Leonid Nikitinsky: Payback for “US Persons” [Novaya gazeta]

25 May 2024

by Leonid Nikitinsky

Russia does not have enough “soft power” to respond symmetrically to the confiscation of their assets in the United States—and, as usual, it is Russia’s citizens who will bear the brunt.

Source: Novaya gazeta

By his decree No. 442 of 23 May, “On the special procedure of compensation for damage to the Russian Federation and the Russian Central Bank in connection with the hostile actions of the United States,” President Putin has instructed the government, over the next four months, to enact amendments allowing the confiscation in Russia of the property of certain “US persons.” The decree sets the stage for the promised “payback” for a law passed in April in the United States, the 21st Century Peace Through Strength Act.

Why does Novaya think it is important to examine this far from simple issue? Because Russia’s response to the US attack could mean property losses for Russian citizens, and this fits into the expanding scheme for not only criminal and administrative repressions but also the civic and legal persecution of “insufficient patriots.”

Actually, even people who have not engaged in any public activity and may even support the regime could suffer.

The American law, part of a package of military assistance plans for Israel, Taiwan, and Ukraine, provides a mechanism giving the US president the authority to confiscate Russian sovereign (state) assets and direct those funds to aid Ukraine. Mainly these are funds of the Central Bank, the National Prosperity Fund, the Russian Finance Ministry, and other ministries and departments, totaling (in the United States) about $4-5 billion.

In international private law there is the principle of the inviolability of sovereign assets, and until now the confiscation of funds to be sent to Ukraine has been allowed only in connection with the prosecution of violators of sanctions—individual legal and physical persons, but not states. True, President Biden has yet to exercise the authorities given him by the April law, but basically, if we ignore the public-legal reasons that prompted the United States to retreat from the principles of private law, then “they started it first.”

Putin’s response, however, is not symmetrical, due to reasons that have nothing to do with him. Before 24 February 2022, it was advantageous for the Russian government and Central Bank to hold assets abroad, which is where the onset of the SVO [special military operation] found them, seemingly catching them by surprise. For the United States, on the contrary, there was absolutely no reason to hold sovereign assets in Russia, so they have nothing here to confiscate, in the scheme of things. . . .

Eureka! Someone figured out that, although the prospect of wholly compensating for the loss was unrealistic, they could still “kill at least two birds”: smear both the American firms that had left Russia and also a few unpatriotic Russian citizens. 

This is how “US persons”—a fairly convoluted notion from the standpoint of legislative technology and not immediately transparent—came to be.

Let us list the three types of property of these “US persons” on which a fine may be imposed after the amendments are made to Russian legislation:

  1. Sovereign assets per se, for example, the new building of the US embassy set back on land on Novinsky Boulevard (old, like the land itself, on long-term lease), automobiles, and equipment. That’s not much, especially since these types of property are protected by the conventions of international public law;
  2. The property of companies that left Russia after the SVO began (here we have such monsters as Apple and Google). Special legislation permitted them to sell their assets at a price agreed upon with Russia, but they were not allowed to take the money out, and it is being held in rubles in special accounts. According to the plan stemming from decree No. 442, these essentially frozen funds could be permanently confiscated;
  3. And here is the most interesting: according to the decree, “US persons” may also refer to individual Russians—physical persons. These are the lucky—as they imagined themselves to be until now—holders of second, specifically American, passports, as well as those who have a residence permit in the United States (“residents”). The pursuit of these citizens’ property does not promise great gains; on the other hand, it may surgically add to the general persecution of those whom the regime does not like or its individual representatives. 

Additional actions are possible in the form of raiding. 

If, from the legal point of view, point 1 is “symmetrical,” then points 2 and 3 are an obvious mugging: private individuals will have to answer for sovereign obligations that have arisen as a result of breakdowns between states, breakdowns they obviously had no part in.

If they aren’t going to miss the boat, physical “US persons” have four months to prepare. In his decree, the president refers to previously passed laws: No. 127-FZ of 4 June 2018, “On measures of influence on (opposition to) the hostile actions of the United States and other foreign states,” and No. 281-FZ of 30 December 2006, “On special economic measures,” with additions introduced in 2019.

However, these laws apply only to legal persons and envisage only depriving them of their right to perform specific actions with property (blocking). A direct threat to holders of second American passports will be created by amendments that are going to be introduced in the next four months, most likely into these same laws. The decree gives us only the general scheme.

Which is this.

The governmental structures that suffered as a result of asset confiscation in the United States will have to go to court (the Russian Constitution allows stripping of property rights only by a court). In the event of “well-founded assumptions” that they were dealt with unfairly in the United States, the court will send a request to the government commission (which has oversight over foreign investments). 

That commission, in turn, will seek out the property of a “US person,” and by confiscating that property, according to the court, “justice” will be at least partially restored for the government or Russian Central Bank.

We have two different outlines. In one, there will be “plaintiffs” (government structures and the Russian Central Bank); in the other, “defendents” (see list above). To implement this scheme, the decree envisages the creation of a special “federal executive organ” that will (and evidently even before its official creation has already in fact begun to) “identify” especially attractive objectives and/or interesting physical persons.

But what about Russian citizens, not only holders of American passports but also holders of second passports from European countries? Can they sleep peacefully and feel malicious glee at their neighbor’s troubles? Hardly. The Russian list of “hostile countries” included only the United States at first but now basically covers all of Europe as well.

Recently, the European Commission (the highest executive organ of the European Union) announced that, beginning in July, European countries’ banks will be sending the income from Russian sovereign assets frozen there to assist Ukraine. This does not mean confiscating the assets themselves in Europe. In the view there, that would be an excessively blatant violation of international private law. On the other hand, there are substantially more Russian assets there than in the United States—on the order of $300 billion. So that in the near future we should also expect “payback” that may be directed against Russians who hold passports from European countries.

Translated by Marian Schwartz

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