by Mish Shedlock, Mish Talk:
Congress’s aid package encourages the president to seize frozen Russian reserves to support Ukraine. But the legality and desirability are both questionable.
REPO Act Lets Biden Boost Ukraine
The Wall Street Journal writer, Robert B. Zoellick, says REPO Act Lets Biden Boost Ukraine
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Now that Congress has approved assistance for Ukraine, the Biden administration should forge a long-term economic and military plan that will sustain that country in its war of attrition.
If the U.S. continues to dribble out support, it would be making a huge mistake. American public support is likely to wane, and the Europeans are absorbed with internal debates. The nature of the war has changed—militarily, technologically and economically—over more than two years. President Biden’s reactive approach reflects his senatorial style: He waits for events, issues statements and fails to seize the initiative. Congress is giving him one last chance to be a wartime leader.
The aid package’s hidden gem is the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act, or REPO. It encourages Mr. Biden to transfer frozen Russian reserves to a trust fund for Ukraine. Members of Congress from both parties recognize that taxpayers want Mr. Biden to use an estimated $300 billion of Russian money to sustain Ukraine economically before asking Americans to pay more. The administration has hesitated to take this step but must do so now.
Last year Treasury Secretary Janet Yellen justified inaction by raising concerns about how such transfers might affect the value of the dollar and the euro. But two years after freezing the Russian reserves, the dollar is stronger and the euro is fine—in part because the alternatives are poor. China’s yuan isn’t a trustworthy reserve asset. The world would be safer if countries realized that their foreign reserves would be imperiled if they invade the neighbors.
U.S. leadership would be welcomed by Central and Eastern Europeans, the Baltics, Nordics and some in Brussels. In every European security crisis for more than 70 years—Berlin in the 1960s, Euromissiles in the ’70s and ’80s, the unification of Germany and Europe in 1989-90, the Balkan wars—the U.S. had to push for allied action. During Mr. Biden’s decades in the Senate, he yearned to lead, not just talk about foreign policy. Now is his moment.
Zoellick Flat Out Wrong
The world would be much safer if the US minded its own business. It was US meddling in Ukraine, encouraging it to join NATO that led to the destruction that followed.
This does not excuse Putin, but it fully explains what happened. The US was meddling on the internal affairs of Ukraine and Russia and it backfired as is the usual case.
Second, the US the needs to be concerned of blowback for weaponizing he dollar.
Questionable Legality and Policy
Lost in Zoellick’s editorial BS is the simple fact that the legal grounds for the US or EU to confiscate Russian assets are questionable at best.
Second, even if one stretches the legal grounds, is it a smart thing to do?
Some Tips for Congress on How to Seize Russian Assets
Lawfare discusses both points in Some Tips for Congress on How to Seize Russian Assets
As I’ve written previously for Lawfare, the prospect of seizing Russia’s frozen assets raises serious legal and policy questions. In the United States, there are few historical precedents for such action and no established case law. At the international level, it would almost certainly require some progressive development in how states traditionally approach certain fundamental legal doctrines, like countermeasures. And many economic policy experts worry that weakening the extensive legal protections that the United States usually provides to foreign sovereign (and especially central bank) assets could discourage other foreign governments from continuing to tie themselves so closely to the U.S. economy, contributing to a broader trend of “de-dollarization” that threatens to weaken the U.S. economy and undermine the future effectiveness of U.S. sanctions. None of these factors is necessarily prohibitive, but they warrant careful consideration as policymakers make the difficult decision about whether and how to proceed.
Following its 2014 invasion of Crimea, Russia restructured its economy to insulate itself from the possible effects of Western economic sanctions and related measures. Unsurprisingly, a major part of this effort was to move most relevant assets beyond the reach of the United States. As a result, only a small portion of Russia’s frozen assets—as little as $5 billion—is reportedly within the reach of the United States. Most of the frozen funds are instead in the custody of foreign banks, predominantly in Europe, with the lion’s share held by Euroclear, a Belgium-based financial services company. This makes coordinated action with these governments essential if a meaningful portion of the $300 billion total in frozen Russian assets is going to be made available to Ukraine.
In theory, the United States might be able to compel foreign branches of U.S.-connected banks to deliver foreign-held Russian assets to the United States for seizure, a step that could increase the volume of assets within the United States’ reach (though it’s not clear by how much). The House version of the REPO for Ukrainians Act may hint at this possibility by expressly including foreign branches of U.S. banks within the scope of its seizure authority. That said, when the Justice Department explored this possibility in relation to Iranian assets during the Iran hostage crisis, it concluded that such a step may be more costly than it seems: Under the Supreme Court’s 1952 decision in Cities Service Co. v. McGrath, any banks that complied and were found liable for damages in foreign courts could in turn bring Takings Clause claims against the U.S. government, putting much of the final bill on the U.S. taxpayer. In short, there is no easy end-run around multilateral cooperation where the relevant assets lie overseas.
