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Russian Response To Sanctions?

On October 8, the Russian Duma approved the first reading of a bill that would permit Russian citizens whose property is “unjustly” seized as a result of foreign court decisions to claim compensation from Russia’s treasury.  The bill further authorizes the Russian government to recoup the loss by seizing the property of the foreign state in question, including property that would otherwise be subject to sovereign immunity under Russian law.

Dubbed the “Rotenberg Villas” law by parts of the Russian press, the measure is rumored to have been pushed by Arkady Rotenberg, a wealthy businessman and longtime associate of President Putin, who has been placed on both the EU and US sanctions lists following the Russian interventions in Crimea and eastern Ukraine.  As a direct consequence of those sanctions, the Italian government has frozen Mr. Rotenberg’s assets in that country, which include villas and a hotel.

If the rumors are true, yesterday’s vote is a telling indication of Mr. Rotenberg’s influence.  While its critics have characterized the bill as a raid on the public coffers by the well-connected and wealthy, the Russian government voiced its support for the measure on September 25.  In the Duma yesterday, the bill passed by a margin of 233 to 202, with all 233 votes in favor coming from members of United Russia, the party led by Prime Minister Dmitry Medvedev.

At first blush, the bill’s implicit threat of government seizures of foreign state property appears to risk a further significant erosion in Russia’s economic relations with the West.  In reality, though, it is too early to tell where yesterday’s vote will lead.  The bill is subject to amendment before it receives its second reading and the Duma’s legal department has already indicated that many terms used in the bill will need clarification.  One such provision, which apparently has attracted little attention to date, confusingly limits the scope of application of the bill to foreign court decisions “on matters that should be reviewed by courts or commercial courts of the Russian Federation.”  And, even if the bill is eventually enacted into law, it remains to be seen how eager the Russian government will be to use the power it confers to seize foreign state property.  This is, nonetheless, an unfolding story that merits continuing close attention.    

© 2020 Covington & Burling LLPNational Law Review, Volume IV, Number 282

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About this Author

Jonathan Gimblett, International arbitration attorney, Covington
Partner

Jonathan Gimblett joined the firm in 2004 following a successful career in the British Diplomatic Service. His practice combines international and antitrust law, drawing on his experience of 15 years in government. Mr. Gimblett’s international practice focuses principally on investor-state arbitration and public international law disputes, on which he advises both states and corporate clients. He also represents clients in U.S. federal court litigation relating to international law issues, including the application of the Foreign Sovereign Immunity Act (“FSIA”). His...

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