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Legality of Unilateral Freezing of Foreigners’ Assets

About the Author: Esha Goyal is a fourth year law student at the National Law School of India University, Bangalore, India.


Image by Jurnej Furman available here.


Russia started gathering troops along the Ukrainian border early this year. By February 23, the situation had grown so tense that the European Union (the EU) imposed sanctions against all members of the Russian parliament and cut Russia off from European financial markets. The United States (the US) followed suit a day later. By February 25, the EU started freezing assets of important state officials, and these freezes grew increasingly intense as Russia finally attacked Ukraine.


While the global sanctions against Russia and certain Russian individuals, like the oligarchs, stand on a firm moral ground, they may lack foundation in the current international law framework. The sanctions imposed thus far are unilateral; the UN Security Council motion failed. Further, the sanctions have extraterritorial effects and are imposed by states which are not directly injured by the Russian invasion. In the absence of a multilateral treaty on these issues, the conditions as well as the severity of sanctions seem to be based primarily in the domestic legislation of the sanctioning countries, raising the concerns about sovereignty, nonintervention, and the rights of the individuals affected.


Sanctions under International Law


The power of states to freeze assets – of individuals and other states – is a subset of the general power to impose sanctions. Article 39 of the United Nations Charter (the UN Charter or Charter) allows the Security Council to make a determination regarding an act of aggression by a state party and allows it to decide on the measures to be taken. Article 41 enumerates several measures that the Security Council may adopt to maintain international peace and security in the event of a breach of the Charter, including sanctions.


The word “sanctions” is not defined anywhere in the UN Charter or any other legally binding international instrument. However, various scholars have defined a sanction as an imposition of costs in response to a perceived breach of international law which aims to coerce the target into changing its behavior and complying with the principles of international law. Although there is no hard limit on the extent of sanctions, sanctioning states must ensure that they follow the principle of non intervention and do not impose an excessive pressure that impinges on the autonomy of the state in the field of its domaine réservé. Thus, the power to impose sanctions is not unfettered but limited by customary international law and the Charter itself under Articles 24(2) and 25.


Once sanctions are prescribed by the Security Council, they are necessarily binding on all member states. However, in the present case, since Russia is a permanent member of the UN Security Council, it used its powers to veto the resolution. Thus, even though 11 out of the 15 members voted in favor of ending Russian military activity, the proposition was defeated. Since Russia being the aggressor in the given case rendered the Security Council effectively powerless, the powers of general sanction given in the UN Charter also fail. Thus, it becomes necessary to determine whether states may take unilateral action, and to what extent would unilateral sanctions, including freezing the assets of foreigners, be permissible under international law.


Legality of Extraterritorial Unilateral Sanctions on Russia in the Form of Freezing Assets


There are two forms of unilateral action – retorsion and countermeasures. Retorsion refers to imposing unilateral sanctions which may be unfriendly but are not unlawful, inasmuch as the state is not violating any international obligation. Countermeasures on the other hand, are acts by a state that may be prima facie unlawful, but can be justified if they are in response to the breach of international law by the target state. The majority of the acts taken against Russia fall under the latter category.


However, there is uncertainty in international jurisprudence about the criteria governing unilateral sanctions because such sanctions are not treaty based. Sanctions may also be multilateral – in the sense that a group of states act in concert – with the most prominent example being the EU. However, these would also include sanctions imposed pursuant to recommendations by the UN General Assembly, like in the present case where the General Assembly passed a resolution condemning Russia’s actions. Nevertheless, this does not exempt states from observing the principle of non-intervention since the collective act gains force only from the underlying legitimacy of the acts of individual states.

Sovereignty and Extraterritorial Application

Even if freezing the assets of the target state is justified, the freezing of private assets of foreign officials and citizens might not be. Nevertheless, it is common under international law to freeze all assets if individuals bear some responsibility for the state’s breach of international law, as was done in the case of several Russian oligarchs. Thus, there is uncertainty about their legality, justification and extraterritorial applicability, which needs to be resolved on a case by case basis.


