Damage to Russian Federation and Russian Central Bank Will Be Compensated at the Expense of Property of US and Related Persons

On 23 May 2024 Russian President signed the Decree № 442 “On the Special Procedure for Compensation of Damage Caused to the Russian Federation and the Central Bank of the Russian Federation in Connection with Unfriendly Actions of the United States of America” (hereinafter – the “Decree”).

The Decree introduces a special procedure for compensation of damages caused to Russian Federation or Central Bank of Russian Federation (hereinafter – “Russian rightholders”) due to unfriendly actions of the US. It is likely that adoption of the Decree was a response to a law, signed earlier in US, providing for the right of the US President to confiscate assets of Russian rightholders and transfer them to the Ukraine Support Fund.

Adoption of the Decree allows Russian rightholders to apply to court with a request (1) to establish the fact of unreasonable deprivation of property rights due to a decision of a US state or judicial authority and (2) to compensate for damages. This application should, among other things, contain information on the assessment of the damage caused. The jurisdiction in such case is determined according to general procedural rules, and therefore Russian rightholders should file the application with the court at the applicant’s address1.

Upon acceptance of the application and if there is information about unreasonable deprivation of Russian rightholders’ assets, the court will send a request to the Government Commission for Control over Foreign Investment in the Russian Federation (hereinafter – the “Commission”) to provide a list of property of US and associated persons that may be used for compensation of damages.

It is noteworthy that the list of foreign persons associated with US is quite broad and includes:

a) US citizens and residents;

b) persons whose place of registration, place of predominant business activity or place of predominant derivation of profits from activities is US;

c) persons under the control of these persons, regardless of their place of registration.

We assume that Russian citizens who also have US citizenship cannot be included in this list, since a citizen of Russian Federation who has dual or multiple citizenship is considered by Russian Federation only as its citizen regardless of where he or she resides2.

Commission, responding to the court’s request, should identify property that can be used for compensation. The specific procedure to consider the court’s request and identify the list of property to be used for compensation to Russian rightholders will be established by Russian Government within 4 months. However, the Decree itself defines the following list of property of US and associated persons that may be used for compensation purposes:

a) movable and immovable property located in the territory of Russian Federation;

b) securities, shares in the authorized (share) capitals of Russian legal entities;

c) property rights.

Based on the results of consideration of Russian rightholder’s application, the court makes either a decision either to establish the fact of unjustified deprivation of the Russian rightholder’s rights to property and to compensate for damages, or to refuse to satisfy the application. The decision to satisfy the application is the basis for termination of property rights of US and associated persons and its subsequent transfer to affected Russian rightholders.

1 Article 219 of the Arbitration Procedural Code of the Russian Federation of 24.07.2002 No. 95-FZ.
2 Article 10 of Federal Law No. 138-FZ of 28.04.2023 “On Citizenship of the Russian Federation”.