The Controversial REPO Act Is Now Law

On Tuesday, after long deliberation, Congress passed the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (REPO). President Biden signed it into law the very next day. 

The controversial bill allows the president to confiscate Russian sovereign assets that are subject to the jurisdiction of the United States, for the purposes of supporting Ukraine. It promotes the important goals of assisting Ukraine against an aggressive and illegal war waged by Russia, and of compensating Ukraine and the Ukrainian people for the billions of dollars of harm to them caused by Russia. Nonetheless, confiscation of foreign central bank assets held in the United States is not without risks. The president should carefully weigh them before taking the further, unprecedented, action of confiscating Russia’s foreign currency reserves deposited in the United States.

How the Law Works

The law requires in Section 103 that all frozen Russian sovereign assets remain frozen until hostilities between Russia and Ukraine have ended, and Russia has fully compensated Ukraine or is participating in an international mechanism that will do so. Note that, in this respect, the law will limit the president’s power: He cannot lift sanctions already imposed. The law also requires that the administration determine, and report to Congress, the location of Russian sovereign assets.

In its most important provision, the law provides in Section 104(b)(1) that:

the President may seize, confiscate, transfer, or vest any Russian aggressor state sovereign assets, in whole or in part, and including any interest or interests in such assets, subject to the jurisdiction of the United States 

Confiscations may be effectuated “through instructions or licenses or in such other manner as the President determines appropriate,” the law continues in Section 104(b)(4). These are sweeping and unprecedented powers of confiscation conferred upon the president. Section 2(6)(A)(i) is absolutely clear that Russian sovereign assets subject to confiscation include central bank assets. Those assets are entitled to a very high level of protection under international law.

Conditions and Limitations on the President’s Power

Improving on prior versions of the bill, the REPO Act passed by Congress provides a series of checks on the president’s power. Those checks are an interesting mix of constraints imposed—or potentially imposed—by Congress, other executive branch actors, and even (in very limited situations) the courts.

The president may confiscate:

• only “for the purpose of transferring those funds to the Ukraine Support Fund.” Section 104(b)(1); and 
  

• only after certifying that the confiscation is “in the national interests of the United States” and that he has “meaningfully coordinated with G7 leaders to take multilateral action with regard to any seizure, confiscation, vesting, or transfer of Russian sovereign assets for the benefit of Ukraine.” Section 104(c).
  

These are modest conditions, to be sure. Once the money is confiscated, title vests in the United States government (“provided that no use of those funds other than uses of those funds consistent with subsection (f)”).

The president is required to deposit the confiscated assets into a newly-established Ukrainian Support Fund (“Fund”), which:

shall be available to the Secretary of State, in consultation with the Administrator of the United States Agency for International Development, for the purpose of providing assistance to Ukraine for the damage resulting from the unlawful invasion by the Russian Federation that began on February 24, 2022.

The specific permissible uses for assets in the Fund are:

(A) Making contributions to an international body, fund, or mechanism established consistent with section 105(a) that is charged with determining and administering compensation or providing assistance to Ukraine.

(B) Supporting reconstruction, rebuilding, and recovery efforts in Ukraine.

(C) Providing economic and humanitarian assistance to the people of Ukraine.

Proponents of the law sometimes tout the use of an international fund or mechanism to administer the money that goes to Ukraine. The new law has a long section, Section 105, outlining steps that the president may determine are appropriate in setting up such an international mechanism, including consultation with the G7, European Union, Australia, and other allies. Such steps could also include the establishment of a register of damages and a compensation mechanism. The act also requires the secretary of state to report on the reconstruction and humanitarian needs of Ukraine and his plans to engage in bilateral or multilateral diplomacy.

Cooperation with an international mechanism is not required for disbursement, however. What is required is the president to certify that there is a plan to ensure transparency and accountability from “any account receiving the funds.” That plan must be communicated to Congress, per Section 104(g)(1) and (2). Prior to dispersing money from the Fund, the secretary of state must identify to Congress the recipient of the funds, along with the amount and purpose of the disbursement, as laid out in Section 104(f)(3). Congress has 15 days after receiving this notification to enact into law a “joint resolution . . . prohibiting such transfer.” 

The foregoing provides a series of notification and certification hurdles. It also provides a hard congressional check on the disbursement of assets from the Fund. But because the joint resolution prohibiting a transfer of funds must be “enacted into law,” such a resolution would apparently require supermajority support—presumably it would have to overcome a presidential veto.

