Senator Omidvar -Bill S-278 Amends SEMA to Allow for a Legal Mechanism to Seize and Repurpose the State Assets of Perpetrators who Breach International Peace and Security
On October 17, 2023, Senator Omidvar moved second reading of Bill S-278, An Act to amend the Special Economic Measures Act (disposal of foreign state assets). Watch:
Senator Omidvar: Honourable senators, I rise today to speak on Bill S-278, An Act to amend the Special Economic Measures Act, also known as SEMA. The bill before you seeks to amend SEMA to allow for a legal mechanism to seize and repurpose the state assets of perpetrators who breach international peace and security and to redirect those assets to the victims whose lives have been shattered.
The invasion of Ukraine by Russia provides a clear context for this proposal. Russia has launched an unnecessary, illegal and brutal war. It has destroyed the lives and livelihoods of hundreds of thousands of people — fathers, brothers, mothers, sisters and children have been lost. Cities have been reduced to rubble, and infrastructure has been bombed. People have been captured and tortured, and, still, there is no end in sight.
But perhaps the worst crime of all is the wilful kidnapping of thousands of children. As per The Globe and Mail:
In the summer of 2022, Russia began a co-ordinated program to bring children — particularly those living in orphanages and foster homes — from across the occupied areas of Ukraine to summer camps in Russia, hundreds of kilometres away.
These children have not been returned to their parents in Ukraine, but instead have been put up for adoption in Russia. This is so heinous a crime that the International Criminal Court has subsequently issued arrest warrants for Mr. Putin and for his Commissioner for Children’s Rights, Ms. Lvova-Belova.
Just this past week, we have seen with horror the brutal attack of Hamas in Israel. Although there is no proof that Russia supplied weapons to Hamas, we know that Russia supports it. Just last March, for instance, Russia hosted in Moscow a delegation of Hamas leadership, and, further, Russia has yet to condemn Hamas for its brutality. So we see, yet again, that Russia desires chaos. It desires to destabilize the world and the rules-based order as we know it.
For these and many other reasons, we must hold rogue actors like Russia to account, but we must do so by carving out a legal pathway. It is difficult to quantify the misery of Ukraine in dollars and cents, but the World Bank has estimated the cost of war at US$600 billion.
Ukraine itself estimates that it requires $7 billion a month in aid, and these figures keep growing exponentially as Russia refuses to end its military operations and continues to target both the civilian population and the civilian infrastructure in breach of the orders of the International Court of Justice and the European Court of Human Rights decisions made in March of 2022.
Whilst the war is ongoing, the international community is mostly united in its condemnation of Russia’s aggression and support for rebuilding Ukraine. On November 14, 2022, the United Nations General Assembly passed Resolution ES-11/5, recognizing that under international law, Russia will owe Ukraine reparations at the end of the war.
However, given Russia’s total failure to comply with any international court orders so far, it is unlikely that Russia will comply with any future judgments that award reparations to Ukraine, and even if these payments were negotiated at some point in the future, Ukraine needs the money now. This is why timing matters. Funds to repair ongoing damage must be found now, before the damage to Ukraine’s economy and its people becomes irreversible, meaning that Russia wins even if it loses the war.
I remind senators of my previous bill, the frozen assets repurposing act. The spirit of that bill was adopted by the government in its Budget Implementation Act, 2022.
Its principles and the principles of this legislation are the same. They are, first, that this is an illegal war that Russia has waged, and, therefore, Russia must be held accountable. Second, Russia must pay for the misery and damage it has wilfully wrought. Third, Russia must pay now and not at some vague point in the future.
As a result of the previous legislation, which was adopted by Canada, Canada is now legally able to seize the frozen assets of corrupt foreign officials and non-state entities and repurpose them to alleviate the suffering of the people who have been harmed. The government is using this power now to seize the assets of Russian oligarchs. In December of last year, as per the new authority granted to it by law, the Minister of Foreign Affairs moved to seize and pursue the forfeiture of $26 million from Granite Capital Holdings Ltd, a corporation belonging to Roman Abramovich, and is pursuing the forfeiture of his assets through the sanctions outlined in SEMA.
