Expropriation of Russian assets in Ukraine | Fieldfisher
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Expropriation of Russian assets in Ukraine


CIS, United Kingdom

As the conflict in Ukraine continues to rage, the Ukrainian government has moved to expropriate Russian-owned assets in Ukrainian territory as part of its resistance effort. Fieldfisher dispute resolution expert Oleksandr Zelenyi considers the lawfulness of Ukraine's Law on Expropriation.

On 24 February 2022, the Russian Federation commenced a full-scale invasion of Ukraine, causing military and civilian casualties, property loss and destruction throughout the country.

In response, Ukraine started urgently developing emergency legislation aimed at supporting the war effort and compensating for the damage caused.

On 3 March 2022, the Parliament of Ukraine passed the Law "On Main Principles of Forcible Expropriation of Property of the Russian Federation and its Residents" (the "Law on Expropriation"), which entered into force on 7 March 2022.

On 1 April 2022, amendments expanding the scope of its application were adopted and are waiting to be signed by the President of Ukraine and promulgated.

The preamble to the Law on Expropriation stated that it sets out: "legal principles of forcible expropriation motivated by public necessity (including cases where it is strongly required by military necessity) of assets that belong to the Russian Federation as a state that started full-scale war against Ukraine, and its residents".

According to the Law on Expropriation, the Ukrainian state may seize assets within its territory that belong to 1) the Russian Federation as a sovereign, and 2) its residents. 'Residents' include:

  • Individuals – 1) citizens of the Russian Federation (except those who have defended Ukraine in the war with Russia), and 2) other individuals who are not citizens of the Russian Federation, but who have the closest connection with it, live or conduct main activity there (the initial text of the Law on Expropriation did not contain the latter type of individuals, this was added by the April amendments);

  • Legal entities (their branches, representative offices) operating in accordance with the legislation of Ukraine, in its territory, in which a participant (shareholder) or beneficiary, directly or indirectly, is:

    • The Russian Federation; and/or
    • Individuals as defined above, including those who exercised managerial functions or controlled them through other legal entities (irrespective of their place of registration) before 24 February 2022; and/or
    • Legal entities, participant or beneficiary of which is the Russian Federation (either directly or indirectly), own interest in the capital, shares, membership units, or any other form participation in a legal entity.

The April amendments authorised the National Security and Defence Council of Ukraine (NSDC), or a court, to designate as a resident for the purpose of the Law on Expropriation any individual or legal entity (irrespective of their nationality, main activity etc.) permanently located outside Ukraine or in the temporarily occupied territories of Ukraine, and that 1) publicly denies or supports Russia's military aggression against Ukraine, establishing or strengthening of the temporary occupation of a part of Ukraine, or 2) has not suspended or ceased business activity in the territory of the Russian Federation during the period of martial law in Ukraine.

Therefore, the target of the Law on Expropriation (together with the April amendments) is very broad – not just Russia and its citizens. Virtually, any individual or company may be subject to expropriation of assets if they support the Russian aggression against Ukraine or occupation of its territories.

Assets include movable and immovable property, money, bank deposits, shares, corporate rights, other property (assets) that are located (registered) in the territory of Ukraine and belong to the Russian Federation and its residents, either directly or through affiliated persons.

Procedure for expropriation

Articles 3 and 4 of the Law on Expropriation set out the expropriation procedure. The decision to expropriate assets is taken by the NSDC on the basis of a draft prepared by the Cabinet of Ministers of Ukraine.

The decision must contain a list of assets to be expropriated, their identification information and names of persons to whom those assets belong.

The NSDC decision must then be approved by a decree of the President of Ukraine, and within six months after martial law is lifted, the decree must be approved by the Parliament. Once expropriated, the property is transferred under the management of a special Ukrainian state-owned enterprise established by the Cabinet of Ministers of Ukraine. No such enterprise has been established or designated yet (as of May 2022).

Title registration is required only for immovable property, corporate rights and transport, while title over chattels is passed when the President approves the NSDC decision.

Originally, the law did not specify how expropriated assets are to be used. According to the April amendments, the assets will be set-off against future reparations. Nevertheless, the law remains silent on what happens to the assets in the meantime, whether they can be sold and if so, how proceeds are to be used.

Start of expropriation

The expropriation of assets under the law began on 11 May 2022, when the NSDC ordered the seizure of 99.8% of the shares of Prominvestabank (belonging to VEB.RF) and 100% of the shares of International Reserve Bank (belonging to Sberbank).

The decision was approved by Presidential decree on the same day; with the Parliament of Ukraine passing the law approving the President's decree the following day.

According to the National Bank of Ukraine, the estimated value of the expropriated assets is about US$889 million. Both banks hold valuable assets such as cash, bonds, deposit certificates, and debt claims.

Both VEB.RF and Sberbank have already threatened to bring investment arbitration claims against Ukraine.

International law on expropriation

Under international law, seizing assets of foreign investors is a clear case of direct expropriation. It occurs when "… governmental authorities take over a mine or factory, depriving the investor of all meaningful benefits of ownership and control" [1] or where there is "a compulsory transfer of property rights" [2]. However, as the tribunal in Siag v Egypt observed, "expropriation is not itself an illegitimate act. It is well-accepted that a State has the right to expropriate foreign-owned property" [3].

