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Russian Federation: New Law Allows Seizure of Foreign Governments’ Property

(Dec. 2, 2015) On November 3, 2015, President Vladimir Putin signed the Law on Jurisdictional Immunity of a Foreign State and a Foreign State’s Property in the Russian Federation (Federal Law No. 297-FZ (Nov. 3, 2015), PRAVO.GOV official government portal) (in Russian).) The law is scheduled to enter into force on January 1, 2016. (Id. art. 18.)

The Law was drafted and introduced in the Duma (the parliament) by the Russian Ministry of Justice. The explanatory note to the legislation stated that the measure is aimed at abolishing the previously applied doctrine of absolute sovereign immunity, which “contradicts the current practice of foreign economic activities” and puts Russia in a disadvantageous position because “the number of claims against Russia in foreign courts is growing, and no one is asking for Russia’s agreement to be sued.” (Explanatory Note to the Bill on Jurisdictional Immunity of a Foreign State and a Foreign State’s Property in the Russian Federation, State Duma legislative database (last visited Nov. 30, 2015) (in Russian).)

The drafters proposed that a “balance” be established with other states based on principles of reciprocity, stating that “if Russian property has limited or no immunity in a particular country, Russia shall be empowered to establish similar restrictions on that country’s property located in the Russian Federation.” (Id.) At the same time, neither the Law nor accompanying documents define how a “balance” will be determined.

Background

Russian commentators have suggested that the new Law was adopted in response to the seizure of Russian property in France and Belgium last summer, following the verdicts of the Permanent Court of Arbitration and the European Court of Human Rights under which Russia was required to pay $39.9 billion to former stockholders of the YUKOS oil company. Reportedly, in July 2015, because of the Russian government’s refusal to provide payment to the plaintiffs, Belgian officials informed 47 Russian and international companies that the property of these companies located in Belgium would be seized in order to secure the execution of the courts’ rulings and that Belgium was starting to inventory Russian property subject to seizure. The accounts of a Russian state bank VTB subsidiary in France were also seized. Russian officials promised to take measures to counteract the foreign court judgments. (Kremlin Promised to Dispute Property Seizures in France and Belgium, NEWSRU.COM (June 18, 2015) (in Russian).)

Major Provisions of the Law

The Law regulates the application of jurisdictional immunity by foreign states over foreign-state property in Russia and provides for the priority of international treaty provisions over this Law if such a treaty has been concluded. (Federal Law No. 297-FZ, art. 1). Foreign states, their components, bodies, institutions, organizations, and representatives are subject to the Law’s jurisdiction. The Law applies to the components of a foreign state if these components are qualified to act in order to perform sovereign powers of the state and to institutions and organizations of a foreign state regardless of whether they are legal entities if they are qualified to act and are actually taking action to perform sovereign powers. (Id. art. 2.)

The Law defines “property of a foreign state” as property that belongs to a foreign state, that is located on the territory of the Russian Federation, and that is used by the same foreign state. (Id. art. 2(2).) Courts of general jurisdiction, including arbitration courts, have jurisdiction over jurisdictional immunity cases and must apply Russian procedural legislation. (Id. arts. 2(7) & 17.)

Implementation of the Law must not harm the privileges and immunities of foreign states’ diplomatic and consular offices, special missions, representations at international organizations, heads of state and governments, foreign ministers, aircraft, space equipment, naval ships, or other state vessels used for noncommercial purposes. (Id. art. 3.)

The Law declares reciprocity to be the main principle under which Russian courts will consider the limits of jurisdictional immunity of a foreign state, to be determined in relation to the degree of immunity the Russian Federation enjoys in that foreign state. The Russian Ministry of Foreign Affairs is required to provide assessments of the extent of jurisdictional immunity that the Russian Federation has in a given foreign state. (Id. art. 5.)

Foreign states cannot insist on jurisdictional immunity in Russia in disputes involving:

  • commercial activities or civil law transactions of a foreign state (id. art. 8);
  • labor (id. art. 9);
  • participation in domestic organizations (id. art. 10);
  • a foreign state’s rights and obligations concerning real estate and other property located in Russia (id. art. 11);
  • tort cases (id. art. 12);
  • intellectual property and copyright(id. art. 13); and
  • vessels for commercial use (id. art. 14).

Immunity does not apply to measures taken to secure a claim or to execute a court ruling. (Id. arts. 15 & 16.) The Law emphasizes that any property of a foreign state located in Russia can be used to secure the execution of a court ruling if this property is not used and/or supposed to be used for the purpose of performing sovereign power functions. (Id. art. 17(3).)

Experts’ Assessments of the Law

Some Russian lawyers have disputed the need for the new legislation. They contend that the property of foreign states can be seized under current Russian law if there is a lawful court order. They have also asserted that the implementation of this Law will depend on future interpretations of its provisions, because the definition of “reciprocity” is too vague. (Ministry of Justice Proposed Seizing Foreign Property in Russia, NEWSRU.COM (July 22, 2015) (in Russian).)