Last month, the United Kingdom rejected a proposal to unilaterally seize frozen Russian state assets currently held in British banks. That mirrors the United States’ exclusion of a similar scheme, in December, from the 2023 National Defense Authorization Act (NDAA). Though proponents argue that seizing Russian assets is worthwhile to relieve domestic taxpayers and provide immediate support to Ukraine, the U.S. and UK are avoiding unilateral seizure of foreign sovereign assets for good reason. Doing so would run into serious domestic and international legal issues. And, even if it were justified as a countermeasure or method of collective self-defense, seizure could catalyze political repercussions including targeted retaliation, loss of faith in transnational protections of property rights, and further weaponization of the global financial system.
In November, the European Commission (EC) proposed a different kind of scheme: to consolidate and transfer frozen Russian state assets to an investment fund, then send the investment income to Ukraine. The principal would ostensibly remain available for possible return to Russia as part of an eventual settlement. The EC proposal is a live issue: The European Council’s president recently recommended serious consideration of the proposal, and European scholars have posited possible legal justifications. In February, an EU working group was formed to analyze this and other possible uses of frozen Russian assets, and the European Parliament advanced draft legislation revising rules on asset confiscation. Some are championing the idea that the United States and other G7 countries should join the Commission’s mechanism, funneling Russian state assets frozen in their own countries into a pooled investment fund.
In some ways, the Commission’s proposal is superior to the unilateral seizure schemes rejected in the United States and United Kingdom. In part, that comes down to size: European banks hold more than $300 billion in Russian state assets; U.S. banks hold some $40 billion, and the British only $20 billion. If the Commission’s plan generates an annual return of 5%, Europe could send more than $1 billion a month to Ukraine, indefinitely. The Commission’s investment plan also appears less immediately difficult than other seizure proposals, as a matter of law, because it aims to return the principal at the end of the conflict.
But, upon examination, these are mere differences of degree, not of kind. The European Commission proposal implicates the same issues as other seizure schemes – including sovereign immunity and sovereign rights of due process – and could trigger domestic and international legal challenges.
More fundamentally, seizure poses risks to the possibility, legitimacy, and international acceptance of an ultimate post-conflict settlement. In nearly a year of spirited academic debate over the possibility of seizure, these dangers have been largely overlooked. These challenges – and their potential costs to Ukraine, the seizing country, and the postwar international order – argue against the implementation of any immediate seizure.
Legal Uncertainties in the European Proposal
The European Commission proposal – to transfer Russian sovereign assets into an investment fund and disburse the investment income to Ukraine, a third party – implicates areas of uncertainty in two major concepts in international law: sovereign immunity and the due process rights of sovereigns. These difficulties raise the possibility that any country participating in a European investment scheme might wind up facing a lawsuit and then footing the bill. They also strengthen Russian arguments about the lawlessness of the Western-led economic and international order. Seizure may not “work,” if payment boomerangs back on the West. Even if seizure is upheld, it would increase perceptions of illegitimacyof the U.S.-led international financial system.
Sovereign Immunity Concerns
Sovereign immunity generally protects nation states from the jurisdiction of the courts of other sovereigns. The applicability of sovereign immunity, as it attaches to sovereign assets, may be restricted to court proceedings and their direct consequences, or it may protect states from a broader range of foreign state conduct. As the International Court of Justice (ICJ) has noted, “the immunity from enforcement enjoyed by States in regard to their property situated on foreign territory goes further than the jurisdictional immunity enjoyed by those same States before foreign courts.” Sovereign immunity may or may not apply to international bodies; even if it does not, a joint investment mechanism may or may not be a sufficiently international body to avoid immunity principles. The more national participants involved in the mechanism, the less it appears to be the judgment of one sovereign by another. That said, there is no “magic number” of national participants to make a tribunal “international,” and some scholars argue that immunities cannot be abrogated by any tribunal, unless the target state has consented to its jurisdiction.