In February of this year, the federal government moved to confiscate the Antonov-124 aircraft, the Russian cargo aircraft owned by a subsidiary of the Volga-Dnepr Airlines and Volga-Dnepr Group. This aircraft was grounded at Toronto Pearson international airport at the start of the war and is currently still parked on the runway.
As the law intended, these cases are now before the courts to provide for due process to these private assets. If forfeited, these assets can be used to provide necessary funds to help the victims of Russian aggression and to hold the perpetrators to account.
However, as we all well know in this chamber, the devil is always in the details of legislation. So whilst the new law applies and is being applied to oligarch assets, it gets ensnared in other legislation when it comes to the confiscation, seizure and forfeiture of state assets located in Canada.
State assets, particularly central bank assets, are where the big money lies, the big money that is required to rebuild Ukraine. Since the war, roughly $300 billion of Russian state assets have been frozen by various G7 jurisdictions. You will want to know the value of Russian state assets held in Canada today. At the end of 2021, just before Russia launched its war, the sum value of its assets in Canada was $16 billion, which far outstrips, by the way, the sum value of Russian oligarch assets in Canada. But in a pre-emptive move, I imagine, Russia removed $16 billion of its assets from Canada to Belgium, where they now lie frozen.
I am not able to say with certainty what the remaining value of Russian state assets in Canada now is. I have heard that it is likely negligible, and you may well ask, “Why bother, then?” Whether it is $1 or $16 billion, the principles and objective of my bill still apply, and they are as follows: to create a legal avenue for Canada to seize state assets and, more importantly, to create a legal precedent that can be followed by other like-minded jurisdictions.
This move is urgent. As you likely know, the biggest supporter of Ukraine in absolute dollar terms — the United States — is facing a political challenge in continuing its support of Ukraine through tax dollars. Opposition to Ukraine aid appears to have become a litmus test for some on the far right. The New York Times states that the isolationist views of hard-line Republicans argue that:
. . . sending tens of billions of dollars to Kyiv [in Ukraine] risks dragging the United States into a head-on conflict with Russia and siphons money away from domestic challenges. . . .
The presidential election in the U.S. at the end of 2024 will be a watershed moment — not just for the U.S. or us, but especially for Ukraine.
As we also know, this sentiment may not just be confined to the U.S. as populist nationalism is witnessing a resurgence in many parts of the world. Therefore, the passage of this bill, which has the rich state assets of Russia as its target, will be watched carefully by others who would wish to continue their support for Ukraine, but may be challenged by domestic realities to find new sources of funding for it.
The $300 billion of frozen state assets of Russia is a source for such funding, but frozen assets are technically not good to anyone because they are frozen. They are immobilized. In June of this year, the British government announced that it will keep Russian funds immobilized until Russia compensates Ukraine. The European Union, or EU, has also announced that it will do the same, but might transfer the profits earned on Russian funds to Ukraine.
But, at best, these are mere half measures. They simply leave these assets in permanent limbo — useless to all. Unless a nation is bold enough, or courageous enough, to take the first step of asset seizure, these assets will likely remain frozen long after the war is over.
Because Canada likely only has a small amount of Russian state assets, we also have a unique opportunity to reach for a low-risk yet high-impact opportunity to set the pace so that others follow. Being the first nation to do so puts us in an extraordinary position of global leadership by explaining the international rationale and the domestic pathway to do so.
That was the intent of the first seizure and forfeiture law I proposed, which has since been adopted into law. Since Canada’s bold move, others have gathered around it.
Obviously, Ukraine has its own legislation covering Russian state assets, but legislation has been proposed in the U.K. in both houses of Parliament. The EU has set up a freeze and seize task force, and the European Parliament has passed a resolution that calls on Russia to provide war reparations to Ukraine, arguing that frozen Russian assets should be legally confiscated in accordance with international law.
