Senators are making headway on a potentially significant piece of bipartisan legislation that would give the Justice Department new authorities to seize and liquidate ill-gotten assets of Russian oligarchs and use the proceeds to benefit the people of Ukraine.
At a Senate Judiciary Committee hearing on Tuesday, Democrats and Republicans debated the pros and cons of the legislation from Sens. Sheldon Whitehouse, D-R.I., and Lindsey Graham, R-S.C., which would create a narrow and expiring authority for the Justice Department to open civil forfeiture proceedings against the frozen assets of Russian individuals found to be tied to criminal activities and to redirect the proceeds of forfeitures to humanitarian and economic aid for Ukraine.
Graham said he believes Senate support for targeting corrupt Russian oligarchs is reaching “critical mass” four months after Russian President Vladimir Putin launched a war of aggression against Ukraine.
“Russia is a mafia state,” said Graham. “We’re on the verge, if we stay focused, of breaking this mafia state, and the best tool available to us, in many ways, is to go after those who have benefited from the mafia state, have kept Putin propped up. So if you’re out there in the oligarch world, we’re coming for you.”
But how to sculpt the package of proposed new Justice Department authorities, which the Biden administration formally requested in April, is a matter of delicacy, agreed senators and legal experts testifying Tuesday.
Missteps in crafting the proposed statutes, which include changes to the 1977 International Emergency Economic Powers Act and the 1970 Racketeer Influenced Corrupt Organizations Act, could result in U.S. courts finding the statutes unconstitutional. Oversights also could mean successful lawsuits being brought by disgruntled Russian billionaires over violations of their due process rights — or even hostile foreign governments adopting similar legal arguments to justify the seizure of American assets abroad.
“Instead of making use of the laws we have in place for international criminals, the administration proposes a special kind of process addressed only to Russian oligarchs, which invites litigation risk and intense judicial scrutiny,” warned Senate Judiciary ranking Republican Charles E. Grassley of Iowa.
Grassley did give his support to the administration’s request to add sanctions evasion to the definition of racketeering activity under RICO.
“[That] proposal would extend a powerful forfeiture tool against racketeering enterprises engaged in sanctions evasion, and it would pave the way for prosecutions that appropriately capture the scope and the complexity of those evasion networks,” testified Andrew Adams, director of the Justice Department’s recently established Task Force KleptoCapture, which enforces sanctions and export controls imposed on Russia.
Adams also argued the extreme and highly unusual circumstances posed by Russia’s invasion of Ukraine make the proposed package necessary and prudent, saying current processes move too slowly.
“Those existing methods do not give the U.S. government the flexibility and speed that the situation demands,” said Adams, a veteran federal prosecutor formerly with the U.S. Attorney's Office for the Southern District of New York. “Depending on the current authorities, the speed of such actions can be maddeningly slow, the ability to leverage them directly or via court can differ depending on the value of those assets ... and the ability to direct funds to preferred beneficiaries can be imprecise if it exists at all.”
Notably, the congressional appetite for going after the assets of corrupt Russian individuals, whose wealth is derived from their support of Putin, does not appear to extend to frozen Russian government assets. That includes the tens of billions of dollars in Russian Central Bank funds that have been frozen by the federal government. This means that, for the time being, the amount of seized Russian assets Congress is considering redirecting to support Ukraine will likely max out in the low billions of dollars, according to sums discussed during the hearing.
Going after Russian Central Bank assets “raises significant legal and practical challenges and greatly complicates the ability to obtain multilateral adoption of similar legislation,” said Adam M. Smith, a sanctions lawyer at Gibson, Dunn & Crutcher and a former senior adviser in the Treasury Department’s Office of Foreign Assets Control. “In contrast, focusing on illicit Russian assets provides a far more promising, and perhaps easier, solution.”
But Congress and the Biden administration may be on shaky constitutional ground if they proceed with a plan to include in the legislation the “retroactive application of civil forfeiture of property brought into this country legally,” said Paul Stephan, a University of Virginia law school professor who formerly held positions with the State and Defense departments.
"If you look at the Supreme Court precedent on retroactivity in civil penalties, I think you get a noisy signal," Stephan said, adding the court has indicated concerns with applying civil sanctions retroactively.
Stephan said he felt much more comfortable with the bill’s provisions to raise the cap on foreign assets that can be subjected to civil forfeiture, which is currently limited to assets with a value of $500,000 or less, and to extend the statute of limitations for certain foreign money laundering charges from five to 10 years.
Whitehouse emphasized that the goal of the legislation was to craft a narrow and constitutionally sound authority whose scope would be limited by a presidential declaration of a national security imperative. The envisioned administrative forfeiture process would include a proceeding at which claimants who believe their assets have been unfairly seized could show up to argue their case, he noted.
“What’s important to me is the onus be put on them to come forward and make their case, because that cuts through all of this maneuvering,” said Whitehouse, a former Rhode Island state attorney general. “They now have to testify truthfully and subject themselves to discovery related to the question of ownership and the legitimacy of ownership of the asset, and that’s important, because otherwise the government is condemned and handicapped and hamstrung by having to play the game of eternal chase through all the screens and schemes and international hidey-holes that they use.”
In the House last week, lawmakers adopted an overwhelmingly popular amendment to an annual must-pass defense policy bill that would recommend the Biden administration confiscate assets in U.S. jurisdiction worth over $5 million that belong to corrupt Russian individuals and use the proceeds of those assets to support the Ukrainian people.