Some Tips for Congress on How to Seize Russian Assets

Introduction

After nearly two years of deliberation, the tide in the United States appears to have shifted in favor of long-standing proposals to seize frozen Russian assets and provide them to Ukraine as compensation for Russia’s unlawful invasion. Late last year, the Biden administration—in the midst of difficult negotiations over additional foreign assistance for Ukraine, which remains ongoing—reportedly came out in qualified support of the idea, despite lingering reservations by Treasury Secretary Janet Yellen and others about the possible economic ramifications. How best to go about it is now reportedly on the agenda for the upcoming Group of Seven (G7) meeting, where member states hope to take some initial steps toward a common approach. And later today, the Senate Foreign Relations Committee is scheduled to mark up its version of the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (or REPO for Ukrainians Act), the companion of which was already approved by the House Foreign Affairs Committee this past November. Both would authorize the president to seize Russian assets—including those of its central bank and other state-owned entities—and provide them to Ukraine as compensation, though each would do so in somewhat different ways.

The moral case for using frozen Russian assets to compensate Ukraine is undeniably compelling: Russia’s brutal and unlawful war of aggression has done grievous harm to Ukraine, whose cost of reconstruction and recovery—if and when the war ends—is expected to be more than $400 billion. The estimated $300 billion in Russian sovereign assets that the United States and its allies have frozen—most of which is believed to belong to Russia’s central bank—could provide the Ukrainian government with much-needed financial support as it seeks to defend itself and rebuild. Nor is there much doubt that Russia owes Ukraine massive reparations as a matter of international law. The UN General Assembly has even acknowledged as much and helped to create an international registry to document Ukrainian claims. The G7, meanwhile, has already pledged to keep Russia’s assets frozen until it adequately compensates Ukraine for its unlawful actions. But these measures will take time, something Ukraine may not have. Hence the enhanced interest in seizing Russia’s assets, particularly as support for additional assistance for Ukraine has declined in the United States and elsewhere.

As I’ve written previously for Lawfare, the prospect of seizing Russia’s frozen assets raises serious legal and policy questions. In the United States, there are few historical precedents for such action and no established case law. At the international level, it would almost certainly require some progressive development in how states traditionally approach certain fundamental legal doctrines, like countermeasures. And many economic policy experts worry that weakening the extensive legal protections that the United States usually provides to foreign sovereign (and especially central bank) assets could discourage other foreign governments from continuing to tie themselves so closely to the U.S. economy, contributing to a broader trend of “de-dollarization” that threatens to weaken the U.S. economy and undermine the future effectiveness of U.S. sanctions. None of these factors is necessarily prohibitive, but they warrant careful consideration as policymakers make the difficult decision about whether and how to proceed.

Toward that end, this piece outlines four recommendations for Congress on how—if and when it chooses to proceed with authorizing the seizure of Russia’s frozen assets—it can do so in a manner that limits some of these risks. In focusing on such legislative measures, I am assuming (perhaps optimistically) that the United States will also be able to make a credible case for why seizure is consistent with international law, rooted in Ukraine’s right to compensation for Russia’s unlawful conduct—an argument that the Biden administration will be responsible for developing in coordination with foreign partners in the weeks to come that warrants separate discussion in a later piece.

While each recommendation is different, most share a common logic: that Congress should focus narrowly on the objective of seizing Russian assets while being very careful to minimize any disruption to the legal status quo applicable to other foreign governments. Doing so will require some restraint on the part of Congress, in terms of both legislation and rhetoric. But it is necessary if Congress wishes to reassure the numerous foreign governments that keep substantial foreign reserves in the United States that the seizure of Russia’s assets is not a sign of things to come for them.

Support Multilateral Action

In the United States, much of the policy debate has centered on whether President Biden or Congress can or should seize frozen Russian assets. But if the goal is to secure substantial enough compensation for Ukraine to meaningfully support its reconstruction, then this debate may well be a distraction to a much more fundamental question: What can the United States persuade its European allies to do?