In the U.S., Congress has passed amendments to allow for the sale and process of assets from sanctioned Russian oligarchs and entities supporting Putin to be used for the benefit of the Ukrainian people. Estonia is the first member of the EU to table domestic legislation to seize and repurpose Russian oligarch assets for the benefit of Ukraine.
As I had hoped, this Canadian rolling stone is gathering much moss. This is a unique and timely example of middle power Canada charting the way forward so that others follow.
But the way forward has thrown up a challenge; let me call it a mechanical challenge of a legal kind. As we know, there are limitations that impact how Canada and any other state can treat the property of another state, whether that property is assets in banks, real estate or others. The principle of sovereign immunity is a precedent under international law, which stipulates that “. . . one sovereign state cannot be sued before the courts of another sovereign state without its consent.”
Specifically in Canada, the State Immunity Act governs this principle. It states that “. . . a foreign state is immune from the jurisdiction of any court in Canada.” This means that if the Canadian government were to commence judicial proceedings to confiscate a foreign state’s asset, the relevant foreign state would be able to claim its immunity from such proceedings on the basis that no Canadian court has any jurisdiction to adjudicate in any proceedings involving a foreign state, thereby blocking any attempt by the court to make an order as regards its state property.
On the surface, it would appear that this prevents the implementation of the seizure and repurposing of Russian state assets because they are of a sovereign nature.
The current regime under the Special Economic Measures Act, or SEMA, allows for the seizure and repurposing of assets through the courts. I think we all agree that assets owned by individuals or non-state entities must have due process before the state takes them away. This is a fundamental principle in Canada.
However, because this process goes through the courts, Russian state assets are excluded from seizure and repurposing because of sovereign immunity laws.
Recognizing this hurdle, legal experts in Canada, including former Attorney General Allan Rock and noted academic Rob Currie, as well as legal experts outside of Canada, including Jamison Firestone, Tetyana Nesterchuk, Laurence Tribe and Yuliya Ziskina, pointed to a different route, which is presented in this proposal.
Whilst the State Immunity Act limits court action against another state, its reach does not extend to executive actions, such as cabinet orders. As such, state assets are shielded from legal proceedings in court, but they are not shielded from executive actions. The bill before you amends SEMA to allow for the confiscation of state assets by executive action, thereby creating two paths for seizure: one through the courts for individual assets, and another through executive action by the Governor-in-Council. Think of it as two highways with the same destination, but different routes.
Clause 5.41 of the bill says the Governor-in-Council may, by order, have any property that is the subject of an order made under paragraph 4(1)(b) and that is owned — or that is held or controlled directly or indirectly — by a foreign state to be forfeited to His Majesty in right of Canada.
Inserting this language specifically gives the authority of the government to seize and forfeit assets held by a foreign state. To ensure that SEMA follows actions that don’t infringe on the State Immunity Act, the act is amended by adding the following after subsection 5.4(1):
(1.1) An order made under subsection (1) cannot relate to property that is owned, held or controlled, directly or indirectly, by a foreign state.
Colleagues, this clause would take the court process out of the seizing and forfeiture of state assets and leave it to executive action if, and only if, the underlying conditions under SEMA have been met. In other words, there must be a breach of international peace and security and/or gross human rights violations.
To be clear, SEMA already provides for the seizure of state assets, but the mechanism is flawed. This bill simply provides for amending the legal mechanism so that the law can fulfill its stated purposes, should Canada choose to seize and repurpose sovereign state assets.
Some will argue that this is a breach of international conventions — that one state cannot simply seize the assets of another state in its jurisdiction — and yet there is no real dispute that Russia has breached international law by its illegal invasion of Ukraine. Authors Allan Rock, Rob Currie and Fen Hampson — in their paper titled “Leading by Example” — argue that state-on-state armed attacks tops the list of breaches of pre-emptory norms, and are a direct violation of international law. Refraining from aggressive war is a core rule of international law. They go on to say:
. . . given that we are asking questions about international law breaches, it is essential to focus on the direct violation of international law that gives rise to all of this: Russia’s invasion of Ukraine. . . .
