The Basel Institute on Governance says there are dangers in politicians' calls for frozen assets to be transferred to particular groups. It argues that other, established methods for recovering assets should be employed instead.

A Swiss think tank has explained how governments should make asset recovery measures more effective as they enforce sanctions on Russia and should avoid introducing untested methods that could be legally dubious and open to challenge in the courts.

The Basel Institute on Governance has introduced a new working paper that examines how political leaders in some nations, such as Canada, have posed the question whether they can confiscate frozen assets and send money to victims of Russia’s invasion of Ukraine.

A year after Russia’s invasion of its neighbour, the UK, European Union, US, Canada, Switzerland and other jurisdictions have slapped sanctions on Moscow. Hundreds of designated Russian persons and entities are sanctioned.

As the institute says, “some states have even sought to introduce legislative mechanisms to make it possible to confiscate an asset frozen under sanctions, purely on the basis that the asset has been made subject to a sanction.” One state – Canada – has already taken this step.

“The intention behind these mechanisms is clear: assets frozen under sanctions could be confiscated and repurposed to provide assistance and compensation to the victims of the sanctioned target,” a statement about the report said.

“The justifiability and legality of mechanisms such as Canada’s is currently the subject of debate,” it continued. The institute said that two issues refer to whether the confiscation of assets in such circumstances is acceptable in the context of established legal rights and norms; and if it defeats the primary purpose of sanctions as a tool of coercion.

“The lack of adequate judicial oversight included in such mechanisms, and the fact that these mechanisms aim to permanently deprive sanctioned targets of their assets, raises serious questions surrounding property and due process rights,” the white paper said. 

“If such a mechanism was introduced in Europe for example, it is likely to be challenged on the grounds that it violates Protocol 1 Article 1 as well as Article 6 of the European Convention on Human Rights,” it said. 

“If such mechanisms were also applied to state-linked assets (such as sanctioned assets belonging to central banks) then this would also raise concerns regarding a possible infringement of domestic and international laws relating to state immunity.”

As far as the threat to the purpose of sanctions is concerned, the institute said that permitting the confiscation of sanctioned assets “arguably annuls the coercive purpose of sanctions' regimes to act as a tool to persuade targets to cease their adverse behaviour.”

“If states are permitted to confiscate sanctioned assets (and make it impossible for a target to retrieve their frozen assets) then this effectively removes any incentive for the target to change their behaviour. In such cases, rather than operating as tools of coercion, sanctions would instead primarily operate to punish a target and provide compensation to the victims for the harm that has been caused,” it said. 

The institute said that policymakers should explore established routes for war reparations, such as traditional conviction-based confiscation measures, including ‘extended confiscation’ mechanisms; non-conviction based confiscation (NCB) measures, and unexplained wealth laws.