Many individual asset freezes are governed by the domestic legislation of the sanctioning country rather than international law. Targeted sanctions against identified individuals of another state, as in the case of asset freezes, also involve piercing the state veil to go beyond the State to holding individuals responsible for state action. This raises questions about the remedies available to the targeted persons. Since the courts of the affected individual’s home country would not have any authority in this matter, the affected individuals would have to approach the courts of the sanctioning state. In most cases, the courts of the sanctioning state would decide in favor of the asset freeze because the sanctioning state’s legislation would leave standards vague, or to the discretion of the government. Extraterritorial application is also a contested issue because dollar outcasting and denial of access to foreign markets are measures that few, economically powerful states can take. This impinges on sovereign equality of states under international law.


For instance, the Swiss policy on the issue states that assets may be frozen if there is rampant corruption in the source country or if assets were acquired by unlawful means. Further, the burden is on the targeted individual to prove that assets are validly acquired and should be unblocked. Other countries like the US and UK use even wider language and often fail to state the source of their power to freeze assets, instead merely relying on vague terms like “global security” and “international peace.” This casts doubt on the validity of such sanctions. On the other hand, some countries like Australia give specific reasons for enforcing autonomous sanctions, citing the “Russian threat to the sovereignty and territorial integrity of Ukraine,” which makes them legitimate countermeasures under international law instead of potentially illegitimate use of power.


Entitlement of Non-Injured States

Another significant issue is the legal entitlement of non-injured states to resort to countermeasures. In the present case, only Ukraine is the directly affected jurisdiction, all other sanctioning states are third parties. The Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA) allows non-injured states to impose sanctions in collective interest, for having suffered an injury as a member of a group or as a member of the international community as a whole. This idea of collective self-defense is included in Article 51 of the UN Charter as well. However, Article 48 of ARSIWA only envisages requests for cessation and guarantees for non-repetition, not countermeasures in the form of sanctions, further raising doubt on the validity of freezing assets of Russian Banks and citizens. Confiscation and freezing of assets owned by another state also raises questions of sovereignty, and state policy, to the extent sanctions are being rolled out against Russia, is also sparse. However, some authors on the subject believe that the present circumstances and their implications for all of Eastern Europe and China might warrant the creation of a new exception to state sovereignty to justify unilateral freezing of assets by the international community.


Even assuming that freezing Russian assets and other sanctions were legal and justified, Article 50 of ARSIWA states that sanctioning states continue to have human rights obligations. As such, the impact of asset freezes on the Russian population must be closely monitored not just as a matter of general prudence but also international law. There is concern that freezing Russian Bank assets and cutting it off from the world banking system would effectively not allow the country to access its resources of foreign exchange, potentially sparking a financial crisis into the country which can form the background for severe human rights violations.


Thus, the economic sanctions and asset freezes may be tenuously valid on grounds of international peace, despite not complying with the UN Charter, ARSIWA, or Russian sovereignty. However, the effects of such asset freezes on targeted individuals as well as the Russian population are potentially severe, to the effect that it may detract from the binding force of these sanctions.


Conclusion


Apart from the legitimacy and legality of sanctions, another important consideration is their efficacy. It is a well-established fact that while sanctions may pressurize or destabilize democratic leaders, they have little to no effect on one-party and authoritarian systems. Since the essence of sanctions is to stigmatize and pressurize a state into compliance, sanctions will not work with states like Russia which have strong nationalistic beliefs and believe that Western sanctions are illegitimate. In such cases, non-compliance becomes a political act of resistance.


Because the West is already treading on thin ice by having to unilaterally impose sanctions instead of proceeding through the Security Council, it is even more important for these sanctions to be legal, valid, and legitimate. Presently, most of the sanctions seem to be operating on a global consensus against Russia, instead of being grounded in customary practice or other sources of international law. This should change if the sanctions are to have continued moral force.




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