Having frozen the assets of Russia’s wealthy elite, seizing those assets will be far more difficult. The war in Ukraine has seen an unprecedented response in terms of the economic retaliation rolled out against Russia. Alongside a basket of sanctions aimed at debilitating the Russian economy, Western governments have heavily targeted oligarchs’ assets, leaving no villa or superyacht untouched.
However, sanctions-based asset freezes are a tool of foreign policy, and the assets cannot stay frozen in limbo forever: they must eventually be confiscated, or unfrozen. There is a risk, if Russian President Vladimir Putin demands that sanctions measures are dropped as a condition for ending hostilities, or if the oligarchs win their appeals against sanctions, that the assets will simply be unfrozen.
It appears from UK government rhetoric that the policy intention is to find a fast solution to move from ‘freeze’ to ‘seize’. However, the tools currently available under the Proceeds of Crime Act 2002 (POCA) make gathering the necessary evidence on oligarchs’ assets, and having it stand up in court, hard to achieve. Given this challenge, it is tempting to seek a ‘shortcut’ fix, but in its haste, the government must be cautious not to create precedent for more draconian measures in the future. Any action the government decides to take needs to balance the policy intention that ‘crime shouldn’t pay’ with respect for fundamental human rights and the rule of law, and be capable of standing the test of time.
.
Desperate Measures for Desperate Times?
Uncertainty regarding the outcome of the war and the drive to make an example of oligarchs, while showing that something is being done to put pressure on Russia, have led to some extreme proposals by the government, such as seizing oligarchs’ properties and using them to temporarily house Ukrainian refugees. While attractive in political terms, this approach falls short when assessed against the rule of law. Property rights and legal due process should be respected regardless of whether these individuals are oligarchs. Ignoring these principles would invite comparison with the autocracies we are supposedly standing against.
Many of these proposals are more political theatre than reality. However, they reveal a general lack of understanding of what sanctions can and cannot do. In the current crisis, sanctions have been used against those that benefit from or support the Russian government. If ministers want to deprive oligarchs of their assets, they will need to use different mechanisms to seize and confiscate them to achieve their desired outcome – mechanisms that require separate, lengthier legal proceedings, and which need to meet specific requirements regarding the nature of the assets and the way in which they were generated.
.
The recovery of oligarchs’ assets will prove to be a much harder task than simply sanctioning them, and will require appropriate tools to be available
.
Thus, recovery of oligarchs’ assets will prove to be a much harder task than simply sanctioning them, and will require appropriate tools to be available. To many, the most obvious solution is deploying the much-vaunted Unexplained Wealth Order (UWO). However, UWOs have previously fallen short and, although the Economic Crime Act has addressed some of their limitations – namely by expanding the definition of a UWO subject and placing a cap on the costs to which law enforcement could be subject should they be unsuccessful in their bid – they are still not straightforward to operationalise.
.
.
On top of the complexities presented by the use of UWOs, oligarch assets give rise to additional problems. Notably, the criminality and corruption at the root of this wealth are historical, meaning it was amassed decades ago and has been laundered into legitimate businesses so many times that, by the time the money is used to buy a house in Kensington, it is difficult to prove it was tainted in the first place. Additionally, these assets are often well-hidden behind complex structures, complicating the task of identifying the real owner for law enforcement, as recent attempted detentions of superyachts have shown. These issues, coupled with the investigative nature of UWOs – which requires a separate civil proceeding to be commenced for a recovery order and adds another step to an already lengthy process – still represent unresolved obstacles that render UWOs unlikely to meet the requirements needed for effectively dealing with kleptocratic assets.
.
Alternative Means for Asset Recovery
.
Given the challenge ahead, what alternatives exist?
As a first option, a full reverse burden of proof as to the origin of the assets could be introduced, modeled on examples such as the Swiss Law on Asset Recovery. Should an oligarch fail to demonstrate the lawfulness of their wealth, this tool would allow for the confiscation of frozen assets without the need to commence a separate civil proceeding – a step that has contributed to the disappointing use of UWOs so far. However, it would likely still be relatively easy for foreign kleptocrats to ‘prove’ the legitimacy of their wealth, given the time that has elapsed since it was first ‘earned’.
A similar option would be adopting an Irish model, through which property is frozen based on ‘belief evidence’ and is subsequently forfeited if it appears to the court that a person is in possession or control of property that constitutes – directly or indirectly – proceeds of crime. Part of the success of the Irish system stems from the resourcing provided to its Criminal Assets Bureau, something the UK has not traditionally been willing to consider. This mechanism has also not traditionally dealt with cases involving politically exposed persons, bringing into question its effectiveness when applied against oligarchs.
.
Any measure taken today should be designed to stand the test of time, so that it can be used in the future against criminally acquired assets from other unpalatable regimes and in support of other sanctions
.
A third option to consider is the concept of ‘criminality by association’, found in racketeering legislation in Italy and the US. In the US case, the general test is whether the defendant knew about the criminal nature of a conspiracy of which they were part, not that they agreed to a specific predicate offence. If applied to oligarchs, the key point would be proving they knew and understood the corrupt nature of the Russian regime with which they are associated, in the same way a mafia member would. For this to work, a close connection between the oligarchs and the regime needs to be established, as well as the kleptocratic nature of the Russian government. However, the latter would require the UK government to list Russia as a kleptocracy – something that is likely to be undesirable from a diplomatic standpoint.
.
No Easy Answer
Although current tools may prove ineffective in these unique circumstances, it may be possible for the government to develop new legislation to move from ‘freeze’ to ‘seize’ while respecting due process, providing the precise circumstances justifying confiscation are carefully set out.
Along with ensuring proportionality and respect for human rights and the rule of law, policymakers should also carefully consider the primary purpose of this asset confiscation. Is it a step that is felt necessary to persuade Putin to stop waging war against Ukraine, and to disincentive other countries (like China) from carrying out similar acts of aggression, or is it because the oligarchs’ wealth was illicitly acquired in the first place?
If the latter, the line between the role of sanctions and the role of asset confiscation must not be blurred in the way it has been thus far. More importantly, any measure taken today should be designed to stand the test of time, so that it can be used in the future against criminally acquired assets from other unpalatable regimes and in support of other sanctions, such as those targeting corruption or human rights abuses. The government should aim to develop asset recovery mechanisms that are capable of targeting dirty money, whatever its origin may be. After all, the ‘London laundromat’ was a national security issue long before the war in Ukraine, and will continue to be a threat long after.
.
April 13, 2022 Published by RUSI.org
