Update: Russia Introduces Framework to Seize US Assets Within its Territory

The Russian President on May 23 issued Decree No. 422, establishing a procedure to seize the assets of US persons within Russian jurisdiction. The announced purpose of the decree is to provide compensation for the damage caused to Russia and the Central Bank of Russia by the actions of the United States.

Background

Decree No. 422 (Decree) is a response to a provision of the United States’ Rebuilding Economic Prosperity and Opportunity for Ukrainians Act that came into force on April 24, 2024 and vested the US President with the powers, among other things, to “seize, confiscate, transfer, or vest” any Russian state sovereign assets in the United States.

Mechanics

The Russian Government and/or the Central Bank of Russia (CBR) may now make a claim with a Russian court to (1) establish a fact of “ungrounded deprivation” of its property or interest in property by a US state or by a US court and (2) seek compensation for such deprivation.

If, based on the initial assessment, the Russian court finds that the claim has merit, the Government Commission on Control over Foreign Investments (FDI Commission) will provide the court with information on the property of (1) the United States; (2) the foreign persons “connected” with the United States (US citizens or residents, entities that are US-based, US-incorporated, or have a place of business in the US); and (3) the persons controlled by the persons referred to in (1) and (2) (US Persons) that the FDI Commission decides to be suitable for compensation of that particular claim.

The following property belonging to US Persons is potentially at risk under the Decree: (1) real property and other tangible property located in Russia and belonging to US Persons; (2) shares and other securities issued by Russian companies; and (3) any other property or property rights (e.g., cash in bank accounts).

If the Russian court satisfies the claim, the property of US Persons included on the list provided to the court by the FDI Commission will be seized and transferred to the Russian Government and/or the CBR.

Specifics of the procedure are to be adopted by the Russian Government within four months after May 23, 2024, the publication and effective date of the Decree. The Russian Government should also elaborate on its approach in relation to the property of the US persons to be potentially seized.

Currently, it is unclear whether these mechanisms may be applied to (1) securities held by foreign investors through foreign nominee accounts and (2) shares held in depository receipt (ADR) program accounts, where the nominee holders of these accounts are US legal entities, but the beneficial owners of the securities held in foreign nominee account and ADR holders may be nationals and residents of non-US jurisdictions.

US Persons who still hold property in Russia that may be subject to seizure are advised, to the extent possible and practicable, to divest of this property before the Russian Government has implemented the procedure for seizure of the US assets. Sale of most Russian assets belonging to US Persons is currently restricted by the Russian regulations.