How have other U.S. administrations handled seized or frozen foreign sovereign assets in third‑country banks?
Executive summary
U.S. administrations have long relied on a mix of executive sanctions, legal tools tied to U.S. correspondent banking relationships, and multilateral cooperation to freeze — and occasionally transfer — foreign sovereign assets held in third‑country banks, but they have generally avoided outright permanent seizure of central bank reserves because of legal constraints and diplomatic costs [1] [2] [3]. Historical precedents show ad hoc transfers back to successor or recognized governments in cases like the former Yugoslavia, Afghanistan, and Iraq, while recent debates over Russian and Afghan reserves underscore unresolved legal, political and institutional tensions [4] [5] [6].
1. How administrations freeze assets: sanctions and “blocking,” not simple seizure
The executive branch typically uses OFAC authority to block property of designated regimes or persons, which freezes assets under U.S. control or within the reach of U.S. persons rather than permanently confiscating them, and OFAC guidance emphasizes that blocked property “must be blocked (i.e., ‘frozen’)—not seized” [1] [7]. Where a foreign bank maintains correspondent accounts in the U.S., statutes added by the USA PATRIOT Act let the Treasury and Attorney General subpoena records and target funds through those U.S. links, giving practical reach into assets parked in third countries when those banks rely on dollar plumbing [2].
2. Practical precedents: transfers back, transfers through U.S. accounts, and ad hoc solutions
Past U.S. practice includes returning frozen funds to reconstituted or recognized governments under varying circumstances: transfers to successor central banks from former Yugoslavia, shifting Taliban-era Afghan funds at the Federal Reserve Bank of New York into a central‑bank account and later unblocking and moving them, and asset arrangements tied to Iraq’s reconstruction — illustrating that transfers have been executed but were contingent on legal, political and diplomatic conditions [4] [5].
3. Legal guardrails: sovereign immunity, central bank protections, and contested doctrines
International law and the U.S. Foreign Sovereign Immunities Act create powerful protections for sovereign property, and scholarly and legal commentary stress that central bank reserves enjoy especially strong immunity against attachment or execution, meaning outright judicial seizure of third‑country central bank assets is legally fraught [3] [6]. Some legal scholars and institutions debate whether executive action or countermeasure doctrine can temporarily deviate from obligations, but no clear, widely accepted path exists for routine confiscation of central bank reserves without waivers, special statutory authority, or novel legal argumentation [8] [6].
4. Enforcement mechanisms beyond OFAC: DOJ forfeiture, MLATs, and the role of correspondent banking
U.S. criminal and forfeiture regimes have been used to pursue assets tied to illicit activity; the IRS and DOJ rely on instruments like mutual legal assistance treaties and the ability to levy deposits in U.S. correspondent accounts to reach funds with a U.S. nexus, and internal guidance contemplates international service and forfeiture procedures when foreign assets are implicated [2] [9]. In practice, this means that where sovereign assets intermingle with commercial or criminal conduct — or traverse U.S. financial infrastructure — U.S. authorities have more leverage [2].
5. Institutional and geopolitical constraints: compliance costs and multilateral coordination
Banks subject to U.S. jurisdiction must maintain OFAC compliance programs and manage third‑party screening to avoid severe penalties, which amplifies U.S. leverage over assets parked abroad but also raises counterparty resistance and diplomatic friction when third countries are pressed to act [10] [4]. Multilateral bodies like FATF offer processes and best practices to assist asset recovery, but they lack the personnel to execute recoveries and rely on member states’ cooperation, limiting systemic recoveries absent political consensus [4].
6. Politics, precedent and the future: cautious executive practice amid congressional pressure
Executives historically have been cautious about creating precedents that might erode sovereign immunities or invite reciprocal actions, even while Congress presses for legislation enabling asset execution against sponsors of terrorism or aggressor states; this tension — noted in academic and GAO analyses — shapes a practice that is opportunistic, legally circumscribed, and politically calibrated [6] [11]. Recent high‑profile freezes have reignited debate over whether frozen reserves can be repurposed for third‑party reparations, but existing doctrine and institutional limits mean any shift would require new legal steps and wide diplomatic coordination [8] [6].