The possessions of Russian oligarchs — yachts, planes, homes, cars, and cash — subject to “seizure” under White House sanctions, are in a state of legal limbo that requires U.S. people, and not the U.S. government, to temporarily manage them.
“The burden, effectively, is sitting with the person who's holding that blocked property,” Dave Johnson, a sanctions law expert and partner with Vinson & Elkins, told Yahoo Finance. “To set it aside, and then deal with it in a way that’s consistent with the law.”
The U.S. and its allies have targeted Russian people and entities tied to the Kremlin and Russian President Vladimir Putin since Russia's unprovoked invasion of Ukraine on Feb. 24. The U.S. hit Russia with an array of other economic sanctions including bans on imports such as oil in addition to the asset seizures, as the government attempts to inflict what the White House calls "maximum pain" on Russia's economy.
So far, the White House has not identified the value of property subject to sanctions. However, President Joe Biden announced the Kleptocracy Asset Recovery Rewards Program, which was formed to help the U.S. identify and recover assets linked to Russian corruption.
“We are joining with our European allies to find and seize your yachts, your luxury apartments, your private jets," Biden said during his State of the Union Address on March 1. "We are coming for your ill-begotten gains.”
Roman Abramovich's Super Yacht Solaris is seen moored at Barcelona Port on March 01, 2022 in Barcelona, Spain. (Photo by David Ramos/Getty Images) ·David Ramos via Getty Images
Still, the federal government hasn't physically seized the assets. And, in theory, they could end up back in their owner’s hands.
“It’s not really a seizure by federal agents,” Johnson said. “There are no agents that come in and take it.”
Instead, Johnson and other sanctions experts explain, the property becomes the temporary responsibility of “U.S. persons” possessing or controlling it. They’re required to both block the property and report it to the Treasury Department’s Office of Foreign Assets Control (OFAC) within 10 days of taking gaining that control.
“It's really up to all of us to do what's required,” said Andrea Delisi, an economic sanctions attorney with Morrison & Foerster’s national security practice group.
The term “U.S. persons” includes anyone on U.S. soil. A U.S. bank, for example, has to set aside a sanctioned party’s bank assets in a frozen account. Similarly, a harbormaster hired to house a sanctioned person’s yacht could no longer do business involving that yacht and instead must set it aside.
The Eclipse superyacht, owned by Russian businessman Roman Abramovich, is seen at the Port of Palm Beach in Riviera Beach, Florida, U.S. November 24, 2017. REUTERS/Joe Skipper ·Joe Skipper / reuters
Of course, this could be onerous for both the bank and the harbormaster and anybody else stuck with Russian assets that can't be put to use.
“When we're talking about physically blocked property, like a yacht or an airplane, and you're the storage facility, that's a huge burden on you,” Delisi said.
There are pathways for sanctioned parties to seek a return of their property, including applying for a license from OFAC to be removed from a sanctions list, according to former federal prosecutor Peter Hardy.
“Now, that's really a theoretical option because, if you've actually been sanctioned, then it's hard to conceive of a real world scenario in which OFAC would grant you the license,” Hardy said.
Another avenue, he said, is for a sanctioned party to submit a blocking application specific to a particular asset. OFAC is unlikely to grant a party an exemption from the sanctions list, unless the U.S. government added them by mistake, according to Nathanael Kurcab, also an economic sanctions expert with Morrison & Foerster.
“It's a discretionary decision for OFAC. And in my experience, not often successful,” Kurcab said. “But there are good examples out there of parties who were mistakenly sanctioned.”
Yet another option, according to Johnson, is for a sanctioned party to file a complaint in federal court.
“A federal court can issue an order directing the federal government to do something,” he said.
The authority for the sanctions comes from the International Economic Emergency Powers Act, which empowers the president to declare an emergency and in turn direct the seizure of certain assets.
Biden tapped that authority in his response to Russia’s invasion of and ongoing military operations in Ukraine with executive orders targeting Russian entities and individuals tied to the Kremlin and Putin.
On Thursday, the Biden administration added more than 400 Russian elites to the list. Russia's billionaires control roughly 30% of Russia’s wealth and hold about $800 billion in offshore banks, according to a 2017 paper published by the National Bureau of Economic Research.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
