the legality of freezing assets
I. INTRODUCTION
In contemporary international relations, there are many cases where States breach international law. Such conduct is often punished, typically because of the use of force or violations of obligations that are legally binding on all states. A common response to such situations is the freezing of assets belonging to the country considered in breach of the international legal order. Freezing assets creates economic pressure. However, is this pressure lawful, and is it in accordance with international norms? Are there alternative measures that should be considered, or do State immunities protect nations from such actions? In this paper, I will examine whether the freezing of state assets is permissible under international law and what procedures are involved in enforcing such financial sanctions.
II. DEFINING ASSET FREEZING AND THE LEGAL PROCEDURES OF THE UN AND THE EUROPEAN UNION
Asset freezing refers to measures that temporarily prevent a state from accessing, transferring, or using its financial assets without transferring ownership. This is often referred to as “smart sanctions.” They are called “smart” because they target specific individuals or organisations with minimal effects on the general population. These sanctions are not only used to exert economic pressure on a country potentially engaged in armed conflict; more importantly, they also serve a preventative purpose. For instance, the UN Security Council and the European Union have introduced such sanctions to combat international terrorism.
It is important to distinguish between freezing and confiscation, the latter involving the permanent seizure of assets. Freezing, by contrast, prevents owners from accessing their funds while ownership remains with them. To regain full access, the individual or entity must be removed from the so-called blacklist.
Of course, names are not added to these lists arbitrarily. Instead, the process involves a formal administrative path. A state has the authority to “nominate” a person or company to be placed on an official sanctions list. The state must then rely on its domestic legislation to provide legal evidence showing why the individual or entity poses a threat. Afterward, it submits a formal request to the relevant international organisation, demonstrating that the criteria for blacklisting have been met.
This procedure is evident in UN Security Council Resolution 1267 (Al-Qaida/ISIL), later amended by Resolution 1989. These resolutions establish Sanctions Committees with detailed “Committee Guidelines,” which confirm that the process is governed by legal standards, rather than casual or political decisions.
Similarly, the EU has its own legal framework for asset freezing. The process is governed by the Treaty of the European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). Article 29 of the TEU outlines the political and legal intent of the Union, authorising the European Council to take decisions and adopt unified positions on international issues. Meanwhile, Article 215 of the TFEU allows for the implementation of financial sanctions. Specifically, paragraph 2 empowers the EU to target individuals and companies, such as billionaires, terrorist leaders, or others regarded as international criminals.
III. STATE IMMUNITY AND COUNTERMEASURES AS POSSIBLE LEGAL JUSTIFICATION
State immunity is the primary legal barrier to freezing state assets. Under international law, states are protected from foreign enforcement actions taken by domestic courts. This is exemplified in the International Court of Justice (ICJ) case Germany v. Italy (Jurisdictional Immunities of the State).
In that case, there was a conflict between the principle of state immunity (which protects a country from being sued in another country) and human rights (which allow individuals to seek compensation for war crimes). The dispute began with the Ferrini case in 2004, where Luigi Ferrini, an Italian citizen deported to Germany for forced labor during WWII, sued Germany in an Italian court and won.
On December 23, 2008, Germany filed a case against Italy before the ICJ, asking the Court to declare that Italy had failed to respect Germany’s jurisdictional immunity under international law. Germany also requested the Court to find that Italy violated this immunity by attempting to seize Villa Vigoni, a German state-owned property in Italy. In 2012, the ICJ ruled in favor of Germany, emphasizing that state immunity applies even in cases involving serious violations of international law. As a result, the seizure of German property by Italian authorities was deemed a violation of state immunity. This case is highly relevant, as it shows the broad protection state immunity provides against enforcement measures.
Further reinforcing this, the UN Convention on Jurisdictional Immunities of States and Their Property (2004), although not in force, reflects customary international law, particularly in protecting assets such as central bank reserves used for sovereign functions. Article 18 of the Convention establishes that pre-judgment measures like asset attachment or arrest are generally prohibited unless specific exceptions apply.
One such exception is outlined in Article 18(a), where a State may consent to these measures. In addition, Article 21 list types of state property that are never considered “commercial” and, therefore, cannot be seized — even if a case is successful. These include:
Central bank accounts used in diplomatic functions (Article 21(a)),
Military property (Article 21(b)),
Objects of cultural, historical, or scientific value (Article 21(c)), such as Villa Vigoni from the Germany vs. Italy case.