The United Nations General Assembly in its Resolution ES-11/1 in March 2022 deplored “. . . in the strongest terms the aggression by the Russian Federation against Ukraine in violation of Article 2(4) of the Charter . . . .” — it’s the article which is said to be the cornerstone of the UN Charter. That resolution was supported by 141 nations, with only 5 voting against it, and you will guess right: Russia, Belarus, North Korea, Syria and Eritrea.
In a Washington Post opinion piece, three prominent U.S. thought leaders — Lawrence Summers, former Secretary of the Treasury and former president of Harvard University; Philip Zelikow; and Robert Zoellick, former president of the World Bank — argue that the roughly $300 billion of Russian central bank assets could legitimately be repurposed for the reconstruction of Ukraine because:
Those who hold Russian assets are entitled, under the international law of state countermeasures for a grave breach of international law, to cancel their obligations to the Russian state and apply Russian state funds to what Russia owes.
Given this, they go further and suggest that Canada and other like-minded states are not only permitted to act against Russian aggression but are, in fact, obliged to do so.
In addition, article 41 of the articles on Responsibility of States for Internationally Wrongful Acts confirms that Canada and others can invoke countermeasures as provided for in chapter 11 of this agreement.
The principle behind countermeasures is that a state, in this case Canada, can suspend an obligation it has under international law in a way that is intended to bring the offending state back into compliance with international legal obligation. In this case, it is Russia’s breach with the invasion of Ukraine and its failure to compensate for the devastation it has caused. If it is a valid countermeasure, then seizure of state assets in itself is not a breach of international law. Quite the opposite: It is a valid and lawful response to Russia’s breach of fundamental norms of forbidding one state from mounting an armed attack on another.
There is precedent for this kind of action. As lawyers Jamison Firestone, Tetyana Nesterchuk and Yuliya Ziskina argue:
. . . the most applicable countermeasures precedent is the transfer of Iraqi state funds during the Gulf War in 1992. After Iraq invaded Kuwait in 1990, former U.S. President George Bush issued an October 1992 executive order “directing and compelling” every U.S. bank holding Iraqi state funds to transfer them to the Federal Reserve Bank of New York in compliance with a U.N. resolution that called for the compensation of the victims of that aggression. The executive order “authorized, directed, and compelled” the Federal Reserve Bank of New York to receive these funds and to “hold, invest, or transfer” them to serve the purposes of the U.N. resolution.
Countermeasures have been used by Canada. For example, after the invasion of Afghanistan by the U.S.S.R., Canada suspended Soviet fishing rights in its exclusive economic zone. Canada again suspended landing rights for the Soviet Aeroflot after the shooting down of a Korean Air Lines passenger plane in 1983. Canada again used countermeasures against the apartheid regime of South Africa, and used them again in the 1990s in the conflict in Serbia.
No doubt this proposal sets a precedent, but, if it does so, then it sets a positive one. The norms against aggression, war crimes and genocide are currently being tested to a degree the world has rarely seen. If states considering similar acts of aggression see that their conduct would be met with swift and severe consequences, such as the seizure of their sovereign assets, then they are far more likely to think once, twice and many more times before taking a step.
In short, if Canada and other Western states want to face fewer crises like the one facing Ukraine, then we should send the unmistakable message to the international community that Russia’s conduct will not be tolerated. Hesitation and appeasement only send aggression-encouraging signals. I believe that the world’s appeasement of Russia after its invasion of Crimea in 2014 was misplaced, as we all know now.
I grant that seizing state assets, including central bank assets, is an extraordinary move. These are, however, extraordinary times. If we do not demonstrate resolve, if we fail to act in legal ways to hold Russia accountable, then we will likely open the door for other rogue nations with territorial ambitions to act with impunity.
This proposal, therefore, uses domestic law in accordance with international law mechanisms as a deterrent. It upholds the rule of law in the international legal order.
