Russia Authorizes Retaliatory Confiscation of Private US (and possibly other) Assets
On May 23, President Putin signed Decree No. 442 (“442”) authorizing the seizure of US private assets in Russia. 442 is clearly and explicitly retaliation for the U.S.’ passage of the REPO Act, which authorizes the President to seize Russian sovereign assets in the United States. It is also a message to the US’ European allies lest they consider doing the same with the (considerably more substantial) Russian sovereign assets held in European banks. Former President and current Deputy Head of the Russian Security Council Dmitry Medvedev foreshadowed such retaliation when he warned of an asymmetrical legal response to the REPO Act that would make “America and Americans … pay for their criminal decisions.” However, the specific nature of the response became clear only with the adoption of Decree 442.
So what exactly does 442 do?
First, it directs the “Russian Government” (a term which in Russian refers to the executive branch of the federal government to include the Prime Minister, the Deputy Prime Ministers, and the Council of Ministers, rather than, as in English, to all government agencies) to develop a “special procedure” for compensating damages suffered by the Russian Federation and/or the Central Bank in connection with the “unjustified” deprivation of their rights by the U.S. government and/or U.S. courts. It also provides that, when developing the “special procedure” then Government should take into account the other provisions of 442, as set forth below.
With respect to the process for obtaining compensation, 442 provides that Russian claimants (a category presumably corresponding to the sovereign entities identified in the REPO Act – the Central Bank, the Russian National Wealth Fund, the Russian Ministry of Finance and any other state entities or instrumentalities that own property in the United States) can apply in court for compensation on the grounds that they have been unjustly deprived of property by the United States. If the court finds that the application has a sufficient basis, 442 directs it to send a request to the Governmental Commission for the Control of Foreign Investment in Russia (the “Commission”) for a list of property in Russia that can be used as compensation and that belongs to:
(i) the United States;
(ii) “foreign persons connected with the United States of America” (a category which includes foreigners who are citizens or residents of the United States, foreign businesses registered in the United States, and foreign businesses whose principal place of business or principal source of income is the United States) and
(iii) persons “who are under the control of” such persons
442 does not provide any guidance on the meaning of the term “under the control of.” Some analysts have speculated that this term has been left deliberately ambiguous to allow the authorities to confiscate the assets of European companies depending on how the EU proceeds with respect to Russian assets held in European banks.
In anticipation of these court proceedings, 442 directs the Commission to prepare now a list of property that can be used for compensation and explains that the property list should include the following:
a) movable and immovable property of the United States and U.S. persons located on the territory of the Russian Federation;
b) securities and shares in Russian companies held by U.S. persons; and
c) other property rights belonging to the United States or U.S. persons.
If the court finds in favor of the applicant, the property rights of the United States and/or “United States person” (the Russian original uses the singular, so this presumably does not apply to all listed U.S. persons) identified in the Commission’s property list will be terminated and such rights will be transferred to the aggrieved Russian claimant as compensation.
442 also directs the Government to prepare other procedural details necessary for 442’s implementation. Such details include the process for review by the Commission of the anticipated judicial request for a list of property that can be used as compensation and the process for the preparation of the property list itself. It also directs the Government to prepare corresponding legislative amendments necessary to allow for the implementation of the Decree. The Decree does not provide any mechanism for U.S. persons to challenge the confiscation of their property. This is presumably a deliberate omission designed to respond to the REPO Act’s foreclosure of all non-Constitutional legal challenges to the seizure of Russian property.
In light of 442, all U.S. and non-U.S. businesses that may qualify as “foreign persons connected with the United States” or “under the control” of a U.S. person should immediately review their property holdings in Russia. They should also closely monitor Russian media and official statements for any clues about the official interpretation of the key provisions of 442 including the terms “connected with” and “under the control” of as well as for any clues about the preparation of the property list mandated by 442 and any claims filed.
Partner, Squire Patton Boggs
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