Is it possible to confiscate sanctioned assets and use them for public good? How to do this quickly and without compromising the rule of law?
These are some of the questions that CiFAR has been trying to understand since the freezing of Tunisian, Egyptian and Ukrainian assets under the EU’s misappropriation sanctions.
These questions became particularly urgent after the Russian invasion of Ukraine, with many scholars, activists and experts debating how to confiscate the assets of Russian individuals linked to the invasion and use them for the reconstruction of Ukraine.
While the debate over new policies and innovative ways that could be developed to reach both the Russian state and sanctioned individual assets continues, many experts agree that starting financial investigations into the personal assets of sanctioned individuals is currently the only way to possibly confiscate them.
Past attempts to recover sanctioned assets: the case of EU misappropriation sanctions
Until now, sanctions have been considered by many as a temporary political measure used to signal a certain message and would only rarely trigger financial investigations into the assets and actions of listed individuals.
One of the exceptions to this, however, were the sanctions imposed by the EU and Switzerland in the aftermath of the revolutions in Egypt (2011), Tunisia (2011), and Ukraine (2014). Besides signalling support to the new revolutionary regimes, the core aim of these so-called misappropriation sanctions was to allow enough time for law enforcement in the countries of origin to prosecute sanctioned individuals and investigate the origin of their assets.
Over the years, however, only a very few designees have been indicted in the countries of origin, and therefore the investigation, seizure and ultimate recovery of stolen assets has been successful in only a handful of instances in each country.
What lies behind this failure is not only the inability of new transitioning regimes to successfully gather evidence and prosecute former rulers for their financial crimes, but also the lack of initiative and support from the EU Member States and Switzerland to proactively investigate these assets.
For example, Switzerland demanded that Egyptian authorities prove the allegations that the assets of individuals frozen by sanctions were obtained illegally. For lack of results and evidence provided by the Egyptian authorities, Switzerland ceased mutual legal efforts with Egypt in 2017.
Current attempts to recover sanctioned assets: the Freeze to Seize debate
Many years have passed since the imposition of misappropriation sanctions and attempts to recover the assets allegedly stolen from the people of Egypt, Tunisia and Ukraine. However, it was only after the Russian invasion of Ukraine that triggered innovation in policies and practises around sanctions and sparked a wide debate about the potential to confiscate some of the frozen assets.
What is particularly new is the political will to investigate and pursue these assets proactively by the sanctioning countries. This also stems from the fact that these sanctions have been imposed on individuals who are still in power or who continue to enjoy political support in Russia. Therefore, cooperation with Russian authorities over the confiscation of these assets is unimaginable.
This is in contrast with the case of misappropriation sanctions that were imposed on deposed leaders who fell out of favour. While the sanctioning jurisdictions were trying to help by imposing asset freezes and cooperating with the requesting countries, the investigations were conducted by the states of origin – Egypt, Tunisia, Ukraine. This time, in the case of Russian assets, it is the countries where the assets are hidden that are launching independent investigations into frozen assets.
The so-called “freeze to seize” debate over Russian funds has been occupying experts across the world for many months. When it comes to the question of confiscating sanctioned assets of Russian individuals in a way that is compatible with the current legal practise, the answer so far has been through triggering criminal and civil investigations in the sanctioning jurisdictions. That is, if you do not want to test the boundaries of the current system of law or risk adopting quick but ethically dubious solutions, such as allowing the sanctioned oligarchs to donate frozen funds to Ukraine in exchange for being delisted.
Financial investigations into sanctioned assets: where are we?
We know that some investigations attempting to link sanctioned assets of Russian oligarchs to criminal activity have already started, and some were even successful. Authorities so far have chosen to pursue financial crimes, such as tax offences and money laundering.
Pursuing these offences in the cases of individuals with suspected unexplained wealth makes it possible to start confiscation proceedings upon obtaining sufficient evidence. This is despite the fact that the crimes and their proceeds are not linked to the reason why the sanctions were imposed, – such as undermining Ukrainian territorial integrity.
Italy seized assets worth over EUR 141 million from an architect linked to Putin on the grounds of tax offences. A yacht with an estimated value of USD 90 million belonging to the sanctioned oligarch Viktor Vekselberg was seized by Spain at the request of the United States. The US authorities also requested that Fijian law enforcement commence confiscation proceedings against a USD 300 million yacht of Russian oligarch Suleiman Kerimov. Together with other seized properties, Forbes estimated the total to be around USD 635 million.
While the success of the above-mentioned seizures should be applauded, it likely constitutes only a small amount of illicit assets of Russian origin linked to Putin. More investigations are likely underway, but both criminal and civil investigations into financial crimes are complex and take time. Despite this, we need to encourage jurisdictions across the world to commit resources, start these investigations, cooperate, and strengthen their investigative practise. Investigations are currently the only tested, albeit imperfect, way to deprive these individuals of their ill-gotten gains.