On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023 (the Act). Within the Act's 1,653 pages was an important new provision related to asset forfeiture, Section 1708, which is designed to transfer certain forfeited assets to the government of Ukraine to remediate harms stemming from Russia's military invasion. It also specifies when and whether a particular type of asset forfeiture will qualify for these sorts of transfers, as only certain types of forfeitures qualify.
 
Section 1708 is blessedly short and states in the text its two purposes:

1. To allow the U.S. Secretary of State to use covered forfeited property "to provide assistance to Ukraine to remediate the harms of Russian aggression towards Ukraine"
2. To require the Secretary of State to provide reports to Congress on any transfer of forfeited property to Ukraine within 15 days of the transfer

The law is also time limited, as it provides authority for such transfers and reports only through May 1, 2025.
 
Since the law is designed to allow the transfer by the Secretary of State of covered forfeited property to Ukraine the new definition of that term is critical. Section 1708(c)(2) defines "covered forfeited property" as follows:  

[P]roperty forfeited under chapter 46 or section 1963 of title 18, United States Code, which property belonged to, was possessed by, or was controlled by a person subject to sanctions and designated by the Secretary of the Treasury or the Secretary of State, or which property was involved in an act in violation of sanctions enacted pursuant to Executive Order 14024, and as expanded by Executive Order 14066 of March 8, 2022, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, and Executive Order 14068 of March 11, 2022.

This subsection defines the universe of forfeited property that may be transferred to Ukraine, indicating that such property must meet the following criteria: 

1. The property must have been forfeited under certain U.S. forfeiture laws (chapter 46 or section 1963 of title 18, United States Code)
2. The property must have been possessed by a "person subject to sanctions and designated" by certain U.S. authorities or the property itself must have been involved in a violation of certain executive orders issued by President Biden that authorize various sanctions and trade restrictions with respect to Russia

 These limitations are important because they rely on existing U.S. forfeiture laws, namely the standard civil and criminal forfeiture provisions found in 18 U.S.C. §§ 981–987, which govern virtually all judicial forfeiture proceedings in the U.S. federal courts. In short, these provisions contain significant due process protections and require the government to show proof that certain civil and criminal elements are met before any forfeiture can take place. 
 
It is only after this process has been completed that the transfer of the property can take place under Section 1708. In addition, only a subset of this forfeited property is subject to transfer as Section 1708 also requires either possession of the property by a person subject to sanctions or involvement of the property itself in a violation of certain U.S. sanctions authorities. It is unclear precisely how this determination will be made or who will make such a determination, and the wording of the criteria arguably creates some ambiguity about which "persons subject to sanctions" would make a forfeiture eligible for transfer. Is it any forfeiture of property from a "person subject to sanctions" (which would potentially make any person designated under the 30-plus OFAC sanctions programs eligible for this sort of transfer) or must the person be "subject to sanctions" under the Russia-related executive orders cited later in the subsection?

Notably, the enactment of this new mechanism related to asset forfeiture seems to directly reflect the proposals noted by Andrew Adams, the Director of the U.S. Department of Justice's (DOJ) Russian Sanctions Task Force (KleptoCapture) in his statement to the Senate Committee on Banking, Housing, and Urban Affairs in September 2022. This suggests that the inclusion of Section 1708 in the Act is not merely an abstract statement of policy or aspiration. Rather, the DOJ already has a dedicated team that has been seeking and is now ready to aggressively employ this new tool designed to "remediate harms caused to Ukraine by Russia's war of aggression against Ukraine."  

The main takeaway from these provisions is that the Congress has now provided a mechanism that will allow the U.S. government to aggressively use the civil and criminal forfeiture laws to support the Ukraine government, but those substantive forfeiture provisions have not changed at all. They contain important due process and procedural protections and those protections must be fully complied with before any transfer can take place. Going forward, how the old and new laws interact is likely to be subject to difficult questions, which our team is already actively considering. We will continue monitoring these issues as the law develops.

For more information, please contact attorneys in Miller & Chevalier's Sanctions and Export Controls Group and Litigation Groups:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Michael J. Satin, msatin@milchev.com, 202-626-6009

Manuel Levitt, mlevitt@milchev.com, 202-626-5921

Caroline J. Watson, cwatson@milchev.com, 202-626-6083

Anton Berezin*

Helen Mitsuko Marsh*

Christopher Stagg*

*Former Miller & Chevalier attorney

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