Following its 2014 invasion of Crimea, Russia restructured its economy to insulate itself from the possible effects of Western economic sanctions and related measures. Unsurprisingly, a major part of this effort was to move most relevant assets beyond the reach of the United States. As a result, only a small portion of Russia’s frozen assets—as little as $5 billion—is reportedly within the reach of the United States. Most of the frozen funds are instead in the custody of foreign banks, predominantly in Europe, with the lion’s share held by Euroclear, a Belgium-based financial services company. This makes coordinated action with these governments essential if a meaningful portion of the $300 billion total in frozen Russian assets is going to be made available to Ukraine.

In theory, the United States might be able to compel foreign branches of U.S.-connected banks to deliver foreign-held Russian assets to the United States for seizure, a step that could increase the volume of assets within the United States’ reach (though it’s not clear by how much). The House version of the REPO for Ukrainians Act may hint at this possibility by expressly including foreign branches of U.S. banks within the scope of its seizure authority. That said, when the Justice Department explored this possibility in relation to Iranian assets during the Iran hostage crisis, it concluded that such a step may be more costly than it seems: Under the Supreme Court’s 1952 decision in Cities Service Co. v. McGrath, any banks that complied and were found liable for damages in foreign courts could in turn bring Takings Clause claims against the U.S. government, putting much of the final bill on the U.S. taxpayer. In short, there is no easy end-run around multilateral cooperation where the relevant assets lie overseas.

At a minimum, proceeding unilaterally in a way that reticent European allies may well see as unlawful seems like a poor way to persuade them to follow suit. But a multilateral approach would also help protect the United States’ own broader economic and policy interests. The greatest risk that comes with seizing Russian assets is that foreign governments will no longer see the United States as a safe jurisdiction in which to hold their own (particularly central bank) assets. Coordinating with other major market economies limits this risk by ensuring that the most plausible alternative jurisdictions for holding such assets embrace similar policies. There will still be some risk of accelerating de-dollarization, as some foreign states may see even a multilateral seizure effort as enough of a threat to warrant moving away from the U.S. economy (or G7 economies altogether) to alternatives being put forward by China and Russia. But the relative impact on the United States will be substantially less if it does not act alone.

Both the House and Senate versions of the REPO for Ukrainians Act wisely recognize the benefits of multilateral cooperation and urge the Biden administration to pursue it.  But the Senate version, at least, still allows for the United States to act unilaterally in both seizing Russian assets and compensating Ukraine. Of course, even if this law were enacted, the executive branch could still decline to exercise the authority given to it by Congress to seize Russian assets until a multilateral approach is in place. But in practice, the Biden administration (and any successor) is likely to find itself under immense domestic political pressure to act unilaterally, particularly given the increasingly difficult political dynamics surrounding foreign and security assistance for Ukraine more generally.

A better approach would be for Congress to put its weight firmly behind a multilateral approach. One sensible way to do this would be a reported proposal to condition any seizure authority on the president certifying that the United States has reached agreement on a common approach to seizure with other major market economies, specifically the G7. The G7 is the most reasonable vehicle for such coordination, as its members have already jointly pledged to keep Russian assets frozen until it compensates Ukraine and are poised to actively debate possible seizure at an upcoming meeting. And while Belgium is not a member, its government has suggested that it may be willing to cooperate if the G7 can come to consensus on a way forward.

The recent suggestion that this sort of condition would create an unconstitutional constraint on the president is a questionable one: Economic sanctions and related measures (including asset seizure) are firmly within the constitutional competency of Congress, not the executive branch, and making authorizations contingent on presidential certifications regarding the actions of foreign governments is common congressional practice and readily distinguishable from any sort of delegation to (or veto authority by) a foreign official. Perhaps more importantly, the Biden administration reportedly supports the measure, reducing any concern that it is an unwelcome intrusion on the president’s prerogative.

