Sovereign Immunities, Sanctions, and Confiscation: The Case of Central Bank Assets

Abstract

The freezing of Russian central bank assets in the aftermath of Russia’s full-scale invasion of Ukraine has lent new urgency to the issue of how sovereign immunities apply to such property. On the one hand, there is general agreement that sovereign immunity shields central bank assets from confiscation in satisfaction of court judgments. On the other hand, no government, including the Russian one, has described the freezing of Russian central bank assets as a violation of sovereign immunities. One possible explanation for this is that sovereign immunities only apply to judicially imposed measures, whereas extrajudicial freezing of assets on the basis of sanctions remains outside the scope of sovereign immunities law.

This account of the law of sovereign immunities gives rise to several paradoxes. First, it means that the freezing of sovereign assets (including, but not limited to, central bank property) is permissible if effected by the executive, but contrary to international law if ordered by the courts. This is paradoxical not only because those measures are equivalent in their effect, but also because judicial process is ordinarily associated with greater legal protection and oversight than executive action. Secondly, if executive action is exempt from the constraints of sovereign immunities, then it would appear that states are at liberty to confiscate central bank assets, as long as the decision is taken by governments rather than courts. The radicalism of this conclusion is only potentially mitigated by other applicable rules of international law that prohibit the expropriation of foreign property.

Conversely, if one were to hold that the effect of the measures at hand is determinative, rather than whether they originate with the judicial or executive branch, then the traditional preoccupation of the law of sovereign immunities with judicial measures is obsolete. In essence, sovereign immunities would apply to all aspects of state action, so long as it involves freezing or confiscating another state’s property. This would mean, among other things, that the ongoing freezing of Russian central bank assets is unlawful, unless circumstances precluding wrongfulness, such as countermeasures, can be made out.

This paper presents an attempt to provide an up-to-date account of the issues involved. The focus on central bank assets is both a reflection of the controversies of the day and a recognition of the “gold-plated” legal protection that some legal systems, including that of the United States, extend to such assets. The ongoing freezing of Russian central bank assets is the central case study around which the discussion is organized, again due to both its immediate practical relevance and because the dilemmas involved are particularly acute against the backdrop of Russia’s own violations of international law.

Keywords: sovereign immunities; sanctions; asset freezing; central banks; countermeasures

JEL Classification: K33