Freeze to Seize: Lessons from World War II

As is well known, one of the advantages of being on holiday is having the time to read the US State Department official historian’s 259-page report on US and allied attempts to confiscate German property after World War II, published in 1997. The reason for doing so, quite apart from the topic being intrinsically fascinating, is the inevitable comparisons that are being drawn between German post-war reparations and Russia’s existing, but so far unenforceable, obligation to compensate Ukraine for its ongoing, barbaric invasion.

So, as policymakers across G7 economies grapple with the dilemma of what to do with frozen Russian assets – specifically, whether they can move ‘from freeze to seize’ – it is natural to wonder what lessons the post-World War II experience holds in that respect, especially in relation to state-owned property.

Let me start with the differences, beginning with the wholly obvious one: Germany’s defeat. Its unconditional surrender resulted not merely in what we would now call ‘regime change’, but in a total dissolution of the Third Reich. For a period of time, German sovereignty was extinguished and the occupying Allied powers exercised plenary authority over German territory, including property. However, that did not solve the issue of millions of dollars that the Reich had secreted overseas, including in Swiss banks.

In 1945, therefore, the Allied Control Council issued Law No 5, which purported to ‘assume control of all German assets abroad and to divest the said assets of their German ownership’. The implementation of this law proved far from straightforward, but more on that later. Crucially, in light of Germany’s military defeat, one of the main objectives of the Allies was to prevent Nazi fugitives from using overseas assets as a war chest to destabilise Germany – think US efforts to track down Saddam Hussein’s treasure post-Iraq war.

So far, there is little hope that the Russo-Ukrainian war will have a similarly definitive denouement, primarily because of Russia’s nuclear arsenal. (Reminding me of a Russian expression literally translated as ‘the monkey with a hand grenade’, meaning someone who is a danger to both oneself and those around.) Therefore, the legal basis for any possible confiscation of Russian assets would be markedly different.

Another difference is the provenance of confiscated property. Much of the post-war recovery effort concerned assets outright stolen by the Nazis, including gold reserves looted from the occupied nations’ central banks, known as monetary gold. (Students of international law will be familiar with these facts from the International Court of Justice’s Monetary Gold case, which involved Italy’s and Albania’s competing claims to said gold removed from Rome.) By contrast, Ukraine’s claims stem from Russia’s wanton destruction of its infrastructure, as well as immense loss of life, rather than all those pilfered washing machines and refrigerators.

You’d expect that the Nazis’ outright plunder would make recovery efforts relatively straightforward — far from it! On multiple occasions, the Swiss government in particular asserted that such property constituted war booty that Germany had been entitled to under the laws of war. (The concept of ‘war booty’ still exists today, but its application is limited to military equipment seized on the battlefield.)

Other nations, including Spain and Argentina, prevaricated over the amounts and provenance of German gold found in their territories. Some of them argued that the Allies’ purported confiscation of overseas German property, and thus the demand to hand it over, breached their sovereignty.

And that leads me to a point of similarity with today. Looking back, it’s easy to assume that, beyond the Axis powers, the world was largely united in its horror at the Holocaust and German aggression. Well, it really wasn’t. As a matter of fact, plenty of nations continued to trade with Germany throughout the war, including the otherwise benign Sweden. So, when we see countries that either stubbornly refuse to condemn Russia or actually ramp up their trade with it, there truly is nothing new under the sun.

What, then, are the lessons from our post-World War II experience?

On the one hand, there is no long-forgotten blueprint from the past that would help us navigate the ‘freeze to seize’ dilemma. The circumstances that the Allies faced in the aftermath of World War II were simply far too different. On the other hand, instead of being paralysed by those differences, one can turn them into a thought experiment: What if Germany had not been decisively defeated, and what if at the same time it had US$350 billion worth of property frozen in the Allied nations?

The likelihood of those sanctions unravelling not with a bang but with a whimper, and those assets being restored to Germany, would I think be vanishingly small. Of course, the Allies were at war with Germany then, and the G7 nations are not at war with Russia now. But, as I argue in a recent essay, it would be perverse for international law to place states under ‘greater constraints when they act as public-spirited guardians of a rules-based international order [in confiscating the aggressor’s assets for the victim state’s benefit] than they would when they are directly under attack’.

After all, perhaps the greatest change that has occurred over the past 80 years concerns our attitudes to aggressive war. In the aftermath of the Nuremberg trials, waging one is firmly recognised as a crime under international law. And, while 80 years ago the Swiss government could contend that stolen property from occupied nations belonged to Germany as ‘war booty’, Viking-style, it is difficult to conceive of anyone making the same argument today, at least in the context of a war of aggression.

It would seem odd indeed if, against this backdrop, we continued for much longer to feign perplexity over whether the aggressor state’s public property can be confiscated for the victim’s benefit.

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