems

of  confiscation—the  next  step  if  Russian

assets are to be used to rebuild Ukraine. In

Western democracies seizing foreign prop­

erty on the basis of nationality or political

opinion  is  illegal.  That  is  not  to  say  there

are no precedents for the expropriation of

both state and private assets. But they have

taken  place  at  extraordinary  times,  and

when certain strict criteria have been met. 

Seize and desist

When  it  comes  to  individuals,  the  typical

condition  for  confiscation  is  a  criminal

conviction—not  just  for  any  crime,  but

those  that  are  deemed  to  warrant  seizure.

The  forfeited  assets  must  either  be  deter­

mined  an  instrument  of  the  crime,  or

linked to the proceeds from it. Such things

can  take  years  (and  a  lot  of  money)  to  be

proved in court. And the hurdle is unlikely

to disappear soon: a bill introduced in the

usSenate in April that would have granted

the  president  powers  to  confiscate  oli­

garchs’  assets  was  soundly  defeated  after

the American Civil Liberties Union warned

it would probably be struck down in court. 

Officials  in  the  West  are  therefore  in­

stead  working  to  lengthen  the  list  of

crimes that warrant seizure. In April the Bi­

den  administration  introduced  a  bill  that

would  add  sanction  and  export­controls

evasion  to  the  list  of  offences  punishable

by  the  Racketeer  Influenced  and  Corrupt

Organisations  Act,  which  was  passed  in

1970 to crack down on mobsters and allows

for  ill­gotten  gains  to  be  seized.  On  May

25th  the  European  Commission  outlined

plans  to  make  it  easier  for  member  coun­

tries to confiscate assets belonging to indi­

viduals suspected of breaching sanctions.

Each  proposal  faces  a  tough  political

battle.  Although  most  Republicans  sup­

port  bashing  Russia,  few  want  to  give  Mr

Biden a victory ahead of the mid­term elec­

tions  in  November.  The  eu will  have  no

power to tell member governments how to

usetheproceedsfromtheliquidatedas­

sets.Somecountrieswillbewaryofconfis­

cation:Germanymayhaveto amendits

constitution, which guarantees private

property;CyprusandMalta,whichactas

transithubsforRussianmoney,areun­

likelytosupportseizures.

Theconfiscationofstateassets,mean­

while, would require Western govern­

mentstodesignateRussiaa hostilepower,

ortocallforregimechange,whichthey

haveshiedawayfromdoingsofar.Asa

rule,thedoctrineof“sovereignimmunity”,

enshrined bya unconvention,protects

foreignstatesfromlocalprosecution.But

somelaws,mostnotablyinAmerica,allow

thegovernmenttoseizeforeignstateas­

setswithouttrialincertaincases.

OnesuchlawistheInternationalEmer­

gencyEconomicPowersAct(ieepa), which

provides legal backing for the current

freezes. It does not explicitly grant the

president powersto“vest” assets—ie,to

changewho ownsthem.Butoneexcep­

tion,addedin2001,allowsforsomevest­

ingwhenAmericaisengagedin“armed

hostilities”withanothercountry.Thiswas

usedbyGeorgeW.BushtoseizeIraqiassets

afterheinvadedthecountryin2003.To­

day,however,Americaisatpainstoem­

phasisethatitsshipmentsofweaponsto

Ukrainedonotequatetoitsbeinginarmed

conflict with Russia. Saying otherwise

couldbecome“theactualreasonforwar”,

notes Antonia Tzinova of Holland &

Knight,anotherlawfirm.

Seizures can happen outside ieepa.

America’sexecutivebranchhastheauthor­

ityto transfercontrolofcertain foreign

stateassetswhenitchangeswhatitcon­

siderstobethelegitimategovernment—as

it didin2019,whenit confiscatedVenezue­

lanassetsafterrecognisingJuanGuaidóas

president.ButAmericahassofar fallen

shortofcallingforMrPutintogo.Under

rarecircumstances,Congresscanalsolift

theimmunityofsovereignstates,allowing

theirassetstocompensateclaimantsina

domestictrial.OnechunkofthefrozenAf­

ghanassetshasbeensetasidewhilecourts

hearfromthefamiliesofthevictimsofthe

September11thattacks.Forthistoapplyto

Russia,though,Americawouldhavetode­

clareit a terroriststate.Theeu, foritspart,

isnotevendiscussingthematterofsover­

eignassets,pointsout JanDunin­Waso­

wiczofHughes Hubbard &Reed,alaw

firm.Mentionsofthemareconspicuously

absentfromitsproposals.

Internationalcourtsdonotappeartobe

afruitful avenue,either.Neither Russia

norUkrainehaveconsentedtothejuris­

dictionoftheInternationalCourtofJus­

tice,savefora fewnarrowexceptions,says

AstridCoracinioftheUniversityofVienna.

Anewlycreatedbody,akintoa commis­

sionsetupbytheunin 1991 toseekrepara­

tionsfromIraq afterit invadedKuwait,

wouldrequireRussia’sconsent.

Creativeideasarethereforespringing

up.Oneistotargetthebillionsofdollarsa

daythatRussiareceivesforitsenergyex­

ports,ratherthanitsstockofassets.Ina

meetingoftheg7 countriesinMay,Amer­

icaproposedlevyinga tariffonRussianoil,

theproceedsofwhichcouldthenbesentto

Ukraine. But achieving agreement even

withintheeuwillbea tallorder.

Another scheme would funnel pay­

mentsforRussianoiltoescrowaccountsat

internationalbanks,ashappenedwithIra­

niancrudeinthe2010s.Theaccumulated

bounty, worth around $100bn, became

availableagaintoIranaftersanctionswere

liftedin2016.ThistimetheWestcouldde­

mandthatsomeofthemoneybedonated

toUkraine.Oneinsidersuspectstheideais

beingconsidered inWashington. Russia

could,however,trytowinddownitsre­

mainingoilsalestotheWest.Enforcing

the measure more widely, meanwhile,

wouldrequiretransgressorstobethreat­

enedwith“secondary”sanctions—some­

thingthattheWesthassofaravoided.

Allthissuggeststhatattemptstoseize

Russian assets whilethe war rageswill

struggletoavoidoneofthreepitfalls.Un­

lessWesterncountriesditchtheprotec­

tionstheyoffertoforeignindividualsand

states,theyriskspendingmanyyearsin

court.Iftheydoditchthem,however,the

trustunderpinningtheireconomiesand

societiescouldbeendangered.Morecre­

ativeideas,meanwhile,mayinviteRussian

retaliationandangertherestoftheworld.

That doesnotmeanRussiantreasure

will remain untouchable for ever.Most

reparations tendto beagreed oncewar

ends,oftenasa conditionforunfreezing

foreign assets. Mr Putin still seems far

from considering peace. But if he ever

comesroundtoit,lettingsomemoneygo

toUkrainemaybethepricehehastopay

forseeingsomeofhisownassets—includ­

ing,maybe,a multi­million­dollarsuper­

yacht—returnhome.n

RU can’t touch this

Russia, central-bank reserves, foreign currency

and gold, by location, Jan 1st 2022, % of total

Source:Bank of Russia

Austria

Canada

Britain

UnitedStates

Japan

France

Germany

China

Goldin Russia

2520151050

15

17

31

39

57

    1

9   

103

132

$bn

Not under

sanctions

Under sanctions