24 Jun Options for a Peace Settlement in Ukraine: Options Paper VIII – Sanctions in the Ukraine–Russian War: Proposed Solutions for the Peace Process and War Crimes Prosecutions
[Sara Elizabeth Dill is Partner at Anethum Global (London, England), a Certified Global Sanctions and Financial Crimes Specialist, and Officer with the International Bar Association War Crimes Committee. Layla Abi-Falah is a U.S.-Qualified International Human Rights Lawyer and LL.M. Candidate in Public International Law. The opinions expressed herein are the authors’ alone.]
Throughout history, rebuilding and reconciliation in post-conflict situations is hampered by a lack of funding for reconstruction, restitution, and reparations—leaving communities irreparably broken and victims with no redress, whether following convictions at tribunals or the signing of a peace treaty. The most recent example comes from a March 2021 award by the International Criminal Court (hereinafter “ICC”) of $30 million to the victims of Bosco Ntaganda, a rebel leader from the Democratic Republic of the Congo convicted of 18 counts of crimes against humanity and war crimes. However, the ICC has been unable to seize or locate Ntaganda’s assets to satisfy this judgment, thus placing the burden of reparations on nations themselves. The Bemba case further highlights areas where ICC procedure and unsystematic cooperation with states fails to ensure the effective seizure, freezing, maintenance, and forfeiture/distribution, or return, of assets—a problem that this proposal will attempt to solve within the cadre of the Ukraine – Russia conflict and beyond through the inclusion of targeted, human rights sanctions and related asset recovery mechanisms in the peace settlement process.
Human rights and conflict-related sanctions are utilized at an exponentially increased frequency, especially following the adoption of Global Magnitsky sanctions regimes that target individual human rights abusers and entities that they own or control. Since the commencement of the Ukraine-Russia conflict, hundreds of Russian individuals and multiple corporations have been designated by countries as sanctions targets, leading to the freezing of such private assets and restriction of access to global financial and trade systems. The Russian government imposed its own set of sanctions in response. Some experts have put forward the idea that by sanctioning oligarchs and other high-ranking officials, non-military pressure will be placed on the parties to reach a peaceful settlement and end the conflict. Other rationales have included sanctioning private assets with a direct relation to criminal activity and/or war crimes in Ukraine. Such measures are taking place as both Russia and Ukraine are prosecuting and convicting accused war criminals and the ICC has commenced an investigation into the situation in Ukraine for war crimes, crimes against humanity, and genocide.
Such human rights sanctions have a critical role to play within the process of domestic and potential ICC prosecutions as well as the claims and rebuilding process. Thus, this paper seeks to outline the relationship between sanctions, reparations, and the international criminal justice process as part of a peace settlement for the Ukraine–Russia conflict. However, the proposal set forth in this paper may serve as a model for future implementation in other post-conflict settings. Namely, whilst the below proposals apply to sanctions imposed against private individuals and private assets that may be subject to forfeiture and/or seizure, and not as to public state assets (such as central bank reserves) or trade embargoes and other broad based measures, the management of such assets and resolution of other types of sanctions will need to be addressed in future analysis to avoid asset allocation problems related to the present situation in Afghanistan. Moreover, this paper will not attempt to provide an in-depth analysis of the legal basis or procedures for sanctions, asset recovery, forfeiture processes, and reparations as there are excellent resources that summarize the background and recommendations on the legal framework (Pavlidis, 2021; Moss, 2021; Birkett, 2020; Birkett, 2019; Ferstman, 2016; Martinez, 2014; McCarthy, 2011).
As we look to the sanctions imposed within the context of the Ukraine – Russia war, several issues come to the forefront that will guide the subsequent proposals for a peace or settlement agreement. First, the world has seen an unprecedented level in the use of sanctions, seizures, and blocking of assets against Russian individuals and corporations – even those with no military or defense involvement, but who are seen as providing utility, financial resources, and/or support to the Russian military or Government in what is considered an unlawful invasion and interference with the sovereignty and territorial integrity of Ukraine. Sanctions have been imposed under a number of different rationales, ranging from direct relation to criminal activity and/or war crimes, to broader aspects of targeting those closest to Putin in an attempt to put pressure on Russia to halt their offensive in Ukraine.