Of course, negotiations in the G7 may eventually fail without producing a unified route forward. At that point, Congress will have to revisit and decide whether to rescind or amend the certification requirement. While this need for future congressional action may seem like a bug, it could well prove to be a feature. After all, working with allies to secure $300 billion in expedited compensation for Ukraine presents a very different balance of costs and benefits than acting alone in order to secure only $5 billion. Legislators may come to appreciate the opportunity to debate whether and how to pursue each possibility independently.

Rely on a Narrow Claim of Legal Authority

The most significant legal question raised by proposals to seize Russia’s assets is to what extent Congress has the legal authority to authorize the executive branch to seize foreign government assets. While not entirely unprecedented, seizing a foreign government’s assets is a step that Congress has rarely taken and that federal courts have not squarely addressed. In entering this unfamiliar legal terrain, Congress should be careful to rely on as narrow a claim of legal authority as possible. Not only will this contribute to a stronger legal case, but it will avoid the perception that Congress is ready and able to seize foreign state assets in other circumstances as well, which could unnecessarily contribute to the de-dollarization trend.

While there is ample case law supporting the proposition that Congress can authorize the president to seize foreign government assets, it applies only to a very particular set of circumstances: wartime. Chief Justice John Marshall first recognized this ability in his 1814 opinion in Brown v. United States, wherein he rooted it in both international law—which also allows for certain property seizures in wartime—and Congress’s constitutional authority to “make Rules concerning Captures on Land and Water[.]” Subsequent decisions built on this precedent, to the point that, by 1921, the Supreme Court expressed “no doubt that Congress has power to provide for an immediate seizure in war times of property supposed to belong to the enemy” or its nationals. Further, the Court held that wartime seizures do not trigger a right to just compensation under the Takings Clause and are compatible with the Due Process Clause, so long as “adequate provision be made for a return in case of mistake[.]” The Supreme Court has never, however, squarely addressed whether and under what conditions Congress’s authority might extend to peacetime as well.

Congress has seized foreign government property during peacetime in the past. But to my knowledge, it has done so on only two occasions. The first occurred in 1958, when Congress—with the support of the Eisenhower administration—enacted a law directing the president to seize the proceeds of certain steel mill equipment that had been frozen by U.S. sanctions while en route to the Czechoslovakian government and distribute the proceeds among American claimants whose property had been expropriated following Czechoslovakia’s turn to communism. Later, in 2000, Congress similarly directed the president—over the Clinton administration’s objections—to seize certain frozen Cuban assets to pay compensatory damages to certain American plaintiffs who held U.S. judgments against Cuba for the expropriation of their property after the Cuban revolution. Neither appears to have been the subject of a legal challenge, explaining the lack of relevant case law.

There was also a period of time during which Congress appears to have authorized the seizure of foreign government assets outside of wartime, but the executive branch did not act on it. Early in the 20th century, Congress repeatedly amended the Trading with the Enemy Act (TWEA)—the antecedent of modern sanctions laws—in a way that ended up allowing for the vesting of assets during national emergencies outside of wartime. For its part, the executive branch does not appear to have used this authority for this purpose during peacetime. But the possibility proved controversial, contributing to the later congressional decision to limit TWEA to wartime and remove the ability to vest or seize assets from its successor statute for national emergency situations, the International Emergency Economic Powers Act (IEEPA) of 1977. As part of the aforementioned 2000 legislation relating to Cuban assets, Congress did “reaffir[m] the President’s statutory authority to manage and, where appropriate and consistent with the national interest, vest foreign assets located in the United States for the purposes, among other things, of assisting and, where appropriate, making payments to victims of terrorism”—an apparent reference to TWEA, which the Cuban assets at issue had originally been frozen under and whose applicability to them was grandfathered in when IEEPA was adopted.