Under international law, a state can expropriate foreign assets lawfully, but only if the following conditions are met:
  1. Legitimate purpose: The expropriation must be motivated by a legitimate public purpose, not private gain or some other illicit objective (such as where the expropriation is undertaken for political reasons). In its preamble, the Law on Expropriation explicitly states that it was adopted "taking into account full-scale aggressive war which was started and waged by the Russian Federation against Ukraine and the Ukrainian people violating rules of international law and committing crimes against humanity."

  2. Non-discriminatory: The expropriation must be non-discriminatory. The usual approach to this requirement is that for discrimination to exist, there must be different treatment between persons or entities in like circumstances based on a particular characteristic without a reasonable justification. A State's conduct will be discriminatory if: (1) similar cases (2) are treated differently (3) without reasonable justification [4]. Arbitral tribunals may find this requirement to be violated when a State has discriminated against foreign nationals based on, linked to or taken for reasons of the investor’s nationality. Originally, the law clearly targeted exclusively Russia's assets in Ukraine. The April amendments added new categories of investors, who do not have to be Russian nationals, whose assets may be expropriated. Ultimately, the application of the law, rather than its text, will be a conclusive evidence whether expropriation is discriminatory and based exclusively on investors' nationality. 

  3. Due process: The expropriation must be in accordance with due process of law. Tribunals may require reasonable advance notice of the expropriation; a procedure under domestic law for the investor to raise claims against the action; compliance with that procedure; and a fair hearing within a reasonable time by an impartial adjudicator [5]. The Law on Expropriation contains the words "main principles" in its full name, indicating it does not contain sufficiently detailed provisions on how it should be applied in practice. It appears that each state organ involved in the process of expropriation (the Cabinet of Minister and NDSC primarily) have to develop their own internal procedures. Under the April amendments, a Ukrainian court may also designate an individual or a company as a resident. However, it does not explain which court has jurisdiction over this issue (possible choices may include courts of civil, administrative, or commercial jurisdiction); upon whose application; and what evidence must be provided to the court.
  4. Compensation: The state must pay compensation, which must be prompt (soon after the expropriation), adequate (fair market value before the nationalisation) and effective (paid in a convertible currency). The Law on Expropriation clearly states no compensation will be offered "taking into account full-scale aggressive war that the Russian Federation has started and waged against Ukraine and Ukrainian people". The April amendments stated that expropriated assets would be set-off against future reparations. With the war still raging and no peace agreement in sight, it is impossible to predict when it will be concluded and whether it will contain any provisions on reparations (such an approach was applied after the Second World War in relation to German assets expropriated by the UK under the Trading with the Enemy Act 1939: in accordance with the peace treaties, Germany undertook to compensate its nationals for the expropriated property [6]). 

If Ukraine fails to meet any of the criteria above, its actions may be found in breach of international law.
Even if there is a legitimate purpose for expropriating assets, and they are expropriated by due process in a non-discriminatory manner, the whole purpose of the law is to seize assets without any compensation, which makes such actions unlawful.
Possible defence against unlawful expropriation claims
In response to claims of foreign investors, Ukraine may argue its measures are justified on the ground of "necessity" as reflected in international law.
The defence of necessity, according to Article 25(1) of Articles on the Responsibility of States for Internationally Wrongful Acts, may be invoked for precluding the wrongfulness of a state act, provided:
  • The act is the only way for the state to safeguard an essential interest against a grave and imminent peril; and
  • It does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole. 

These interests include: 

  • A state's political or economic survival;
  • The continued functioning of its essential services
  • The maintenance of internal peace;
  • The survival of a sector of its population; and/or
  • The preservation of the environment of its territory or a part thereof [7].  

Given the magnitude of Russia's military actions in Ukraine, its long-term goals and devastating impact, it is possible to argue that the very existence of Ukraine as an independent political unit is at stake.

Ukraine's economy is shattered and its financial system seriously disrupted while war efforts require enormous amount of funding currently provided mainly by the western donors.

Therefore, expropriation of assets of the state directly responsible for the losses suffered might be a reasonable measure justified by necessity.  


Ukraine is understandably focusing on short-term and mid-term benefits since its very existence and independence is at stake.  

If in the future a peace agreement fails to address the issue of set-off of expropriated assets against reparation, Ukraine's actions may lead to numerous claims by foreign investors with Russian roots. While it is likely any expropriated assets under the existing Law of Expropriation (together with the recent amendments) will be unlawful, in case of dispute Ukraine may have a strong necessity defence.

The law lacks clarity on many important issues. While some of them were clarified by the April amendments, they are yet to be signed by the President, and there is a possibility they will be vetoed and returned to the Parliament for reconsideration.

The Parliament of Ukraine is currently considering other ways of seizing Russian assets in Ukraine under different procedures, for example under the Law of Ukraine "On Sanctions", therefore it appears the legal framework in this area is far from its final version.

This article was authored by Oleksandr Zelenyi, dispute resolution associate at Fieldfisher.


[1] Feldman v Mexico (Award) ICSID case No. ARB(AF)/99/1,  para 100
[2] Amoco International Finance Corp v Iran (1987), 15 Iran-USCTR 189, 220
[3] Siag v Egypt (Award) ICSID Case No. ARB/05/15, para 428
[4] Quiborax v. Bolivia (Award) ICSID Case No. ARB/06/2, para 247
[5] ADC v. Hungary (Award) ICSID Case No. ARB/03/16, para 435
[6] History Notes, British policy towards enemy property during and after the Second World War, Historians, LRD No. 13 April 1998, p. 30
[7] Addendum to the Eighth Report on State Responsibility, by Mr. Roberto Ago, U.N. Doc. AICN.4/318/ADD.5-7, p.14

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