Unravelling the Frozen Assets Conundrum: Strategic Approaches to the Confiscation of Russian Assets in the EU

By | April 22, 2024

The United States, the European Union (EU), and other jurisdictions have imposed restrictive measures (sanctions) against Russia, including asset freezes, in response to the war of aggression against Ukraine. The latest available data shows that frozen assets belonging to sanctioned Russian individuals and entities amount to 21.5 billion Euros. Furthermore, the frozen assets of the Russian Central Bank (RCB) amount to a staggering 300 billion Euros. This represents approximately half of the RCB’s foreign reserves before the conflict erupted in 2022. To put these numbers in perspective, the estimated cost of reconstructing Ukraine ranges between $410 billion and $750 billion. Clearly, there is a compelling case for utilizing Russian frozen assets, or a portion of them, to support Ukraine’s post-war reconstruction. 

Tracing and Freezing Russian Assets 

One of the primary challenges in this endeavor is the need to maintain and enhance mechanisms for tracing and freezing Russian assets. In response to the Russian invasion, the United States and the EU have established dedicated task forces to address this issue. The EU, G7 countries, and Australia, jointly created the Russian Elites, Proxies, and Oligarchs (REPO) Task Force.  

To strengthen tracing capabilities, a proposed EU Directive on asset recovery and confiscation includes provisions to empower Asset Recovery Offices in EU Member States to trace assets of sanctioned individuals and cooperate with EU agencies and non-EU countries. However, it is worth considering more innovative approaches, such as a variation of the ‘Lex Duvalier’ or ‘Loi sur les valeurs patrimoniales d’origine illicite’, a piece of federal legislation adopted in Switzerland in 2015, to facilitate the confiscation of assets belonging to former Haitian dictator Jean-Claude Duvalier. This might involve shifting the burden of proof regarding the legality of frozen assets under specific circumstances. 

Asset Freezes vs Confiscation 

It is important to understand that freezing assets is a temporary measure. In the case of Russian assets, if a peace agreement is reached requiring reparations, we have a clear path to utilize the frozen assets for that purpose. However, if a peace agreement does not require reparations or sets the amount at less than the value of frozen RCB assets, the justification for the freeze would cease to exist, potentially enabling Russia to demand the return of these assets.  

On the other hand, confiscation represents a permanent deprivation of property and a transfer of ownership to the confiscating State or States. To confiscate private Russian assets, significant legal obstacles must be overcome, including the need for a criminal conviction or, if a new legal basis is introduced, a link to the war. The protection against expropriation under investment treaties must also be taken into consideration. Each case needs to be argued in court, making it a complex and lengthy process. Sovereign assets, particularly frozen RCB assets, pose even more complexities, as we will see in the following section. 

Sovereign Immunity 

A crucial aspect to consider when contemplating confiscating RCB assets is sovereign immunity. RCB foreign reserves are generally considered to be covered by immunity under international law, protecting them from “attachment, arrest, and execution.” Confiscating RCB assets under international law would require either a UN Security Council resolution (which Russia will veto), a judgment of the International Court of Justice (which requires Russia’s consent), or a post-war settlement (which again necessitates Russia’s agreement). 

Legal Bases for Confiscation 

But can we build a case for confiscation otherwise? There are legal bases that can be explored. UN General Assembly Resolutions have recognized Russia’s international responsibility for violations of international law and the need for an international mechanism for reparation; nevertheless, they are not binding instruments under international law. Article 31 of the Principles of State Responsibility could provide legal grounds for action, as could Article 49. Ukraine could invoke these provisions as the injured party, but it is more difficult for the United States and EU Member States to do it since there are third parties to this issue. More importantly, there is no international judicial forum where such claims could be brought. We have already excluded the possibility of an ICJ judgment; similarly, the International Criminal Court (ICC) could not be involved due to challenges presented by Russia’s stance on the ICC’s jurisdiction. Models like the Iran-U.S. Claims Tribunal or the Iraq Compensation Commission, established to address similar issues, might offer insights. Still, we currently lack a UN Security Council resolution or the agreement of the implicated country, as was the case respectively with the Iranian and Iraqi assets. 

Investing Frozen Assets 

Concerning the management of frozen Russian assets, the European Commission has expressed its support for investing in them, imposing a windfall tax to harness profits, and using them for Ukraine’s reconstruction. This can be achieved through the following steps: 

  1. Keeping profits from these assets separate on financial institutions’ balance sheets.
  2. Investing these assets in “liquid, highly-rated assets” with short maturities, employing a structured management approach.
  3. Taxing (not confiscating) the proceeds and transferring tax revenue to the EU budget to support Ukraine’s reconstruction, which is a legally feasible approach. The European Council of October 26-27 supported  the idea.

Disruptive litigation from other parties 

Individuals and entities that have previously secured judgments against Russia, including Ukrainian state-owned enterprises, and other parties, notably victims of Russian war crimes, are among the interested parties in this complex scenario. These claimants may seek to employ various legal avenues, including domestic and international litigation, with the aim of attaching frozen RCB assets. This approach would effectively create a chaotic ‘race to the assets’, bypassing the traditional route of seeking reparations. The question that arises is whether these claimants have a realistic chance of succeeding in their efforts. First, they would have to demonstrate that the nominal owner of the assets (RCB) is the same as their judgment debtor (Russia). Thus, they would pierce the corporate veil and hold RCB responsible for Russia’s obligations. It is worth noting that the ICJ recently rejected a similar argument in the case of Iran’s central bank. However, it is essential to recognize that domestic courts are not necessarily bound by this ICJ precedent, and the outcome may be a series of judgments in favor of the claimants. In addition, claimants would need to find exceptions to sovereign immunity and obtain a license from the administrator of the sanctions. 

Other avenues 

Several other ideas have been proposed to address this issue, including legislation for compensation. This would allow victims to claim compensation from Russian assets; new legislation could eliminate sovereign immunity for civil actions seeking monetary damages. The same problems I have presented in previous sections apply here, such as proving that the RCB is Russia’s alter ego.  

Other options include tariffs on Russian oil exports and diverting oil payments into escrow accounts. These alternatives could provide additional sources of funding for Ukraine’s recovery. 

Concluding remarks: The Occam’s razor 

In conclusion, I offer a recommendation based on suggestions from Prof. Paul Stephan. Rather than pursuing outright confiscation, frozen assets could be used to extract concessions from Russia. While the conflict persists, assets will remain frozen, and their proceeds can be invested and taxed, as outlined earlier. When the conflict concludes, countries imposing sanctions could condition the return of assets and the termination of sanctions on Russia’s agreement to make reparations. Furthermore, countries contributing to Ukraine’s reconstruction could make their payments conditional on receiving refunds from Russia after the sanctions are lifted. Importantly, this approach would not require a UN Security Council resolution or any new legal mechanism. In the EU, this would require a carefully drafted provision to be included in Regulation 269/2014. This is why I refer to this option as ‘Occam’s razor,’ a principle that says that if you have two competing ideas, you should opt for the one constructed with the smallest possible set of elements to limit possible points of failure. 


Georgios Pavlidis is Associate Professor of International and EU Law, NUP Cyprus, and holder of a UNESCO Chair, as well as a Jean Monnet Chair, funded by the EU. 

This post was adapted from a presentation given at the Workshop on “Preventing EU funds from reaching sanctioned individuals or entities”, organized by the European Parliament (Committee on Budgetary Control) on November 6th, 2023, in Brussels. 

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