Once More on the REPO Act

Three months ago, we argued in Lawfare for making use of Russia’s frozen sovereign assets to fund a program to compensate Ukrainian victims of Russia’s invasion. Essential to our argument is a judgment that the REPO Act introduced in the Senate does not adequately do the job. It contains too many loopholes and raises too great a risk of blocking a settlement to this conflict. Yuliya Ziskina has published a response, relying in part on a study directed by Laurence Tribe published last month. The Tribe study restates, at considerably greater length, the arguments he made on this forum more than a year ago.

There is much in Ziskina’s post with which we agree, although we think she does not accurately convey what one of us (Stephan) has said about these matters in earlier publications. (Stephan has never opposed the lawful forfeiture of Russian assets, taking into account the prospects of a settlement of the conflict, or insisted that the assets should go to arbitral award holders instead.) We agree, for example, that the frozen Russian assets should be confiscated and made available for the reconstruction of Ukraine. And we agree that this confiscation should occur now and not be deferred until the hostilities end. We disagree with Ziskina on the legal theory under international law that would support such a confiscation, on how the confiscated funds should be administered, and on whether the REPO Act as currently drafted is the right vehicle for this purpose.

First, the international law points. Ziskina asserts that “countermeasures provide a permitted form of ‘self-help’ for ensuring compliance with international law.” While this is certainly true as a general proposition, the doctrine of countermeasures, by itself, is inadequate to legitimize an outright confiscation of Russian assets. Countermeasures are intended to be temporary measures to induce a state to discontinue a breach of international law. This is made clear in the International Law Commission Draft Articles on the Responsibility of States for Internationally Wrongful Acts, on which Ziskina relies heavily. See, for example, Article 49(2) (“Countermeasures are limited to the non-performance for the time being of international obligations of the State taking the measures towards the responsible State” [emphasis added]) and Article 53 (“Countermeasures shall be terminated as soon as the responsible State has complied with its obligations ... in relation to the international wrongful act”).

The doctrine of countermeasures is thus an adequate legal basis for the freezing of Russian assets until Russia ceases its aggression and pays reparations for the damage it has caused. It does not, however, provide a legal basis for the outright and permanent confiscation of those assets. Countermeasures are intended to induce a state to change its conduct; they are not the appropriate vehicle for imposing a permanent punishment on that state for the illegal conduct. And it is this final step, confiscation, that we are discussing now.

Had the Russian assets been held at the Ukraine central bank when the invasion began, we doubt whether anyone would question Ukraine’s entitlement to set off those funds against the cost of repairing the damage caused by the invasion. A right of set off is perhaps the most basic form of “self-help.” The question then becomes whether the countries holding the Russian assets (or an international body to which the assets are transferred) are also entitled to exercise a right of set off against the assets to defray the cost of Ukraine’s reconstruction. We would answer that question in the affirmative.

The lion’s share of the money that will be needed to reconstruct Ukraine’s economy and ameliorate the humanitarian crisis caused by Russia’s invasion will almost certainly come from multilateral and bilateral sources in the form of grants, concessional loans, guarantees, and so forth. It will therefore come (indirectly) from the world’s taxpayers. As we explain in our prior piece, we believe that the international community would be fully justified—financially, legally, and morally—in reducing the amount of taxpayer money that it will need to expend for this purpose by exercising a right of set off against the Russian assets. Naturally, were Russia to obviate the need for such international resources by honoring its obligation under international law to pay full reparations, the money would be returned to Russia. If not, however, the assets would be set off against the cost that the international community will need to bear when the hostilities cease. 

We also believe that Russia’s legal title to the frozen assets should be displaced sooner rather than later. Ziskina seems far more sanguine than we are that Ukraine and its supporters would never accept a negotiated cessation of hostilities that involved a return of the frozen Russian assets—a return that international law might require once the grounds for countermeasures had ended. Perhaps so. But will politicians, in Ukraine or elsewhere, really advocate continuing the bloodshed and devastation were Russia to make a return of the frozen assets a nonnegotiable condition of a peace, cease-fire, or armistice? We believe that it would be more prudent to remove this piece from the chessboard now before the politicians are compelled to face that cruel choice. Our prior piece shows that transfer of title in these assets to an international body with authority to adjudicate claims provides a compelling response under international law to any Russian demands.

Turning to the situation in the United States, we remain of the view that the REPO Act has serious flaws. As we observed in our earlier post, it gives the secretary of state a blank check as to how to use confiscated Russian assets. In particular, its Section 104(d)(1) authorizes the secretary of state to distribute these funds “for the purpose of compensating Ukraine for damages resulting from the unlawful invasion by the Russian Federation.” It does contain precatory language requesting that “to the extent possible” these funds go to an international body—or mechanism of the kind that we described in our earlier post—with the purpose of “[r]econstruction and rebuilding efforts in Ukraine,” “humanitarian assistance” for Ukrainians, and “other purposes as the Secretary determines directly and effectively support the recovery of Ukraine and the welfare of the people of Ukraine.” But this would be an ask, not a demand. 