At a minimum, proceeding unilaterally in a way that reticent European allies may well see as unlawful seems like a poor way to persuade them to follow suit. But a multilateral approach would also help protect the United States’ own broader economic and policy interests. The greatest risk that comes with seizing Russian assets is that foreign governments will no longer see the United States as a safe jurisdiction in which to hold their own (particularly central bank) assets.
The most significant legal question raised by proposals to seize Russia’s assets is to what extent Congress has the legal authority to authorize the executive branch to seize foreign government assets. While not entirely unprecedented, seizing a foreign government’s assets is a step that Congress has rarely taken and that federal courts have not squarely addressed. In entering this unfamiliar legal terrain, Congress should be careful to rely on as narrow a claim of legal authority as possible. Not only will this contribute to a stronger legal case, but it will avoid the perception that Congress is ready and able to seize foreign state assets in other circumstances as well, which could unnecessarily contribute to the de-dollarization trend.
While there is ample case law supporting the proposition that Congress can authorize the president to seize foreign government assets, it applies only to a very particular set of circumstances: wartime. Chief Justice John Marshall first recognized this ability in his 1814 opinion in Brown v. United States, wherein he rooted it in both international law—which also allows for certain property seizures in wartime—and Congress’s constitutional authority to “make Rules concerning Captures on Land and Water[.]”
The key takeaway from this history is that seizing Russian assets is not well-trodden legal territory. Peacetime seizures of foreign government assets have been pursued only a few times, each for the very different purpose of compensating U.S. nationals for their expropriated property.
Among the latter is the Takings Clause, which generally requires that the United States provide compensation where it takes private property for public use. While Brown and its fellow wartime precedents are a recognized exception to this requirement, the Supreme Court has firmly held that it applies to foreign individuals and corporations during peacetime. When analyzing a possible peacetime seizure of Iranian assets in 1980, the Justice Department posited that the Takings Clause would not apply because foreign government property was not private property within the scope of its meaning. The Supreme Court has never considered the question, though it has not interpreted the Takings Clause quite so narrowly in subsequent cases.
Given this legal uncertainty, Congress’s best strategy is to limit its actions to those that can be justified under either legal theory. Here that most likely means tying Congress’s actions as closely as possible to wartime precedents while limiting their focus to the property of foreign states (namely Russia). The former is not an easy task, as there are very good policy reasons why neither Congress nor the Biden administration want to suggest that the United States is at war with Russia (which it is not). But Russia’s invasion of Ukraine has undoubtedly triggered a major foreign policy crisis of the sort often associated with armed conflicts in the past. Given this, asserting the authority to seize foreign government assets in response—particularly where they will be used to address the crisis in a manner consistent with international law, as is the case with wartime seizures—would arguably be a limited expansion of Brown and related case law. At the same time, only seizing foreign state property—something not strictly required under Brown—will also allow Congress to argue in the alternative that the Takings Clause isn’t applicable.
The goal should be to provide the necessary authorization to accomplish the objective of seizing Russia’s frozen assets while being minimally disruptive to the legal status quo as it applies to foreign states more generally. By contrast, providing a broader authorization than is necessary may in turn implicate the interests of more foreign states in ways they find concerning, increasing the incentive to disengage with the U.S. economy.
Unfortunately, the current House version of the REPO for Ukrainians Act falls prey to this temptation, as it authorizes the seizure of not just Russian assets, but those of any “affiliated aggressor state” determined by the president to have “provid[ed] significant material assistance to” Russia or Belarus. What this will mean in practice is anyone’s guess. Will it apply to China, a backer of Russia’s that is also a major investor in the United States? Or to India, Israel, or Turkey, allies of the United States that keep ties with Russia and haven’t joined multilateral sanctions efforts? Or to any country that still pursues any trade with Russia, which includes most of Europe (as well as the United States itself)? If such a provision were enacted, all of these foreign governments would have substantially greater reason to fear that their assets might become subject to seizure and thus would have a strong incentive to move those assets out of the reach of the United States. Nor would acting on this authority be easy to square with international law. For these reasons alone, such an open-ended provision should not be included in any authorizing legislation
Finally, both current versions of the REPO for Ukrainians Act take the unusual step of asserting that “[t]he confiscation of Russian sovereign assets … shall not be subject to judicial review[,]” except by “any private individual or entity … asserting due process claims[.]” The goal appears to be to avoid litigation challenges, particularly from Russia, its central bank, and other affected state-owned entities. No doubt this is intended to expedite seizure efforts by avoiding the delay and expense that litigation can entail. But it’s far from clear that such a provision is likely to be effective. Instead of avoiding possible legal issues, Congress should aim to resolve them and clarify the applicable legal regime as quickly as possible—a goal it can better achieve by expediting judicial review instead of trying to avoid it altogether.
Dangerous Precedent
