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US Court Allows Forfeiture of Assets that Belong to a Sanctioned Russian Oligarch

In April, 2022, the European Council has announced its “freeze and seize” legislative initiative and formed a so-called Freeze and Seize Task Force. Within this initiative the European Council intends to work out a comprehensive legal framework that would allow EU states to utilize frozen assets that belong to Russian sanctioned individuals and entities to finance the rebuilding of Ukraine. As of now, there no European regulation or court decision exists that would entitle EU states to the frozen Russian assets.

Typically, when a certain asset is frozen (per the court decision or otherwise), its owner is not allowed to transfer it, sell it, or dispose of it. However, it does not mean that the ownership title to this asset is transferred to some other owner. Even if a person or an entity is sanctioned, it does not get stripped off of their ownership rights.

By contrast, the title to the asset that was confiscated as per state body or court authorization transfers from its owner to the state, and the state lawfully treats such asset as its property.

As an example of the latter, in late 2022, U.S. President signed the Asset Seizure for Ukraine Reconstruction Act that allows the U.S. Department of Justice to transfer some forfeited (i.e. confiscated) Russian assets to the State Department. However, this transfer is allowed only if a sanctioned entity or individual breaches the sanctions regime. Plus, U.S. law limits how the government may use such assets.

Following the above-mentioned U.S. Regulation, February 4, 2023, U.S. District Judge has ruled that $5.4 million belonging to a sanctioned Russian businessman may be confiscated by U.S. prosecutors. This is the first forfeiture order for assets belonging to a Russian oligarch since the Department of Justice’s task force was launched in 2022 with the aim of targeting the finances of allies of the Russian President. This oligarch has been accused by U.S. authorities of financing armed forces in Crimea. He was sanctioned by the U.S. in 2014, and charged with sanctions violations in 2022.

The DOJ task force has temporarily seized assets belonging to other oligarchs, including a $300 million yacht, but has not yet won orders to permanently forfeit them.

The funds in this oligarch’s U.S. bank account were subject to forfeiture because he attempted to transfer them to a business partner in violation of U.S. sanctions. The United States’ Prosecutor General has already approved the handover of the confiscated assets to finance the cost of rebuilding Ukraine.

The U.S. District Court ruling, despite being the first one within the Asset Seizure for Ukraine Reconstruction Act framework, is, in fact, no different from the similar confiscation order and does not represent a qualitative change in international sanctions regulation. It is merely a transfer of title due to confiscation.

As a reaction to the discussed judicial decision, we can expect the European Council to elaborate on its “freeze and seize” regulation over the next few weeks.