There is also the goal of hurting the Russian economy, making it impossible to conduct normal business in Russia and thus impeding a revenue stream that could fund and support the war effort. Some measures are more of an aspect of foreign policy, including sanctions targeting Russia’s financial system, the wealth of powerful individuals, and Russian fossil fuels, and are designed to punish Putin and the oligarchs who support and depend on him. It must be noted, however, that trade embargoes, denial of access to the SWIFT banking system, and other similar measures do not give rise to forfeitable assets that can later be repurposed for restitution or reparations measures or as part of a fine or penalty in the criminal justice process.
However, questions exist as to whether the oligarchs targeted by sanctions would ever be charged with war crimes or crimes against humanity – even from the aiding and abetting standpoint—thus calling into question the validity or usefulness of sanctions and highlighting the need to ensure due process and legitimacy in any processes, including the ability of designees to challenge such sanctions. Some of those subjected to sanctions have argued that their inclusion as a Specially Designated National (hereinafter “SDN”) is improper such that sanctions should be lifted. A number of dual Russian-EU/UK nationals have filed lawsuits to remove their designation and release their assets, or a portion thereof. As the war continues to escalate four months following Russia’s initial invasion, it appears that such measures have not had the intended impact.
The United States, United Kingdom, Canada, and other countries have indicated plans to ease the process in which the assets of sanctioned individuals may be seized and forfeited. The Biden Administration in the U.S. announced a streamlined process to forfeit property (including an expedited review procedure before the federal courts), a new criminal offense that would make it unlawful for any person to knowingly or intentionally possess proceeds directly obtained from corrupt dealings with the Russian government, as well as an expansion of the definition of racketeering to include sanctions evasion. It also includes a plan for an expedited process to transfer forfeited Russian funds to Ukraine. The US proposal also would allow for the forfeiture of property used to evade or facilitate sanctions violations.
France recently announced that it would be selling a seized Russian yacht at auction, given the exorbitant storage and maintenance costs. It is likely other nations will begin to do the same. Whilst this may result in the best preservation of liquid assets, concerns arise regarding the protection of the rights of the property owners, especially where challenges may arise as to the legality of the original imposition of sanctions and seizure of property as well as due process concerns, including issues of extra-territorial jurisdiction and access to justice. Thus, the appointment of receivers, trustees, and evaluation experts would at a minimum provide transparency and a level of competency to the process, especially when assets are being liquidated.
Suggested Provisions Related to Sanctions in a Ukraine – Russia Peace Agreement
Any peace agreement or settlement between Russia and Ukraine thus needs to include provisions on existing sanctions, the easing or removal of sanctions, the imposition of future sanctions, as well as management and repurposing of assets. Ideally, a standing authoritative body would be established specifically regarding sanctions.
The development of a claims commission or other similar body to govern reparations or restitution should implement matters of sanctions and frozen assets and have provisions that take these matters into account. The Authors note the concurrently published article in the Ukraine Peace Settlement Project, and recommend that, in addition to inclusion in the criminal justice process, any claims commission should work with a group established to govern sanctions matters – either as a subgroup to the claims commission or as an independent body that coordinates with the various sectors handling assets and the other consequences of sanctions designations.
Sections of a peace agreement related to sanctions should consider the uniqueness of ongoing investigations, evidence gathering, documentation, and even prosecutions and convictions in Ukrainian and Russian courts of soldiers for war crimes. Any agreement should also take into consideration the global impact of sanctions, including inflation resulting from restrictions on Russian oil and gas exports as well as the growing food crisis that will impact nations already struggling with famine.
An agreement should also consider the easing (or re-imposition) of sanctions based on the behavior of the parties. One option is a staggered, or carrot and stick approach. As troops withdraw, scale back their operations, cooperate with investigators, and surrender wanted persons for arrest and prosecution, sanctions can be scaled back, assets can be unfrozen for legitimate peaceful purposes, and visa bans can be lifted.
