Weekly analytics for 14 — 20 June

The American draft REPO Act as an attempt to fill the compensation fund for the reconstruction of Ukraine: Why is it important?

Event

A draft law which provides for additional assistance to Ukraine through the use of frozen Russian state assets has been re-introduced to the Senate and the House of Representatives of US Congress. The draft law “On Rebuilding Economic Prosperity and Opportunity for Ukrainians Act” (REPO) was presented in both chambers on June 15.

If the REPO Act is passed, it would give the US President the authority to confiscate Russian sovereign assets frozen in the country and hand them over for the reconstruction of Ukraine.

CPLR’s assessment

Russia’s state assets are extremely necessary to fill the future compensation mechanism for Ukraine. REPO defines sovereign assets of the Russian Federation as any funds and property directly or indirectly controlled by the Russian government (for example, funds of the Central Bank or the Ministry of Finance of Russian Federation).

Most importantly, this draft law authorizes the US President to confiscate Russian state assets frozen on the territory of the country and transfer them to a specially created fund. Money from the fund can be transferred directly to Ukraine or to an international compensation mechanism that has yet to be created.

Moreover, the withdrawal of Russian troops from the territory of Ukraine and Russia’s consent to compensate for the damage caused as a result of the armed conflict are conditions for REPO’s termination. Until then, the frozen funds of sanctioned Russian companies cannot be returned to them. At the same time, this ban can be appealed in court. Furthermore, REPO recognizes that Russia can apply, for example, to the UN’s International Court of Justice to appeal against the relevant asset confiscation actions.

According to the draft law, the President of the USA is instructed to cooperate with partners in creating an international compensation mechanism for Ukraine, and the State Department is given more resources to coordinate intergovernmental measures to confiscate Russian sovereign assets in other countries.

Unlike the case with the frozen fund of sanctioned Russian oligarchs, the confiscation of funds and property of the Russian state comes down to international law. State assets are endowed with international sovereign immunity and not subject to another country’s jurisdiction. The legality of such a step is still a subject of debate from the point of view of property rights, in particular its international legal dimension.

However, as noted by REPO Act’s sponsors J. Risch, S. Whitehouse, M. McCall and M. Kaptur, confiscation of Russian assets should be considered a countermeasure and a reaction to illegal armed aggression, which will guarantee compensation of damages to Ukraine. Indeed, the norm on state immunity, while having a customary character, is not absolute and imperative. A number of national laws and international legal acts contain exceptions to the states’ immunity. Such an exception is explained by the concept of jus cogens in international law, which includes the norm on the prohibition of aggression. By violating this imperative prohibition, Russia bears obligations erga omnes (to the entire international community). This means that not only the state-victim of aggression, but also all countries in the world have the right to take legitimate actions in response to the violation of the prohibition of armed aggression. Agreements regarding exception to the norm of sovereign immunity for the aggressor state, both at the national level and at the level of international treaties, and the application of the institution of countermeasures can be such actions.

It can be claimed that this American draft law is important for Ukraine: REPO fits into the context of efforts to develop a compensation mechanism. It should be remembered that this document, like the Register of Damages, which was recently agreed within the framework of the Council of Europe, covers only damages caused after February 24, 2022. In addition, REPO contains a number of obvious “weak points” (such as Russia’s possibility to appeal to an international court or the provision on Russia’s consent to compensate for damages as a condition for the termination of the document).

Considering all the advantages and disadvantages, the REPO Act can be seen as an “ice breaker” in the discussion on legitimacy of confiscation of sovereign assets of the Russian Federation and their transfer to Ukraine. Even if the document does not become US federal law, it will demonstrate that international law allows for countermeasures and the exclusion of property of an aggressor state from sovereign immunities. From an international law point of view, intergovernmental cooperation on law-making amendments regarding the aggressor state in the legal institution of sovereign immunity, as well as joint measures to confiscate and transfer Russian state assets are both legitimate. It is the determination to do so that is lacking. Fortunately, REPO can become that very kick-start step in this regard.