The key takeaway from this history is that seizing Russian assets is not well-trodden legal territory. Peacetime seizures of foreign government assets have been pursued only a few times, each for the very different purpose of compensating U.S. nationals for their expropriated property. And none of these efforts has been subjected to meaningful judicial review. This does not mean that Congress lacks the authority to take such a step: Congress enjoys broad plenary authority to both regulate foreign commerce and make rules regarding “captures,” among other relevant authorities, and the modern Supreme Court has expressed a strong inclination to defer to the political branches on matters of national security. But there are countervailing legal interests that, in light of the lack of clear precedent, may warrant some caution.

Among the latter is the Takings Clause, which generally requires that the United States provide compensation where it takes private property for public use. While Brown and its fellow wartime precedents are a recognized exception to this requirement, the Supreme Court has firmly held that it applies to foreign individuals and corporations during peacetime. When analyzing a possible peacetime seizure of Iranian assets in 1980, the Justice Department posited that the Takings Clause would not apply because foreign government property was not private property within the scope of its meaning. The Supreme Court has never considered the question, though it has not interpreted the Takings Clause quite so narrowly in subsequent cases. As discussed further below, however, several prominent federal appellate courts have also held that state-owned entities, including foreign central banks, should be treated as the equivalent of private foreign corporations where they are shown to be adequately independent from governmental control—a capacity that has extended to the ability to pursue Takings Clause claims in at least some cases.

Given this legal uncertainty, Congress’s best strategy is to limit its actions to those that can be justified under either legal theory. Here that most likely means tying Congress’s actions as closely as possible to wartime precedents while limiting their focus to the property of foreign states (namely Russia). The former is not an easy task, as there are very good policy reasons why neither Congress nor the Biden administration want to suggest that the United States is at war with Russia (which it is not). But Russia’s invasion of Ukraine has undoubtedly triggered a major foreign policy crisis of the sort often associated with armed conflicts in the past. Given this, asserting the authority to seize foreign government assets in response—particularly where they will be used to address the crisis in a manner consistent with international law, as is the case with wartime seizures—would arguably be a limited expansion of Brown and related case law. At the same time, only seizing foreign state property—something not strictly required under Brown—will also allow Congress to argue in the alternative that the Takings Clause isn’t applicable.

Importantly, framing Congress’s actions in this narrow way also presents policy advantages. If Congress were to broadly assert the authority to seize any foreign state assets at any time, this could raise concerns with any number of foreign governments and amplify the risk of de-dollarization. But further limiting Congress’s claim of seizure authority to situations where it is necessary to address an ongoing international crisis in a manner consistent with international law substantially narrows the universe of foreign states that might reasonably be concerned they will encounter similar treatment in the future.

Of course, all of these arguments will ultimately be for lawyers to make in court. But by keeping its actions within these confines—and avoiding language that suggests a broader claim of authority than is actually needed—Congress can make their job substantially easier while simultaneously signaling to other foreign governments that the authority it is claiming reaches only Russia and not much farther.

Tailor the Seizure Authority to Russia

Congress should apply a similar logic in how it structures its own authorization to the executive branch to seize Russia’s frozen assets. The goal should be to provide the necessary authorization to accomplish the objective of seizing Russia’s frozen assets while being minimally disruptive to the legal status quo as it applies to foreign states more generally. By contrast, providing a broader authorization than is necessary may in turn implicate the interests of more foreign states in ways they find concerning, increasing the incentive to disengage with the U.S. economy.