There are also checks within the executive branch. The funds are “made available” to the secretary of state, who has the power to disperse them—not the president. To be sure, the secretary serves at the president’s pleasure, but this limitation nonetheless provides a potentially important internal hurdle. In practice, it will likely safeguard only against an abuse of the law by the president. But that is better than nothing.

Open Constitutional Issues

Judicial review is largely unavailable under the statute. Section 103, which provides the authority to confiscate, provides that “any action taken under this section shall not be subject to judicial review,” except for any alleging a denial of “rights under the Constitution of the United States,” according to Section 103(k)(2).

Does Russia have constitutional rights that would prevent the confiscation of its property located in the United States?  Although the Supreme Court has suggested in dicta that foreign states are not “persons” for Fifth Amendment purposes, the historical record is unequivocal that when the Bill of Rights was adopted, the words “persons” included both corporate persons and nations. Consider, for example, the words of Emmerich de Vattel, an 18th-century law scholar whose work was extremely well-known: “[t]he law of nations is the law of sovereigns: free and independent states are moral persons, whose rights and obligations we are to establish in this treatise.” There are many, many more examples, making this part of the analysis easy: Russia is entitled to Fifth Amendment “due process” (and perhaps also to the protections of the Takings Clause).

The difficult question, however, is what protections due process would actually afford to Russia under these circumstances. Individual people in the United States are generally entitled to some form of judicial process before being deprived of their real property, a requirement that would make confiscations pursuant to the REPO Act unconstitutional. But it is not clear that those same protections apply to foreign states, whose right to have property in the United States is subject to entirely different constraints. In that way, Russia’s property interest might be more akin to social security benefits, the deprivation of which does not require a judicial hearing. 

International Legal Implications of REPO

Much has been written about countermeasures as an international legal justification for the confiscation of Russian central bank assets located both in the United States and in other G7 countries. Perhaps it is thus unsurprising that the findings of Congress in REPO’s Section 101(a)(7) include that “the United States is legally entitled to take countermeasures that are proportionate and aimed at inducing the Russian Federation to comply with its international obligations.” Countermeasures in international law provide a legal excuse or justification for conduct that would otherwise violate international law. The United States only needs to rely on countermeasures for conduct that would otherwise violate international law. But the act does not identify the conduct by the United States that would otherwise violate international law. The confiscatory measures may not violate the foreign sovereign immunity to which Russia is entitled because they do not involve an assertion of judicial power. In other words, the reliance on countermeasures suggests that Congress thinks the act will put the United States in violation of international law—but how, exactly? One might argue that transferring ownership of real property located in the United States violates customary international law on the expropriation of alien property, that it is an inherently judicial function for which immunity protection must apply, or that it violates the prohibition on non-intervention. But the act leaves all of this open, leading one to wonder why the United States appeared to make a concession like this. 

For many other countries, such as Canada, confiscation is apparently not possible without using judicial measures. Thus their statute that allows for expropriation of Russian sovereign property provides for a judicial act to effectuate the change in ownership, raising immunity problems. Foreign central bank assets are entitled to a very high level of immunity under international law, so for these countries, the doctrine of countermeasures is vitally important. A great deal of excellent work has been produced on countermeasures and the applicability of the doctrine to various ways of confiscating Russian central bank assets and making them available to Ukraine. Some believe that the doctrine is simply inapplicable. As Christine Lagard, President of the European Central Bank, put the point last week: Confiscating Russian assets would “start breaking the international legal order that you want to protect.” 

Even those who think that the doctrine of countermeasures is applicable must concede that confiscation under REPO (and by other countries) will mark a sea change. It throws the doctrine of countermeasures wide open to include not only the traditional form (measures by an injured state such as Ukraine), but also measures taken by any or all countries on the injured states’ behalf. It will expand the use of countermeasures out of the limited situations in which they have been used—as reversible measures to induce compliance with international law—into an open-ended self-help device for any country that believes it is entitled to reparations. 

Of course, weaker states have more to lose because they lack the capacity to impose such measures on the same scale as the United States. But that is a reason for restraint, not a green light for action. And there are many other reasons for hesitation, including the potential to further splinter the global economic and financial systems, ones which have so greatly benefited the United States. After all, our ability to impose sanctions at all depends on the use by other countries of those very systems. It bears reminding that even with respect to the war in Ukraine, sanctions imposed by the United States and allied countries have not been nearly as effective as we might have hoped—a “humbling” reality. Without the support of the rest of the world, the U.S. has a limited ability to achieve its global policy objectives. Please act carefully, Mr. President.