Assuming the European investment scheme can violate sovereign immunity, it could do so in a few ways. An investment by definition carries risk; any amount of risk could decrease the expected value of the principal. Investment itself could thus work a partial deprivation of those sovereign assets. The risk of devaluation looms especially large when one considers the Commission’s incentive to maximize short-term income. If the Commission prioritizes short-term investment income over the long-term worth of the principal, it might pick dividend-paying stocks without regard for the equities’ future value. In an extreme scenario, the Commission could use the state assets to buy high-coupon bonds, which would produce significant income but slash the value of the principal as the bonds mature. An instruction requiring prioritization of the principal’s value still would not perfectly shield the assets from a market downturn, and a lower-risk strategy would lower financial returns, diminishing its value to Ukraine. The Commission’s promise of repayment might render a legal claim technically moot, but it would also eliminate seizure’s supposed relief for taxpayers.
Due Process Considerations
National laws further complicate this picture. Many European states tax investment income as property of the principal owner or beneficiary. By implication, Russia owns the investment income that derives from its assets. Transferring that income to Ukraine would deprive Russia of that property. U.S. law is especially clear on this point: The U.S. Supreme Court has explicitly held that the proceeds from an investment are the principal owner’s property for the purpose of the Takings Clause. “Investment-backed expectations” are the backbone of judicial inquiry into regulatory takings, and a significant loss of investment return is a compensable taking. U.S. participation would thus likely constitute a taking of property without due process, in violation of the Fifth Amendment. (Ingrid Wuerth has argued that foreign sovereigns enjoy due process under American law. And, in Dames & Moore v. Regan, the Supreme Court recognized the potential viability of a Takings claim for a transfer of funds by the United States to an international claims commission. The Court deemed the claim unripe and unreviewable on the merits, but indicated that the claim could be resurrected if the claims commission did not make the plaintiff whole.) Ripe, compensable Takings claims might be made regarding every transferinto a facially risky international investment mechanism; every transfer out, to Ukraine; and any devaluation realized at the time of asset liquidation. An injunction on these grounds could stop U.S. participation immediately. Compensation after the fact would mean payment would still fall to the United States, defeating a large part of the scheme’s purpose.
Russia has had at least a partial hearing on its liability, via the United Nations’ Resolution calling for Russian reparations, and the ICJ’s order on provisional measures in Allegations of Genocide under the Convention on the Prevention and Punishment of the Crime of Genocide (Ukraine v. Russian Federation). But a formal hearing on the appropriate remedy, by an international body’s final judgment, by international recognition of Russia’s effective forfeiture of its property rights, or by international approval of these specific countermeasures – in compliance with due process under customary international law – has not yet occurred. Until it does, seizure of any kind will be unwise. Until then, even if the action were not deemed technically illegal, it would be perceived as illegitimate. The existence of feasible legal challenges, outlined above, highlights that Russia’s arguments would be viable. Any court proceedings would significantly delay the delivery of additional dollars to Ukraine. And for as long as the legal contestation over seizure drags on, the challenges will be – and already are – fuel for Russian propaganda. This is not a decisive cost; Russia weaponizes propaganda to challenge many other actions hostile to its interests. But it is a real cost, which must be weighed against seizure’s purported benefits.
Implications for a Postwar Settlement
The debate over state asset seizure so far has neglected a question which is foremost in the minds of the combatants: How will this end? Historically, leaders have started wars largely in order to obtain a favorable peace. Military action is meant to shatter the prewar landscape and reshape the ground on which postwar negotiations are conducted. As the U.S., UK, and European states steadfastly aid in Ukraine’s defense, working toward a decisive victory and speedy resolution, they should consider how all prongs of their strategy will further their desired postwar outcomes: a strong international system and a strong Ukraine.