Another legal justification often invoked for asset freezing is the doctrine of countermeasures, as set out in the Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA). Article 49 allows an injured State to take countermeasures against a State responsible for internationally wrongful acts, provided the objective is to induce compliance.
However, several conditions must be met for asset freezing to qualify as a lawful countermeasure:
There must be a prior internationally wrongful act,
The measure must be proportionate,
It must be reversible,
It must aim to induce compliance — not serve as punishment.
Freezing assets, particularly when temporary and targeted, may satisfy these conditions. Nonetheless, legality becomes questionable when protected assets like central bank reserves are involved, or when third parties are adversely affected.
IV. CASE LAW: CERTAIN IRANIAN ASSETS
Another significant case relevant to this paper is the ICJ’s decision in Certain Iranian Assets (Iran v. United States). This case provides key insights into the tension between asset freezes and state immunity.
The dispute began with the United States’ Foreign Sovereign Immunities Act (FSIA). In 1996, a “Terrorism Exception” was added, allowing U.S. victims of terrorism to sue states designated as sponsors of terrorism, such as Iran. As a result, U.S. courts awarded billions of dollars in damages. To enforce these judgments, the U.S. froze and later seized nearly $2 billion in assets held by the Central Bank of Iran (Bank Markazi).
Iran challenged the seizures, arguing they violated the 1955 Treaty of Amity between the two countries (which the U.S. formally exited in 2018). Iran claimed that the treaty protected the Central Bank’s assets. The U.S., however, countered that Bank Markazi is a state organ, not a private company, and therefore not protected by the treaty. Iran responded that Bank Markazi engaged in commercial activities and so should be considered a protected entity.
In its 2023 ruling, the ICJ agreed with the U.S. on the largest portion of the claim (about $1.75 billion). The Court determined that Bank Markazi’s primary functions were sovereign, not commercial, and therefore the Court lacked jurisdiction under the treaty to prevent the seizure.
However, the Court did rule partially in favor of Iran. It found that the U.S. had violated the treaty by freezing assets belonging to smaller Iranian companies. These actions breached the principle of Fair and Equitable Treatment, a standard in international investment law designed to protect foreign investors from arbitrary or discriminatory actions. As a result, the U.S. was ordered to compensate Iran for those specific violations, though the amount remains under negotiation.
V. CONCLUSION
In conclusion, the freezing of state assets during international conflicts presents serious legal challenges under international law. While states often justify such actions as lawful countermeasures to ensure compliance with international obligations, the principle of state immunity remains a significant legal obstacle.
Even in the absence of formal treaties, customary international law protects state property rights, indicating that economic pressure must follow due legal procedures. The Germany vs. Italy and Iran vs. United States cases illustrate how the International Court of Justice approaches these issues, often emphasizing that while countermeasures are permitted, they must not violate the immunities granted to states or disregard due process.
Asset freezing, and particularly confiscation, remains prima facie incompatible with international law unless the legal framework is strictly followed, and core principles, such as state immunity, proportionality, and due process, are fully respected.
Author: Boris Atanasov (Law student at Sofia University and Global Law student at the University of Turin)
E-mail: borisatanasov22@gmail.com
LinkedIn: Boris Atanasov
BIBLOGRAPHY
Treaties and International Instruments used:
United Nations, Charter of the United Nations (1945).
United Nations, Convention on Jurisdictional Immunities of States and Their Property (adopted 2 December 2004).
International Law Commission, Articles on Responsibility of States for Internationally Wrongful Acts (2001).
Treaty of Amity, Economic Relations, and Consular Rights between the United States of America and Iran (signed 15 August 1955).
Treaty on European Union (TEU).
Treaty on the Functioning of the European Union (TFEU).
United Nations Security Council Resolutions
UN Security Council Resolution 1267 (1999).
UN Security Council Resolution 1989 (2011).
International Court of Justice Cases
Jurisdictional Immunities of the State (Germany v Italy: Greece intervening)
Judgment, ICJ Reports 2012.
Certain Iranian Assets (Islamic Republic of Iran v United States of America)
Judgment, ICJ Reports 2023.
Domestic Legislation
United States, Foreign Sovereign Immunities Act (1976), as amended.
European Union Law and Practice
Council of the European Union, Restrictive Measures (Sanctions) - legal framework under Articles 29 TEU and 215 TFEU.
Secondary Sources
Akande D, ‘State Immunity and the Jurisdiction of International Courts’ (2013) European Journal of International Law.