Ziskina argues that we misread the bill, because the precatory language directs that such funds must go only to the reconstruction of Ukraine. We regard this qualification as empty because of a deep dilemma that reconstruction presents. On the one hand, investing in the rebuilding of Ukraine’s infrastructure, both human and physical, is senseless as long as Russia retains a capacity to destroy them. On the other hand, there will be no infrastructure to rebuild unless Russia is rendered impotent. It is easy to make the argument that any acts that go to the defeat of Russia are essential predicates to the rebuilding of Ukraine. We thus end up in a place where forfeiture becomes an end run around the current political fiasco in Congress that has thwarted the authorization of more defense funds for Ukraine (although, quite sensibly, no one in the Biden administration makes this argument). The previous iteration of the REPO Act in the last Congress did this expressly; the current edition does the same thing, but more obliquely.

Premature disbursement of the funds obtained from Russia, rather than reserving them to fund reconstruction through an internationally legitimate process, would thwart what we consider the best hope for bringing the war to a tolerable, if not necessarily satisfying, conclusion: the establishment of an international tribunal controlling these funds with the power to adjudicate all claims to reparations. We argue that a transfer of funds from forfeited assets to such a tribunal would survive challenges under international law and thus would not give Russia a plausible claim to impede settlement negotiations.

Ziskina further objects to aspects of the international tribunal that we propose. She argues that, in light of Russia’s aggression and war crimes, it would be “morally indefensible” to consider the reparations claims of any country besides Ukraine, whatever their validity under international law. We believe, as she apparently does not, that, absent a Security Council resolution or comparable international act that would bind Russia, the tribunal’s authority must rest on a settlement to the conflict acceptable to Russia and its supporters. Unless one believes that Ukraine’s reconstruction can proceed while Russia remains actively at war with it, we see no alternative. How that settlement comes about, and on what terms, remains a great unknown. We hope, with Ziskina, that it will adequately address the need not just for peace, but for justice. But circumstances will dictate what it actually does. 

Ziskina also objects to our proposal that the international mechanism that will hold the funds generated by confiscated Russian state assets remains open to the possibility that all states entitled to reparations under international law can make claims following a peace settlement. She apparently sees as the right model the reparations imposed at the end of the two world wars, extracted by victors against the losers (and, in the case of World War II, collected largely by the Soviet Union, one of the aggressors in the conflict). We would welcome a settlement that gave complete priority to the claims of Ukraine, the victim of aggression, but we cannot presuppose that this outcome is inevitable. Our point is simply that dispersal of confiscated funds should await an actual effective armistice or peace settlement, whatever its terms might be.

Ziskina also argues against our objection to Section 104(e)(1) of the REPO Act, which aspires to bar judicial review of any constitutional claims raised by sovereign actors against confiscations. We observed that outright expropriation faces at least some constitutional hurdles that might render that provision a nullity. In response, Ziskina rehearses well-known arguments, which we had noted, that foreign sovereigns lack due process rights under the Constitution. Her piece, however, misses the point: The lower court decisions on which she relies deal with the personal jurisdiction asserted by courts, not the power to expropriate.

Expropriation comes under not only the Due Process Clause of the Fifth Amendment, which guarantees certain procedural rights to “persons,” but also the Takings Clause, which requires “fair compensation” for expropriations, without any reference to “persons.” Whether or not one regards the personal jurisdiction jurisprudence of the lower courts as consistent with principles articulated by the Supreme Court, an issue on which we are agnostic, the Supreme Court is clearly on record as protecting the Takings Clause rights of foreign state entities. Ziskina does not address this point. We continue to believe that, at a minimum, this provision of the REPO Act has a huge constitutional target on its back, however the Supreme Court ultimately might dispose of the issue.

In sum, we are grateful to Ziskina for inducing us to expand on the premises behind our proposal for funding Ukraine’s reconstruction. We share with her a desire to find a means for a lasting and secure peace that enables Ukraine to recover from the injuries suffered at the hand of an international outlaw. We urge Congress to enact legislation that will advance us toward that goal. But the REPO Act in its present form does not do so.

As a postscript to our earlier Lawfare piece (and unrelated to Ziskina’s commentary), we comment here on a suggestion being promoted by some Europeans (and apparently recently endorsed by the United States). They suggest that—in lieu of outright confiscation of the assets—the windfall profits accruing at the European bond clearing agencies as a result of the sanctions against Russia should be taxed and given to Ukraine. We think this is a mistake for two reasons.

First, the amounts involved in this approach are, in the broader context, trivial. This proposal would not touch the corpus of the frozen assets or even the investment earnings on those assets. It would be limited to the interest accruing on the proceeds of any assets that had matured and could not be reinvested for Russia’s account as a result of the sanctions. It will take many decades for those interest amounts to build up to a size that will make a significant contribution to the cost of Ukraine’s reconstruction.

Second, by limiting themselves to confiscating only the money to which Russia does not have legal title (as a result of the effect of the sanctions on clearing agency procedures), the Europeans implicitly acknowledge that they lack the legal entitlement to touch any assets to which Russia does retain legal title. That is an implication with which we strongly disagree.