Russia cannot hide behind international law because it has broken every tenet of it. Laurence Tribe, who is likely the foremost constitutional scholar in the U.S., writes:
It would be a cruel irony to deny Ukraine the funds it needs by invoking respect for Russia’s “sovereignty” and “property rights” when Russia has chosen to trample on [those] of the Ukrainian people.
Now to turn to what Russia is doing in this sphere, in April of 2023 Putin signed a decree allowing Russia to expropriate property from unfriendly countries — basically any country that has placed sanctions against it, of course, including Canada, the U.S., the U.K., all EU countries, Japan and South Korea.
On September 23, when President Zelenskyy was visiting Canada, Canada and Ukraine agreed to create a G7 task force on the seizure and forfeiture of Russian state assets. The bill before you today will provide a way forward for those efforts. The government of Ukraine supports this measure.
Iryna Mudra, the Deputy Minister of Justice for Ukraine, writes:
The Ukrainian government sees Russian sovereign assets as the key source of compensation for victims of Russia’s illegal war and we are very grateful to Canada for taking the lead on this important issue and setting a clear precedent for other nations to follow.
Colleagues, the bill before you today holds Russia to account. It creates a legal pathway for Canada and others who will follow us to use Russian state assets to compensate Ukraine. It does so in a manner that is sensitive to the needs of Ukraine today and not at some future time. It gives expression to the sentiments of President Zelenskyy in our Parliament last month when he stated that Canada stands out as a “bright” light to the rest of the world. Let us be that light and shine not just through our aspirations but through our actions.
It is also a warning light to other bad actors. Although I have spoken primarily in the context of Russia and Ukraine, the proposal will amend SEMA in general, which would allow for similar actions against other bad state actors that perpetuate mass crimes. I hope that is clear. It does not mention Russia or Ukraine in the amendments.
Before I close, I wish to thank my many advisers who have helped me in navigating these tricky waters. They are academics, foreign policy experts, international lawyers from Canada, the U.S. the U.K. and Ukraine. I call them my brain trust, because I know it takes a village to raise a legislative child, especially when that child is a private bill.
On their behalf, and on behalf of the many victims of the Russian war in Ukraine, I ask for your support. Thank you.
Hon. Denise Batters: Senator Omidvar, I have a couple of questions for you. First of all, as one of 1.4 million Ukrainian Canadians, I want these Russian assets to be quickly and properly seized so that those assets cannot be used to finance Putin’s illegal and brutal war against Ukraine. Could you briefly explain what this bill does that the government legislation you referenced, that was passed in the recent Budget Implementation Act, does not do?
Senator Omidvar: Thank you, Senator Batters, for that question. The bill creates a legal mechanism that would allow the Government of Canada to seize Russian state assets. As I said, there are technically now two rules: one through the court for individual assets and one through executive action. The existing State Immunity Act provides immunity from Canadian courts to all foreign states.
It’s a clarification, I would say, to the proposal that has already been accepted by the Government of Canada.
Senator Batters: In your speech tonight you referenced that Russian assets in Canada were thought to be “negligible.” I’m just wondering what basis you have to say that, because I thought that that wasn’t the case. It seems like every so often, when we hear about potential oligarch assets in Canada, we hear that there have been, thus far, relatively limited real results produced by actions taken by Canada’s government.
I actually thought that very little had been seized thus far in Canada. Why do you think that there is just a negligible amount left?
Senator Omidvar: Thank you, Senator Batters. In December of 2021, just before Russia invaded Ukraine, according to the public accounts of Russia, state bank assets totalling $16 billion were located in Canada. Russia subsequently removed $16 billion to Belgium in, as I said, likely a pre-emptive move. This is all public information that I had gleaned.
What I don’t know is if they’ve got anything left outside of, maybe, their embassy here.
Hon. Yuen Pau Woo: Senator Omidvar, would you take a question?
Senator Omidvar: Definitely. Thank you, senator.
