27. February 2023

FCPA Blog: How seizing sanctioned assets can strengthen the rule of law

This blog was originally published on the FCPA Blog, which was discontinued in February 2024.

Hundreds of billions of dollars of Russian assets sit frozen in bank accounts, buildings, and harbours, thanks to the unprecedented financial sanctions rolled out since the full-scale invasion of Ukraine on February 2022. Understandably, states holding large quantities of Russian assets are under political pressure to permanently seize these and redirect the money to support Ukraine.

But political pressure and rule of law are different things, and permanently seizing those assets is not as easy as some make it sound. Hence the debate that is currently raging: should states be able to confiscate those assets purely on the basis that they have been sanctioned?

A dangerous path

Our recent working paper From Sanctions to Confiscation While Upholding the Rule of Law examines this debate in depth. It considers the justifiability and legality of new legislative mechanisms that allow a state to permanently seize an asset purely because its holder is under sanction. Canada has already included such a mechanism in its Special Economic Measures Act, though it is yet to be tested in court.

In brief, our analysis concludes that any mechanisms used to confiscate assets need to be in line with the rule of law. They must respect established legal rights and afford due process. If they do not, states open themselves up to legal challenges and the possibility of having confiscation orders overturned after years of wrangling in higher courts. 

A better way

The good news is that most states already have established pathways to target assets that are frozen under sanctions. 

In the working paper, we highlight how both criminal and civil (non-conviction-based) forfeiture mechanisms can be used to target assets where they can be linked to offenses such as sanctions violations, money laundering, or organised crime. 

The U.S. has long used civil forfeiture mechanisms to confiscate assets where it can be demonstrated to a civil standard of proof that the assets were derived from or used in criminal activity. Such mechanisms do not require a criminal conviction before they can be applied. This makes them a powerful option to target the assets of kleptocrats adept at sidestepping criminal prosecutions.

Another option to seize financially sanctioned assets would be unexplained wealth or illicit enrichment legislation. Since such laws reverse the burden of proof onto a person to demonstrate the lawful sources of their assets, states would not need to acquire evidence of criminal activity from potentially uncooperative jurisdictions.

Not all countries, however, have non-conviction-based forfeiture or unexplained wealth mechanisms. Where they do, their scope varies widely, and international cooperation is a challenge. Introducing, applying, and cooperating in the context of these laws would go a long way to targeting those frozen assets. 

Strengthening systems

Beyond maximising the toolkit to target assets frozen under sanctions, states can also make smaller but necessary adjustments to maximise the potential of their laws.

These may include broadening the scope of relevant terms such as “property” or “money laundering” or ensuring that non-conviction-based forfeiture mechanisms apply to the widest possible definition of “unlawful conduct.” 

As the U.S. has done, states may also need to amend laws governing the end use of seized assets to permit them to be redirected to the victims of aggression rather than returned to the aggressor state from which they were stolen.

Beyond legislation, states could improve domestic and international coordination by establishing specialist law enforcement task forces such as the U.S. Task Force KleptoCapture and the Russian Elites, Proxies, and Oligarchs Task Force. And as anti-corruption advocates have argued for many years, allocating adequate resources to these efforts so that they can actually be effective is fundamental.

Bolstering defences against kleptocracy

Strengthening and applying established asset recovery mechanisms will not only increase the chances of successfully seizing assets in the long run. It will also uphold the rule of law that the Ukrainians are fighting for.

Beyond that, concerted efforts to strengthen asset recovery mechanisms and cooperation will aid in the broader fight against corruption and related financial crimes.

Corruption is a national security issue and a global security imperative. Stopping corruption is key to stopping kleptocracies from gaining illegitimate power and influence – and, as we have sadly seen, using that to launch illegal wars and to corrupt the rules-based order.

Gretta Fenner

Managing Director (2005–2008 and 2011–2024)

Andrew Dornbierer

Senior Specialist, Asset Recovery
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