In theory, this sounds beneficial. In practice, it could potentially create a nightmare for the already overwhelmed sanctions professionals in business and banking. Sanctions elimination or de-listing should be one of the last measures taken as other possibilities exist to provide relief from sanctions (in the forms of specific licenses or judicial or regulatory granting of the unfreezing of particular assets for specified purposes). These forms of temporary relief could be afforded early in the peace process, with full de-listing occurring at a later agreed upon point. Additionally, the parties could agree as to de-listing of specified individuals or entities at the outset and a timetable of when and under what conditions additional individuals or entities will be delisted. Further, because some jurisdictions make sanctions violations a strict liability offense, aside from the legislative and governance hurdles of having a rapid response to sanctions rollbacks or re-imposition, this would also create a nightmare for those attempting to comply with the law and the broad scheme of unilateral and multilateral sanctions. However, any peace agreement could certainly contain a provision of a red line at which point new sanctions or re-designation could occur based on specified acts or omissions.
One area where sanctions could be in a stop/start phase would be on the higher state level or general broad sanctions, such as access to the SWIFT banking system, release of frozen central reserves, or lifting of bans on the importation of oil or natural gas and similar trade embargoes. These actions would not have the day-to-day complexities for sanctions compliance, and are implemented on a broader basis, without the implications to the thousands of individuals and entities that are currently the targets of specific sanctions.
Thus, the following are suggested provisions that a peace or settlement agreement should include.
First, any agreement should contain terms and ensure that all States imposing sanctions or seizing / freezing assets in this context have laws, regulations, and/or procedures that are as uniform as possible as to:
- Required links between specified crimes or unlawful behavior and the assets identified;
- Processes as to the management of assets so as to preserve their value to the greatest extent possible, either in current form or via liquidation and transfer to cash accounts;
- Procedures for the seizure and forfeiture process that meet minimum international standards of due process and rule of law; and
- Legislation and/or regulations for the implementation of court orders, either from domestic jurisdictions or the ICC regarding the seizure or release of funds, including the elimination of sanctions orders or SDN designations.
Second, involved and interested parties to the conflict should cooperate to develop the following:
- A secure digital platform in which all sanctions designations and information regarding asset seizures or freezes can be organized for the benefit of state parties and those individuals or corporations who have been subjected to sanctions;
- Appointment of national contact points, including representatives from State Financial Investigation Units (hereinafter “FIUs”) to coordinate efforts between the coalitions managing assets across borders with the home States in which assets are held and/or sanctions orders are in place;
- An agreement as to whether forfeitures will be civil, criminal, or administrative, or the ability to enter into agreements in different contexts depending on the circumstances (see International and Domestic Legal Authority section for examples);
- The parties must ensure that minimum standards as to burden of proof, requirements of a conviction, or other aspects operate cooperatively with the goals of the forfeiture process, and that individuals facing forfeiture of property have all the rights and remedies under internationally recognized standards of due process, including the right to challenge a forfeiture and means of appellate review of such a decision by an independent and unbiased body or court.