Senator Woo: Your speech is very timely given that we’ve just received the response from the foreign minister on the sanctions from the Magnitsky study, one of the findings of which you may recall is that the efficacy of our sanctions regime, particularly autonomous sanctions, including Magnitsky and some of the others you have described, have not been proven. We’re not clear that sanctions actually make a difference, based on the objectives that were set for sanctions — changing behaviour and so on.
I’m very supportive of the idea of war reparations along the lines of what happened after the Second World War. I’m not so sure about your proposal.
I’ll give you a preamble before I ask my question, but it sounds to me that while we talk about the importance of upholding international law, what you’re proposing essentially is executive power to override accepted international law, which strikes me as undermining a principled stand on the importance of upholding international law.
The reality of central bank assets is that most of them — about 70% — are held in U.S. dollars, maybe 20% to 30% in euros, the balance in Japanese yen and perhaps a few other small currencies, and a small amount in gold, which means that most of the foreign assets of any central bank will be held in the United States.
That gives me pause when you talk about how we should set the example. Not for us, because there really are very few central bank assets held in Canada. It gives me pause as to what kind of message and lesson, to use your term, we are passing to the United States, which has used its power to seize central bank assets in ways that are perhaps less edifying than you would present.
The Iraq example is not particularly encouraging when you think about how subsequent events in Iraq have unfolded and how the money could have been used for reconstruction. The example of Afghanistan is particularly discouraging, because the assets of the bank have been seized essentially to pay Americans off for the World Trade Center.
What leads you to think that this example, which really will be mostly for the Americans, will be used in a way that, in fact, respects international law and which promotes peace and comity in our world rather than more conflict?
Senator Omidvar: Thank you, Senator Woo. I’m trying to locate the question. Forgive me for trying to locate it.
Your first question is whether this is against international norms. I’m simply going to repeat what people far wiser than me have said. Again, Laurence Tribe, a well-known U.S. constitutional lawyer, said that Russia cannot hide behind international norms when it is breaking every one of them itself.
On the question that we are doing this so that the U.S. will follow, we all know that the U.S. system is “executive-order-happy,” if I may use that term. They tend to use it at many times.
Our proposal is different because even if it is executive action that generates the seizure of assets, it has to be grounded in the conditions of SEMA — the Special Economic Measures Act; those two conditions have to be met. There has to be a breach of international peace and security, and there have to be gross human rights violations.
The proposal that is being considered in the U.S. actually mirrors this proposal and anchors executive action — seizure of state assets — in domestic law. We’re a step ahead of them, if I may say, because that is precisely what we are doing. It is not cowboy, willy-nilly executive action. It is executive action based on certain conditions and criteria.
I hope I located your question.
Senator Woo: If I could then ask the question more specifically, which I think I did at the very end, what gives you the confidence that our American friends, who will be the principal users of this example you’ve set, will, in fact, use this tool with Canada as the cover, as setting the example? Because we’re not going to use this; this is not principally for Canada.
What gives you the confidence that they will not use it in a way that, in fact, violates international law and harms the prospects of countries simply because they have a political disagreement with those countries?
I hope that question is very clear this time.
Senator Omidvar: It is very clear. If the U.S. follows our example and anchors their legislation on state asset seizure in domestic law, as we are doing, then we will have set the right path.
Senator Woo: How would you imagine that the Americans will follow our example in setting a law when they are the pre-eminent power in the world?
Senator Omidvar: The U.S. will be part of this task force that the Deputy Prime Minister has created. Legal scholars, academics and former officials will be on it. I’m not going to pre-empt what the U.S. is going to do.
By the way, Senator Woo, I think this bill is not just aimed at the U.S. There are other nations that have frozen Russian state bank assets, including the U.K. and Japan. Europe is definitely not low-hanging fruit because of their position in the region and their dependency on Russia for all kinds of things. I don’t really believe it’s just the U.S. It is others as well.
As I said, a Canadian rolling stone can gather moss.