Unfortunately, the current House version of the REPO for Ukrainians Act falls prey to this temptation, as it authorizes the seizure of not just Russian assets, but those of any “affiliated aggressor state” determined by the president to have “provid[ed] significant material assistance to” Russia or Belarus. What this will mean in practice is anyone’s guess. Will it apply to China, a backer of Russia’s that is also a major investor in the United States? Or to India, Israel, or Turkey, allies of the United States that keep ties with Russia and haven’t joined multilateral sanctions efforts? Or to any country that still pursues any trade with Russia, which includes most of Europe (as well as the United States itself)? If such a provision were enacted, all of these foreign governments would have substantially greater reason to fear that their assets might become subject to seizure and thus would have a strong incentive to move those assets out of the reach of the United States. Nor would acting on this authority be easy to square with international law. For these reasons alone, such an open-ended provision should not be included in any authorizing legislation

Similar logic should apply to other aspects of Congress’s authorizing legislation as well. For example, Congress may see it as prudent to expressly override lower court judicial precedents that give foreign state-owned entities the same constitutional status as private corporations—something that would arguably be in Congress’s authority, if those rules are an expression of international comity as opposed to a firm constitutional requirement, as seems likely to be the case. Abolishing that standard of treatment for all foreign governments’ state-owned entities not only would run counter to long-standing U.S. policy, which generally supports the independent treatment of state-owned entities as consistent with international law, but also would disrupt the legal status quo that other foreign governments have come to expect and perhaps even rely on. Instead, to the extent it is necessary, Congress should expressly override relevant judicial standards only as applied to Russia and leave the status quo in place for other states.

In certain circumstances, separate legislative efforts may also be a source of concern. Some sponsors of the REPO for Ukrainians Act have framed it is a model that should be extended to other states, including China, Iran, and North Korea. And at least one piece of legislation has been introduced to this effect, specifically relating to Iran. Suggesting that Russia is just the tip of the iceberg in this way risks amplifying the possible de-dollarization effects of legislation like the REPO for Ukrainians Act, even if the law itself is focused narrowly on Russia. Supporters should avoid such rhetoric and encourage their colleagues to do the same.

Don’t Fight Judicial Review, Expedite It

Finally, both current versions of the REPO for Ukrainians Act take the unusual step of asserting that “[t]he confiscation of Russian sovereign assets … shall not be subject to judicial review[,]” except by “any private individual or entity … asserting due process claims[.]” The goal appears to be to avoid litigation challenges, particularly from Russia, its central bank, and other affected state-owned entities. No doubt this is intended to expedite seizure efforts by avoiding the delay and expense that litigation can entail. But it’s far from clear that such a provision is likely to be effective. Instead of avoiding possible legal issues, Congress should aim to resolve them and clarify the applicable legal regime as quickly as possible—a goal it can better achieve by expediting judicial review instead of trying to avoid it altogether.

To be certain, Congress has broad legal authority to regulate the jurisdiction of the federal courts and is under no obligation to provide for the review of seizure decisions by statute. But insofar as this provision strips the federal courts of jurisdiction over potentially valid constitutional claims, it would “raise serious [constitutional] questions” of a sort that has sometimes led federal courts to effectively hear such challenges anyway.

While it’s far from certain, there is a chance that at least some of the entities whose assets will be seized may be able to make such Due Process Clause claims. The Supreme Court has never ruled on whether foreign states like Russia have Due Process Clause rights. But in its 1992 decision in Argentina v. Weltover, the Court did “[a]ssum[e], without deciding” that a foreign state qualifies for protections under the Due Process Clause, while obliquely citing to another decision—South Carolina v. Katzenbach—that holds that the 50 states do not. Several federal appellate courts, including the D.C. Circuit and Second Circuit, have read this as a suggestion that foreign states warrant similar treatment as the 50 states and are not entitled to Due Process Clause protections. But the Supreme Court has never resolved the issue.

That said, it’s not clear that such a holding would be dispositive in the case of Russia’s frozen assets. As mentioned above, both the D.C. Circuit and the Second Circuit have also held that state-owned entities should generally be treated in the same manner as foreign private entities, including the ability to make Due Process Clause claims, unless they are shown to be an “alter ego” of their parent foreign government. Perhaps Russia’s central bank, investment fund, and the other state-owned entities whose frozen assets are likely to be targeted for seizure qualify for this exception, as some have concluded. But reaching this conclusion requires a fact-intensive analysis, and the standard is a demanding one: In related contexts, even foreign central banks that coordinated closely with policy officials and frequently acted at their request were found not to qualify. In short, while the Russian entities whose assets are being seized may not be able to pursue Due Process Clause claims, it’s far from certain.

