On the eve of the new year, the world's information space exploded with news of new changes to the US budget legislation that would allow the US to confiscate the assets of Russian individuals and send them to Ukraine for post-war reconstruction purposes

Source: Українська правда

Since the official text was not published for a long time, all news reports contained a general description of the proposed changes, referring to comments by American politicians on social media and other sources in Congress.

Having received the official text, we investigated in detail what exactly was adopted and whether the adopted changes to the US budget will finally open the way to the rapid and effective confiscation of Russian assets in the United States for Ukraine to obtain them.

On December 29, 2022, U.S. President Joe Biden signed the final text of the fundamental Consolidated Appropriations Act, 2023. As of January 5, 2023, this law has already entered into force. 

In general, the law contains many interesting provisions, and special emphasis is placed on Ukraine and its financing.However, one of the amendments successfully voted by the US Senate on December 22 is of particular interest. 

The amendment, proposed by Senators Lindsey Graham (Republican Party), Sheldon Whitehouse, and Michael Bennet (Democratic Party), explicitly states that the U.S. Department of Justice, represented by the U.S. Attorney General, may transfer to the U.S. Secretary of State the proceeds of property confiscated from sanctioned persons. 

Subsequently, the US Secretary of State, within the framework of the Foreign Assistance Act (1961), may use these proceeds to provide foreign assistance to Ukraine to “repair the damage caused by Russian aggression in Ukraine”.

Content of the amendment

So, what kind of confiscation, property, and persons are we talking about? 

As for the procedures, the law itself and other acts do not establish a separate mechanism for such confiscation. The property confiscated under a criminal sentence or within the framework of civil forfeiture in general (Section 46 of Chapter 18 of the US Code), or under the procedure of confiscation from persons and organizations involved in racketeering and corruption (racketeering activities), which covers a very wide range of crimes in the understanding of US law (paragraphs 1962, 1963 of Section 96 of Chapter 18 of the US Code), is subject to sale and further transfer as international assistance.

The adopted amendments apply to the following types of property:

• Property owned, possessed or controlled by persons who have been sanctioned by the relevant U.S. Presidential Orders. 
• The property involved in violations of the sanctions regime, concerning specific Presidential Orders relating to sanctions imposed on Russian government entities, Russian individuals, and persons who have cooperated with them (Executive Order 14024 of April 15, 2021, which establishes the blocking and prohibition of any transactions involving property of Russian government entities and certain categories of persons who have cooperated with Russia in certain areas; Executive Order 14039 of August 20, 2021, on blocking the property of individuals and organizations associated with the violation of European energy security; Executive Order 14066 of March 8, 2022, on banning the import of certain goods and new investments in the Russian energy sector; Executive Order 14068 of March 11, 2022 on banning the import of certain goods and new investments). 

The law also sets time limits for the application of this mechanism - it will apply to property confiscated before May 1, 2025.

Implications for Ukraine

The key entities that will be subject to these provisions are Russian oligarchs, government officials, and other members of the Russian elite. However, several conclusions can be drawn from the text of this amendment, which indicate that the amendment did not introduce fundamental changes to U.S. law, so it is too early to talk about the beginning of a rapid and effective confiscation of individual Russian assets in favor of Ukraine.

First, as noted above, the amendment is not intended to introduce any new confiscation procedure, but only to authorize certain officials to transfer confiscated property to Ukraine as part of international assistance. 

This means that the confiscation of such assets will be carried out in a general manner, and for this to happen, it is necessary to prove that an offense has occurred. Such grounds may include proof of money laundering, fraud, corruption, etc., or the existence of grounds for civil forfeiture of certain property.

It is known that the White House has been planning to advocate for amendments to the Racketeer Influenced and Corrupt Organizations Act (RICO) since the spring of 2022, under which any violation and circumvention of the sanctions imposed by the President would be considered “racketeering activity”. 

Accordingly, the authorized bodies and persons would not have to search for and prove the fact of committing a crime for each of the offenses, and they would be able to confiscate such property more quickly with certain peculiarities of the procedure. This is the reason why the authors of the amendment separated confiscation for racketeering activities. However, as of today, such changes have not yet entered into force. 

Therefore, the proof of a crime or the existence of grounds for civil forfeiture should still be made by the specifics of each case.

Secondly, according to the general wording of both criminal and civil procedures in the US law, property directly used in the commission of an offense or having a direct connection with such property, as well as proceeds directly or indirectly derived from the commission of an offense, are subject to confiscation (the only exception is the confiscation of property of persons associated with acts of terrorism). 

Thus, we should not expect the confiscation and transfer of “all and any property” belonging to Russian oligarchs and politicians in the United States in the short term.

The law passed by the U.S. Congress on the State Budget for 2023 is generally very positive news and is extremely important for Ukraine, especially the provisions that allow the confiscated property of oligarchs, politicians, and other sanctioned persons to be used to help Ukraine. 

However, it should be borne in mind that such confiscation will take place under a general criminal or civil procedure, which has many restrictions and safeguards and will take a long time in each case. Therefore, there is still much work tobe done to create a fast and effective mechanism for compensating Ukraine for the losses and damages incurred.