Sanctions phenomenon: Russia will enshrine in law the seizure of foreign assets
Russia will be able to confiscate the assets of unfriendly countries and persons associated with them who are involved in freezing the Central Bank's foreign exchange reserves abroad. The agencies have agreed on such an initiative - the Law Commission on Legislative Activity will consider it next week, Izvestia has learned. Now for the property of foreigners other restrictions are provided by law - blocking of assets on C-type accounts and transfer of shares of companies to the temporary management of the state. Now they will be able to seize them completely by court. How the volume of assets frozen abroad and in Russia correlate, whether the countries will apply extreme measures and whether they will become a lever in negotiations - in the material of "Izvestia".
Russia will be able to confiscate assets of foreigners
Russia will be able to seize the assets of residents of unfriendly countries, which unreasonably confiscated property of the Russian Federation. Such changes are planned to be fixed in the law - the text has already been agreed with the Central Bank, the Ministry of Finance, the Ministry of Economic Development and the Ministry of Foreign Affairs, as follows from the documents for the meeting of the government commission on legislative activity (Izvestia has them). According to the source, the commission will consider the initiative next week. "Izvestia has sent inquiries to the mentioned agencies and regulators.
The initiative is designed to implement the presidential decree of May 23, 2024, which provides for the procedure of compensation for damage caused to the country due to unfriendly actions of the United States, as follows from the documents for the meeting of the law commission. It is emphasized there: the legislative mechanism can be used against other unfriendly states and persons associated with them, if they unreasonably deprived the Russian Federation or Russians of rights to property.
According to the documents, foreign assets will be able to be transferred to state property - their list will be compiled by the Pravcomission on Foreign Investments. The value of the seized property will also be determined according to a special procedure. And the decision itself will be made in the same way as the usual confiscation procedures - through the arbitration court.
How the transfer of foreign assets to the management of Rosimushchestvo works now?
Prior to this, confiscation of foreign assets has not been carried out in Russia, said Artem Kasumyan, a lawyer of Delcredere Bar Association. So far, the Russian Federation has only imposed restrictions on the use of assets - money and securities of foreign investors from unfriendly states are blocked on C-type accounts. Foreigners cannot alienate certain assets without the consent of the Russian authorities. For example, in order to sell a large block of shares or a stake in a company, they must obtain authorization from the Central Bank and the president.
At the same time, external management was introduced for some assets of unfriendly persons, i.e. the shares of foreign shareholders of these companies were temporarily transferred under the management of Rosimushchestvo, Artem Kasumyan added. Similar measures were applied to the French food company Danone and the Finnish energy company Fortum.
Apparently, the states (both Russia and the West) are still afraid to resort to open confiscation, not wanting to open Pandora's box, emphasized Artem Kasumyan. While the U.S. already has such a legal framework, Russia is just preparing it.
Russia's response to asset confiscation in the West
By drafting a bill on the confiscation of Western assets in Russia, we are giving our response to the US and EU sanctions because of the special operation in Ukraine. They led to the freezing of part of the Central Bank of Russia's foreign exchange reserves. In March 2022, Russian Finance Minister Anton Siluanov said that about $300 billion out of $640 billion of state assets had been frozen. Most of them are kept in the accounts of the Belgian depository Euroclear.
The property of any state is by default protected from the jurisdiction of another country, explained lawyer Artem Kasumyan. "Punitive" confiscations are not accepted by international law. The freezing of Russian assets is considered unjustified as it violates this principle, he clarified. The owner is deprived of the opportunity to use his property for an indefinite period of time - in fact, it is an indirect expropriation.
In addition, in August, Ukraine and the EU countries supporting it began to receive income from the frozen reserves of the Russian Federation. According to the former head of the European diplomacy, Josep Borrell, the EU transferred to them €1.4bn that had accumulated in Russian accounts.
The EU specified that the "unexpected" profits from Russian property "are not sovereign assets," so their transfer to Kiev does not violate property rights. However, the Kremlin called this approach illegal and considered it a reason for possible retaliatory actions.
The purpose of the decree on the seizure of foreign assets is to form a "compensation fund" to respond to the illegal expropriation of Russian assets abroad, presidential spokesman Dmitry Peskov said earlier.
Volume of frozen foreign assets in Russia
At the same time, the volume of non-residents' money and property in Russia is several times lower than our frozen funds abroad, economist Andrei Barkhota emphasized. The presidential decree takes this into account and allows confiscation not only of state assets, but also of those belonging to foreign individuals (citizens or companies).
- "Any assets related to unfriendly states, including real estate, stakes in Russian companies, bank accounts, as well as equipment or infrastructure facilities owned by foreign investors, may be subject to confiscation in Russia," explained Kirill Klimentyev, analyst at Tsifra Broker.
The authorities do not disclose how much foreigners' funds are now blocked in Russia. However, for example, it is known that as early as in the second quarter of 2023, there was 1.06 trillion rubles worth of foreigners' money in the accounts of Russian brokers, recalled Yaroslav Kabakov, Strategy Director of Finam Investment Company. According to the Central Bank, as of January 18, the dollar exchange rate is 102.4 rubles, which means that the Russian Federation holds assets of foreign investors for at least $9.8 billion. This amount is 31 times less than the volume of blocked reserves of the Russian Federation ($300 billion).
How the West will react to possible confiscations
The West's reaction to the adoption of the bill may be polarized, said lawyer Artem Kasumyan. Either it will have a "cooling effect" and prevent the EU from fully confiscating Russian assets, or, on the contrary, it will encourage unfriendly states to take active measures.
Thus, in February 2024, US Treasury Secretary Jeannette Yellen called for finding a way to transfer frozen Russian assets to Ukraine. She added that such a step would encourage the Russian Federation to "come to the negotiating table".
U.S. Department of the Treasury
In response to the bill's passage, the West is more likely to impose additional sanctions, Finam believes. Possible confiscations on both sides may hinder the de-escalation of the Ukrainian conflict, admitted Andrei Barkhota. If such a mechanism appears, it is important to carefully consider how and when it can be applied.
Nevertheless, the initiative can indeed become a lever of pressure on countries that hold Russian assets, concluded Kirill Klimentyev of Tsifra Broker. The emergence of a confiscation mechanism in the Russian Federation may force some states to reconsider their position and enter into negotiations.
