Oligarch Assets
Freeze, Seize, and Confiscate?
Ever since Russia invaded Ukraine nearly a year ago, and the West implemented unprecedented sanctions against Moscow, its financial sector, government officials, and oligarchs, there’s been an effort to seize and confiscate the assets that Russian oligarchs have squirreled away in the West and use them to rebuild Ukraine.
The desire is understandable, and the use of those assets to reconstruct the country that Moscow has unilaterally tried to destroy may seem justified. In some cases, it is, but we need to be cautious.
First, what is an oligarch? This is something I discussed at length with colleagues at the Association of Certified Anti Money-Laundering Specialists (ACAMS) conference in October, where I was a panelist in a discussion titled, “How to Catch an Oligarch.”
My esteemed copanelist, Gabe Hidalgo of FTI Consulting, made a good point - that we tend to think of oligarchs as a Russian phenomenon, but oligarchs exist everywhere.
They exploit their government ties to generate vast amounts of wealth.
They benefit from corruption, using their political connections to secure sweet deals for their companies worth billions of dollars.
They often repay the ability to profit from government corruption with support for government officials—whether helping fund government projects or moving funds on behalf of their government benefactors.
In the more current Russia context, oligarchs get profitable government contracts to build infrastructure (the Kerch bridge was constructed by sanctioned Russian oligarch Arkady Rotenberg’s Stroygazmontazh) and secure exclusive government deals (after Treasury designated Bank Rossiya as Putin’s personal wallet, and a financial institution that helped Russian elites hide assets offshore, he announced that he would open a ruble-only account with the bank, that Rossiya would become the primary bank in the illegally annexed Crimea, and that it would service payments on Russia's $36 billion wholesale electricity market).
They serve the Kremlin as high-level government officials, and then graduate to plum positions in state-owned or controlled companies to continue siphoning money and enrich themselves.
Freezing sanctioned oligarchs’ assets in the West is one thing. But seizing them and using them for Ukraine’s reconstruction is quite another, and it borders on expropriation, according to the Basel Institute for Governance’s Gretta Fenner.
In our zeal to help Ukraine, we don’t want to become Russia—an authoritarian regime that confiscates assets by force. Freezing assets is a temporary measure that suspends the right of the individual to access those assets. Confiscation is another, permanent matter. So we need to ensure that if assets are confiscated, they are indeed the proceeds of crime.
Confiscation should require a criminal conviction, and although OFAC evidentiaries are pretty comprehensive and conform to a very high standard to include an individual or entity on the SDN list, they are not criminal convictions, so we do need to be cautious not to become the very thing we are punishing.
So, how to go about it?
I’ll say up front that I’m not an attorney, so this is just my amateur opinion.
If we are to start confiscating assets, we need to have evidence of a crime. Sanctions evasion is a crime, and we have imposed penalties—both criminal and financial—on individuals and entities who facilitate sanctions evasion and criminally prosecute evaders and their facilitators. So, perhaps it would make sense to confiscate the assets that are proven to be proceeds of this crime.
The Justice Department in October unsealed an indictment against five Russian nationals who were allegedly acting as “criminal enablers for oligarchs, orchestrating a complex scheme to unlawfully obtain U.S. military technology and Venezuelan sanctioned oil through a myriad of transactions involving shell companies and cryptocurrency.”
The EU in November voted to include sanctions evasion on the list of official EU crimes. It would also make sense that the proceeds of that crime could be subject to confiscation.
As much as I would love to paint every oligarch penny as a criminal proceed, some of those assets are the result of normal business activities. Yes, they can be frozen and seized, if the oligarch in question is on a sanctions list, but non-attorney me doesn’t see any authority to permanently confiscate those assets and used them for the very noble goal of rebuilding Ukraine.
I fully admit I could be wrong here. I fully admit that my heart wants to take all those assets and use them to rebuild what the Russians have destroyed—almost certainly with the help of these oligarchs who move money for sanctioned Russian officials, who help obscure ownership and control, and who help fund Russia’s war in Ukraine.
But we have a thing called “due process” here. Let’s make sure we don’t let that fall by the wayside in our zeal to follow our hearts.
Understood, and agreed. But if wishes were horses, and all that... sigh
A couple of minor but important corrections on the nature of due process:
Due process doesn't require a criminal conviction before assets can be seized, nor, in these cases, should it. What it does require is that there is a pre-existing legal basis for the seizure, and that the putative owner of the property receive notice and a meaningful opportunity to contest the seizure. (For clarity, in constitutional law the term "seize" includes temporary restrictions like freezing assets, but I'll use it in the same sense as Irene did in the OP, meaning a permanent transfer or confiscation.)
It's true that the current statutes require that DOJ prove that frozen assets are "tainted" as the "proceeds or instrumentalities" of crime before seizing them, and it's true that convicting somebody of that crime is quite sufficient. There are, however, other ways. Most of us have heard of "civil asset forfeiture" (CAF), where the government sues the property itself and seeks to seize it. Mostly we hear about CAF in the context of its widespread abuse (like when DOJ went after a family-owned motel in Tewksbury MA, simply because a lot of arrests happened there: https://www.dailysignal.com/2015/05/07/after-having-his-motel-seized-by-the-government-victim-of-civil-asset-forfeiture-reflects-on-his-fight/). CAF is widely abused, largely to the detriment of society's most vulnerable, and that's a problem. Kleptocapture, on the other hand, is pretty much the ideal case for its proper use.
When we're talking about trans-national criminals who aren't US citizens, who aren't in the US, and who are sanctioned six ways from Sunday and would never get a visa to come here, requiring a criminal conviction presents certain logistical problems. Now, it's true that the US manages to find jurisdiction over virtually every trans-national financial crime, but even with a US warrant and an INTERPOL red notice out for them, many of our kleptocrats are functionally immune to extradition. As long as they're in Russia and Putin is in charge there, nobody will lay a hand on them. If they get on his bad side, they're more likely to encounter Russia's infamously unsafe high-floor windows than they are to get extradited to the US. Since the US doesn't do trials in absentia, that could leave any case for asset forfeiture in permanent limbo -- an unacceptable result, particularly given that these folks chose to park assets in US jurisdiction and avail themselves of the many advantages that our financial system provides to its wealthy clients.
Enter civil asset forfeiture. The government must give notice to the owner of the assets -- presumably the custodial institutions have mailing addresses of-record, but publication will do in a pinch. That person must have the opportunity to oppose the forfeiture. Even if they can't come here in person, they need to be able to hire a lawyer and send that lawyer in to argue against the forfeiture if they want to do that. In the era of Zoom Court, they can even "attend" the hearings without personally crossing the border, though due process has not been interpreted to require this.
They're entitled to a fair trial, if they ask for one, before a neutral arbiter -- a US District Judge who hasn't pre-decided the case. They're entitled to an appeal, if one is customarily available in similar cases (it is). If they get those things, and the government can prove that the assets are linked to criminal activity, the judge can order the assets forfeited, and the USG as their owner can do as it wishes with them. All of this IS super important -- not just because the law requires it and the US holds itself out as a nation of laws, though also that. People make mistakes, including people who work for the government. Due process is how we make sure that we're seizing the right assets from the right people for the right reasons, and that those reasons are authorized by law. Otherwise we're just taking assets from people because government officials said they're bad, and at that point our ability to claim any moral high ground is GREATLY diminished.
(Subject matter authority: I'm a law school graduate and practiced criminal defense for 15 years, but never practiced in the area of international sanctions or any related trans-national context.)