Third, the Parties should agree to the establishment of a sanctions review and enforcement body composed of representatives from interested states—a representative from Ukraine and Russia—and with one additional representative from a state to be nominated by Ukraine and Russia. This body could coordinate between various entities, state parties, courts (including the ICC) and other investigative and financial regulatory bodies (including FATF and INTERPOL). As the current context involves sanctions, designations, and seizures in multiple jurisdictions, the establishment of a centralized commission responsible for delisting and other determinations would circumvent the burdens of multijurisdictional litigation and/or regulatory decision—particularly regarding enforcement issues—whilst ensuring efficiency and judicial economy for designated individuals who, at present, must bring cases and claims before multiple jurisdictions. If sanctions delisting and un-freezing of assets are going to be part of the peace process, ideally there should be a uniform and central body with the authority to engage in this, with third parties agreeing to be bound by its decisions. This body could be responsible for the following:
- Monitoring implementation of sanctions and enforcement, including non-compliance or sanctions evasion enabling by states or individuals, and the creation of an ad hoc mutual legal assistance treaty (“MLAT”) for the sharing of information or transfer of evidence and/or assets;
- Coordinating multilateral designations of additional individuals based on credible information received or changes to existing sanctions;
- Considering requests for exemption, removals of designations, or limited relief or release of funds;
- Establishing further guidelines and procedures to carry out these duties;
- Facilitating the sharing of information and communication and/or negotiations between the parties and interested stakeholders;
- Coordinating any claims or restitution commission, as well as any investigative or prosecutorial bodies or entities;
- Experts to conduct valuation of assets and make recommendations as to their management and preservation;
- Appointment of receivers or trustees to manage assets, providing regular reports to the authority to ensure assets are being preserved and properly managed, with a full and transparent accounting; and
- Any jurisdiction that seized or froze assets pursuant to sanctions related to the conflict would be responsible for making regular reports as to the assets seized or frozen, preservation efforts, or requests for transfer or release of assets. Jurisdictions should have one liaison or focal point to coordinate with the authority, respond to requests for information, or facilitate cooperation and compliance with court or regulatory orders.
Any authority set up to assist in this process should also have clearly established and agreed procedures as to:
- Rights of those appearing before the authority, including access to evidence and procedures to challenge designations, freezes, seizures and/or forfeitures, as well as meaningful review;
- Decision-making authority and procedures (i.e. majority vote, aspects of the proceeding itself, evidentiary rules); and
- Enforcement and implementation of decisions at the state level, including compliance with any orders to remove designations or unfreeze assets.
Finally, the sanctions process should also be closely linked and integrated with the criminal justice systems, whether within nations or at the ICC. This provision would include:
- Forfeiture of assets in exchange for a more lenient sentence or charging decisions, or combined with cooperation / witness testimony / evidence in exchange for immunity; and
- “Investment” in rebuilding Ukraine – developing an economic scheme to use assets that were frozen but unlikely to be forfeited in conjunction with criminal proceedings and creating a temporary cash flow to provide immediate relief and rebuilding of the most necessary structures.
The Role of the ICC in the Peace Settlement Proposal
As sanctions are being imposed amidst the commencement of investigations and prosecutions before domestic courts and the ICC, the interplay and cooperation between sanctions, asset recovery, and international criminal justice is crucial to an effective peace settlement and post-conflict justice to ensure funds are available for reparations to victims. Thus, the operation of sanctions and forfeitures at the ICC must be not only considered but also inform this process.
The principles and law supporting the above proposal for Russia and Ukraine are not new concepts. Precedents for such proposals already exist in both domestic jurisdictions as well as before the ICC. Whilst financial crimes do not fall under the ICC’s jurisdiction, financial investigations for the purpose of “tracing, freezing, seizure and recovery of stolen assets or assets otherwise linked to the commission of international crimes or persons accused of them” is crucial to securing and providing meaningful justice and reparations to victims (ICC Asset Recovery Report, 4; ICC Workshop Report on Cooperation, 1). Specifically, the Rome Statute has provisions related to targeting assets linked to crimes within the Court’s jurisdiction for reparations, forfeiture, or other similar purposes (articles 77(2)(b); 75; and 93(1)(k)).
First, the Office of the Prosecutor (hereinafter “OTP”) conducts financial investigations aimed at identifying financial assets for potential future forfeiture and reparation orders and may make requests to States to trace, freeze, or seize assets (articles 54 and 93(1)(k)). The Pre-Trial Chamber and Registry also have powers and procedures to assist in this process pursuant to articles 57(3)(3) and 93(1)(k).
Following conviction, the relevant Chamber also has the authority to make orders regarding forfeiture, reparations, and financial penalties under articles 75 and 77(2)(b). Pursuant to articles 86-88, State Parties are “legally required to cooperate fully with the Court throughout such financial investigations for the purpose of asset recovery” (ICC Asset Recovery Report, 7).