There are also circumstances in which seizure could implicate the Due Process Clause and other constitutional rights of third parties—for example, if non-Russian assets were mistakenly seized. The REPO for Ukrainians Act appears to acknowledge this possibility in allowing for Due Process Clause claims by private individuals and corporations. But it’s not clear why other public entities covered by the jurisdiction-stripping provision—such as other countries’ foreign central banks or sovereign wealth funds—could not find themselves in a comparable position.

More fundamentally, it’s also unclear why the sponsors of the REPO for Ukrainians Act feel that avoiding Due Process Clause requirements is necessary. In the context of wartime seizures, the Supreme Court has held that the Due Process Clause mainly requires that “adequate provision be made for a return in case of mistake,” consisting of a process by which the owner of a given set of assets could present arguments that they were improperly targeted and potentially have the seizure reversed. A similar standard seems likely to apply to peacetime seizures as well. This seems like a prudent measure that policymakers would want to have in place regardless in order to ensure the efficacy and legitimacy of the program. This is especially true because such procedures might ease some of the concerns that seizure may raise with other foreign governments, softening incentives that might otherwise push them away from the U.S. economy.

Beyond the Due Process Clause context, the jurisdiction-stripping provision also seems intent on evading other possible legal challenges, whether brought by private or public entities. But the same limitations seem likely to apply if federal courts see the underlying claims as meritorious and they are rooted in the Constitution. Instead, the main thing it does is send an ominous message to other foreign governments and related entities that generally rely on the U.S. legal system to protect their U.S.-held assets.

If Congress does want to both streamline the seizure process and put it on more sound legal footing, a better approach would be to lean into judicial review and install expedited procedures for the consideration and resolution of any legal challenges (and perhaps related measures, like Takings Clause claims). These would likely consist of a fixed time window in which challenges could be brought as well as a directive to federal courts to resolve resulting matters on a specific time frame—or even a measure adjusting the usual appeals process to speed final consideration by the Supreme Court. With these procedures in place, the executive branch could then bring a test case or two with confidence that they would be resolved on a timely basis in line with the statute. Depending on the results, the executive branch could then adjust their relevant procedures—or seek supplemental legislation—to address any constitutional or other concerns the courts may raise before proceeding with the remainder. While this would take an initial investment of time, it would also clear the way for future seizures and put them on sounder legal footing. And in the event that there does end up being some fatal flaw in the legal regime supporting seizure, beginning with a few test cases will limit any potential risks to the United States, such as those presented by Takings Clause claims.

Russia is no stranger to foreign courtrooms and has reportedly made clear its intent to pursue aggressive legal action wherever frozen assets are seized. Congress can’t wish away these legal challenges, particularly if the United States wants to maintain the confidence of other foreign governments that rely on the U.S. legal system to defend their own assets. After all, the rule of law is not only one of America’s greatest virtues but also a major reason why so many foreign governments choose to keep their substantial foreign assets here.  Congress should lean into it, not diminish it.

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The time may well have come to seize Russia’s frozen assets and provide them to Ukraine. But doing so will be a significant event with potentially wide-ranging ramifications. What exactly these will be is hard to predict and should be neither overhyped nor underestimated. For this reason, Congress should focus its efforts narrowly on Russia, at least until the consequences are more clear. And it should take care to reassure other foreign governments that the move against Russia reflects the extraordinary nature of the Ukraine crisis, not a sea change in U.S. policies regarding the seizure of foreign government assets.

The recommendations outlined above should help with these tasks. Whether to take them, of course, is up to Congress.