Businesses around the world have struggled to understand the implications of the sanctions imposed by the United States following the Russian invasion of Ukraine. Beyond sanctions, the United States has even more legal and economic tools at its disposal to further punish Russia and Putin. One option currently under discussion is to designate Russia as a “state sponsor of terrorism”. While such a designation would more directly condemn Russian and Putin’s actions in Ukraine and other parts of the world, it could also have implications for companies doing business with a number of owned or controlled entities. by the Russian government. The designation would also facilitate the collection of arbitral awards or foreign court judgments obtained against Russia or its agencies or instruments.
Under certain circumstances, the United States may designate a country as a “State Sponsor of Terrorism”.1 Although the movement is rare, it is not unprecedented. The United States currently has designated Cuba, North Korea, Iran, and Syria as state sponsors of terrorism.2 To designate a country, the secretary of state must determine that the nation’s government “has repeatedly supported acts of international terrorism, such as assassinations or the financing of terrorist groups.”3
This determination would trigger the collection avenues of an extremely powerful but little-known law, the Terrorism Risk Insurance Act of 2002, or TRIA.4 TRIA allows every person who has a judgment against a state sponsor of terrorismor his agents or instruments, the right to satisfy their judgment by seeking to obtain the “escrow assets” of such parties or their agencies and instruments. This may seem like a narrow provision, but given state ownership and control over so many companies – and the threat of Putin nationalizing foreign assets and businesses – it likely has broad implications. Under the TRIA’s definition, frozen assets include any asset seized or frozen by the United States under Section 5(b) of the Trading in the Enemy Act (50 U.S.C. App. 5(b) ) and the International Emergency Economic Powers Act (50 USC App. 1701; 1702). The Trading with the Enemy Act grants the Office of Foreign Assets Control (OFAC) the power to freeze assets. The funds or assets seized by OFAC therefore fall within the scope of TRIA.5
In short, if President Biden were to designate Russia as a state sponsor of terrorism, any company, individual, or state that obtains a judgment or award against Russia, or its agents or intermediaries, could adopt the judgment or award to the states. -United. and try to obtain satisfaction of his judgment via all the blocked or frozen assets of the Russian oligarchs and Russia. It is important to note that any funds blocked in the United States could arguably be used to satisfy the judgment or award as long as the blocked funds come from, at a minimum, a Russian agent or intermediary. This could include non-Russian entities or individuals. This is a particularly powerful enforcement mechanism against the threat of Russian expropriation6 — and can enable rapid recovery of judgments, especially as billions of dollars are frozen in US banks.
1 The United States has legal authority to make such designations under 50 USC 481, National Defense Authorization Act for Fiscal Year 2019, Section 1754(c); 22 USC 2780, Arms Export Control Act, Section 40; and 22 USC 2371, Foreign Assistance Act of 1961, Section 620A.
2 State Sponsors of Terrorism, US Dep’t. of State, https://www.state.gov/state-sponsors-of-terrorism/.
3 View ID.
4 Terrorism Risk Insurance Act, HR 3210, Pub. Law 107-297, https://www.congress.gov/bill/107th-congress/house-bill/3210.
5 Stansell v. Revolutionary Armed Forces of Colombia771 F.3d 713, 722-23 (11th Cir. 2014).
6 For a discussion of the potential use of international investment treaties and their arbitration provisions to combat potential expropriation of foreign investment in Russia, to see International Arbitration under International Treaties: A Potential Remedy to Putin’s Expropriation Threats.