However, the process has not always gone as smoothly as the Rules would suggest such that the need emerges for better asset management procedures and state cooperation. Such issues, however, may potentially be overcome where the ICC asset recovery regime is part and parcel of a sanctions, asset recovery, and reparations mechanism within the peace agreement between Ukraine and Russia.
International and Domestic Legal Authority
Similar to the ICC, national jurisdictions that have frozen private Russian assets have a myriad of mechanisms for the recovery and repurposing of assets of “individuals and organizations as a consequence of their involvement in conflict”, often requiring three elements: “(a) lawful designation and freezing of assets; (2) lawful confiscation; and (c) where relevant, lawful repurposing, balancing the rights of the designated individual or entity and due process with the rights of victims to effective reparations” (Hogan Lovells et al., 2020; Hogan Lovells et al., 2021).
First, the United Nations system of asset freezing, preservation and management within UN Security Council Resolutions 1373 and 1452, dictates guidelines for the implementation of UN Member State asset freezing legislation, mechanisms for freezing assets internationally, as well as provisions setting forth how States may ‘confiscate or repurpose’ the frozen assets or may impose conditions before such repurposing may take place (Hogan Lovells et al., 2020).
Second, the current asset recovery and confiscation legal framework in place in the EU is found across four legal instruments: (1) the 2007 Asset Recovery Offices Council Decision; (2) the 2014 Confiscation Directive 2014/42/EU; (3) the 2005 Framework decision on confiscation 2005/212/JHA; and (4) Regulation 2018/1805 on mutual recognition of freezing orders and confiscation orders (European Commission, 2022). On 25 May 2022, the European Commission proposed new rules to strengthen asset freezing and confiscation procedures, specifically focused on the assets of Russian oligarchs.
Additionally, EU Member States have individual legislation on sanctions and handling of frozen or seized assets. In Switzerland, for example, the Foreign Illicit Assets Act allows for the freezing, confiscation and restitution of assets “deposited in Switzerland by foreign corrupt officials and their close associates” while including a procedure to “restore the assets to the country of origin for the purpose of improving ‘the living conditions of the inhabitants of the country of origin,” and strengthening “the rule of law in the country of origin’” (Hogan Lovells et al., 2020). France similarly adopted provisions establishing the procedures for the seizure, confiscation, and sale of “ill-gotten gains” of convicted, politically exposed persons, including procedures for the return of proceeds from such sales to “the populations of the countries of origins” (Hogan Lovells et al., 2021; Civil Society Submission, 2022).
In the United Kingdom, the Sanctions and Money Laundering Act 2018 (“SAMLA 2018”) and Unexplained Wealth Orders (“UWO”) under the Proceeds of Crime Act 2002 (POCA) allow for the freezing and/or confiscation of proceeds of crime through civil as well as criminal mechanisms (Hogan Lovells et al., 2020). Under the Magnitsky clause of the SAMLA 2018, for example, the UK can “freeze the assets of individuals responsible for” grave human rights abuses (Hogan Lovells et al., 2020).
In the United States, the International Emergency and Economic Powers Act (the “IEEPA”) vests in the President the power to impose financial sanctions, including asset freezes and confiscations of “the property of any person, organization or country determined to be responsible for attacks against the United States or US interests” and also to repurpose such frozen and/or confiscated assets “in any way determined to be in the best interests of the country” (Hogan Lovells et al., 2020).
As suggested in the proposal above, the differences in procedures, legal standards, and opportunity for relief between various countries highlight the importance of creating a uniform standard and process that will be applied by the parties involved in any decisions or procedures involving sanctions, reparations, forfeitures, or the return of assets in this conflict.
Whilst sanctions and asset forfeitures may appear to be a unique and small part of the broader peace process, significant overlap exists such that their role in the peace process must be considered in line with international justice and accountability, claims for reparations or restitution, and the rebuilding process. Thus, any comprehensive peace agreement should recognize the various parts in which sanctions are a necessary consideration and ensure that provisions exist for every step of the process. For lasting peace and reconciliation to be successful, the parties involved must feel that the process was legitimate, their rights were protected, and that they did not suffer undue harm or violations of the rule of law.