Public, private, and nonprofit actors supporting Ukraine are keeping an eye on the postwar world. They are meticulously documenting the conflict, both to counter Russian propaganda now and to secure evidence for eventual judicial proceedings. They have launched a multi-pronged legal strategy to condemn Russian actions and promote post-conflict accountability for Russia’s leaders. They are distributing Ukrainian government data, including tax collection and census data, to counter Russian land claims and facilitate Ukraine’s recovery. They are levying sanctions, unprecedented in severity, scope, and international coordination, to degrade Russia’s ability to wage war and incentivize an end to the conflict, and freezing Russian assets, in part to ensure that reparations ultimately will be paid.
State asset seizure does not imply any similar postwar advantage. Seizure does nothing to further accountability, promote peace, or encourage Russia’s responsible international participation that is not already achieved by freezing assets and denying access to global financial systems. Moreover, each of the measures above has been taken within the letter of the law – not simply done, but done right. In contrast, seizure weakens the international rule of law and risks reciprocation – seizure and redistribution of holdings abroad by Russia or another country –thereby endangering Western assets, public and private.
Seizure of already-frozen assets would only jeopardize the prospects for reparations by giving Russia grounds to challenge any obligation to compensate Ukraine. Every proposed settlement could be deemed billions (or hundreds of billions) of dollars too large, on account of a purported Western “theft” against the Russian Federation and the consequent benefit to Ukraine. Russia may dispute settlements on the margins anyway, but seizures expose any settlement proposal to unnecessary legal and political vulnerability, diminishing the chances of success. This would endanger Ukraine’s best chance at Russian-funded reconstruction.
Seizure would not counter but aid Russian propaganda. The Russian leadership would characterize any seizure that is not perfectly lawful as perfectly lawless. Lending credence to Putin’s general grievances against the West will only help them outlast him.
Following the American and British lead, the Europeans should turn their focus away from immediate seizure and toward ultimate reparations. Russian reparations to Ukraine, paid over time, could be sufficient to cover Ukrainian reconstruction and acknowledge the intangible harms done to both the Ukrainian people and the international system. But the path to ensure the payment of those reparations is unclear. A legal strategy across existing international bodies that shores up the mandate for ultimate Russian reparations, and a political strategy to unite the international community behind the process, structure and scale of those reparations, should be the priority. Continuing to freeze, not seize, Russian state assets would leave those assets readily available for transfer, in case a merits judgment of the ICJ orders compensation to Ukraine, or in the event of a settlement.
At the same time, Ukraine’s supporters have an obligation to rebuild the strongest international system they can. That is one in which Russia is in, not out. As the United States, United Kingdom, and European Union look to eventual modes of cooperation with a postwar Russia, they should be realistic: Russia will not be as readily integrated as 1950s West Germany. But they should also be ambitious: The West cannot afford a Russia as isolated and unstable as the Weimar Republic.
Ukraine’s supporters should shore up the chances of a postwar settlement that defeats not just Putin’s aggression toward Ukraine but also the victim’s mindset that underlies his revanchist vision for Russia. By refraining from seizure now, and ultimately accepting post-conflict Russia’s continued role in a unified, law-based international system (while still holding individual leaders accountable), the international community can partially neutralize this narrative of victimhood.
The West has decided to stand with Ukraine. That is the right decision. The choice is not – and must not be – between aiding Ukraine and abandoning it. Rather, the choice is between assisting Ukraine with American, British, and European funds, for now, and assisting Ukraine with Russian funds, for now. In either scenario, Ukraine’s defenders may end up having to pay. No one involved in this conflict can expect to be made perfectly whole. In following through on their commitment, Ukraine’s supporters should ensure that their methods comport with the additional aim of “restoring the international legal order,” as President Zelenskyy put it. To do so, they must make their investments upfront. The U.S. and UK’s back-to-back rejections of unilateral seizure suggest a trend in the right direction. These countries should not join Europe’s investment scheme. Instead, they should urge the European Union to abandon the debate over seizure and continue their efforts toward reconstruction and reintegration. Acting together, their careful adherence to the rule of law would show the fortitude of their democracies. And magnanimity, however slight, would demonstrate confidence in their strength.
IMAGE: A stack of Russian 1000 ruble currency banknotes. (Photo via Getty Images)
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