Should North Carolina pension fund be able to sue to seize Russian properties?
READ MORE
The inescapable costs of war
From inflation to mental health, Russia’s invasion of Ukraine can be felt all over the world. How is it affecting the people in the Triangle, and how are North Carolina-based forces involved in the defense against Russian aggression?
Expand All
As several states move to divest their pension funds from holdings tied to Russia, N.C. State Treasurer Dale Folwell called on Congress Wednesday to make it easier for states to recoup losses in another way: by seeking damages in court that could result in the seizure of Russian assets.
State lawmakers in Raleigh also called on Congress to make the change as part of a resolution condemning the Russian invasion that the N.C. House passed unanimously Thursday.
Around $80 million in North Carolina’s state pension fund is invested in assets based in or tied to Russia as of Feb. 25, according to Folwell’s office. That amount is less than 0.07% of the fund’s $118.2 billion in total holdings, but it still represents a significant amount of taxpayer money invested in assets that have been quickly depreciating since Russia launched its invasion of Ukraine on Feb. 24.
The state’s Supplemental Retirement Plans, which consist of the NC 401(k), 457 and 403(b) plans, also have about $12 million, out of a total of $15.5 billion in holdings, invested in companies based in Russia. In total, North Carolina pensioners and taxpayers have approximately $90 million in exposure to Russian entities, Folwell told The News & Observer in an interview.
To protect North Carolina pensioners from the losses stemming from these investments and simultaneously punish the Russian government for its actions in Ukraine, the state should be able to recoup losses by suing in U.S. courts to seize Russian assets and properties, Folwell said.
“We need to punish Putin and his cronies for pension and investment losses,” Folwell said in a news release, referring to the Russian president. “North Carolina taxpayers and those who teach, protect and otherwise serve should not suffer that burden.”
Foreign-owned property is generally exempt from seizure under U.S. law, but there are some exceptions under a law known as the Foreign Sovereign Immunities Act of 1976, particularly for property used in commercial activity.
The law should be amended by Congress to include additional exceptions to empower state pension funds and other institutional investors to seek damages and “impose serious financial consequences” on the Russian government for a “barbarous and deplorable” war, Folwell said.
Divestment not an option
Multiple states have said they intend to divest from Russian entities and are exploring how to do so. On Monday, a bipartisan group of 38 state treasurers issued a statement saying they support efforts “at all levels of government and across the public and private sectors” to divest state treasury and pension funds from holdings in Russian-based companies.
Divestment for the North Carolina pension fund isn’t possible right now, Folwell said Wednesday, since the fund’s custodian has stopped all trading of Russian investments. Even if the fund could divest right now, it would be for “pennies on the dollar, and that wouldn’t do anything to rectify that our pensioners and taxpayers have been punished by Putin,” Folwell said.
Folwell said North Carolina pensioners should rest assured that they continue to participate “in one of the strongest pension plans in the United States, if not the world.”
The holdings in the state pension fund that are tied to Russia are not direct investments made by the N.C. Department of State Treasurer, Folwell said, but are included in international equity and index funds the state invests in, which are managed by its custodian.
State treasury officials have no say in what goes into those international funds, Folwell said. And the state has been investing in the funds since they were created, some of them more than a decade ago.
Seizure of Russian assets in the US
Under the federal law, FSIA, property in the United States owned by other countries cannot be seized through lawsuits, except in a few situations, according to the Congressional Research Service.
Folwell said the law could be amended to “allow economically injured parties to file additional court actions” against Russian entities. Doing so would give potential plaintiffs like state pension funds more legal grounds to confiscate Russian assets to compensate for the economic harm resulting from investments in Russian entities losing value.
Lawmakers on Capitol Hill were finalizing a $14 billion aid package for Ukraine, which was expected to be included in a giant domestic funding bill that must be passed by midnight on Friday to avert a government shutdown, The Washington Post reported.
Folwell said that adding the necessary changes to FSIA that would allow states to pursue damages against Russia to the Ukrainian assistance package seemed like the best way to amend the law.
Prior to announcing his proposal on Wednesday, Folwell said he had discussed it with both U.S. Sens. Richard Burr and Thom Tillis, and shared it with the entire congressional delegation from North Carolina.
In a post on Twitter, Tillis said he supported Folwell’s idea and felt it was the right thing to do. “This would send a clear message that the US will not support any holdings or operations that benefit Putin & his illicit war crimes,” he said.
It remains unclear if congressional lawmakers will act on Folwell’s proposal. A spokesperson for Tillis’ office did not respond Wednesday afternoon to a request for comment on how and when the proposal might be considered by lawmakers.
The State Employees Association of North Carolina said in a news release Wednesday about Folwell’s announcement that its members “applaud him for protecting state employees and retirees’ livelihoods and we stand behind him in support of the Ukrainian people against an invasion of their country.”
For more North Carolina government and politics news, listen to the Under the Dome politics podcast from The News & Observer and the NC Insider. You can find it at https://campsite.bio/underthedome or wherever you get your podcasts.
This story was originally published March 9, 2022 at 5:06 PM with the headline "Should North Carolina pension fund be able to sue to seize Russian properties?."
.JPG)
