Discussions about Ukraine receiving post-war reparations from Russia mainly relate to how Ukraine could get access to the Russian assets that have been seized around the globe. Creating such mechanisms is a task for which international law has no readily available answer.

At the same time, the other issues that need to be resolved to make the compensation mechanism work are somewhat overlooked.

These issues, for example, include: who will receive reparations, from what sources, and how other countries can help launch the reparation process for Ukraine in the future.

Who should receive reparations?

This is, at first glance, a simple question (because everyone understands that it is Ukraine!), but there is a complex compensation architecture behind it.

The damage caused by the unlawful actions of Russia and its allies is very diverse. Residential properties, state property, and infrastructure were destroyed. Many private businesses are destroyed, plundered, or incurring indirect losses due to the inability to do business (for example, due to mining of agricultural lands, blockade of ports, etc.). This is not even to mention the killings and bodily injuries of thousands of Ukrainians, the damage to the environment, and the damage caused by deportation.

Reparations must encompass all these categories of damage.

Generally, there can be two approaches to claiming compensation. These are centralized ones (when the state demands compensation for all damage caused on its territory by the unlawful acts of Russia and its allies) and decentralized ones (when all or some victims seek to recover compensation).

Examples of a centralized approach to reparations include compensation treaties concluded after World War II and the recent Judgment of the International Court of Justice in the Case concerning armed activities on the territory of the Congo (Democratic Republic of the Congo v. Uganda).

A vivid example of a decentralized mechanism is the Kuwait-Iraq Compensation Commission, which has considered individual claims for compensation for the damage caused by the Iraqi invasion of Kuwait.

Each of these two options has its strengths and weaknesses.

Centralized approach to the payment of reparations

First, suppose Russia does not voluntarily agree to compensate for the damage caused by its aggression (which can hardly be expected now). In that case, Russia's available funds and assets will not suffice for full reparation. Therefore, a centralized mechanism may ensure a fairer distribution of available funds (for example, in a particular proportion) among all persons who have suffered.

Second, this mechanism prioritizes the protection of those who need it most. The sequence of compensation may be established. For example, the funds may be used primarily to compensate for citizens who lost their homes due to Russian shellings, then – to rebuild critical infrastructure, and only after that – to compensate for business losses.

Third, this approach allows to employ of existing international dispute resolution mechanisms. These are the proceedings before the International Court of Justice, which have been already instituted by Ukraine and within which Ukraine is advancing, among others, the compensation claims. By using the existing mechanisms, one may avoid many problems, such as the need for the respondent state’s consent to the new tribunal's jurisdiction, the issue of sovereign jurisdictional immunities, etc.

Fourth, there is no mechanism to enforce the judgment of the International Court of Justice, and there is no hope that Russia will comply with it voluntarily. However, many countries that have seized Russia’s sovereign assets may rely on such judgment as a sufficient legal ground for transferring the respective assets to Ukraine.

However, a centralized approach should not be idealized. Even a state with developed institutions is an unwieldy bureaucratic machine.

It is unlikely that the state will be able to protect the interests of all victims better than individual private actors.

In addition, the International Court of Justice is likely to have a somewhat limited ability to calculate the amount of damage in detail. As a result, the amount of awarded compensation may be determined "by estimation" (likely, a conservative one) and may be much less than the actual damage caused.

Finally, Ukraine’s western partners will have well-founded fears regarding transferring large sums of compensation directly to the state budget of Ukraine due to significant corruption risks.

Decentralized approach to reparations 

Under such a scenario, each or some of the affected individuals can make their own claims.

What is the advantage of this approach? This is clearly a higher efficiency, at least at the level of large businesses. They will be able to invest more time, effort, and money to prove and substantiate the number of their losses.

Moreover, a separate tribunal established to consider a particular case will be in a much better position to adequately assess the amount of damage than a total of 15 judges of the International Court of Justice who will deal in a single case with tens of thousands of instances when the losses were caused.

However, there is also a difficulty. Currently, there are no realistic mechanisms for implementing this approach. They must be created almost from scratch, overcoming numerous obstacles: jurisdictional immunities, lack of Russia’s consent to the establishment of any international tribunals, and the inability of the UN Security Council to decide on the establishment of such tribunals due to Russia’s veto.

A clear vision of how to combine the two approaches in Ukraine’s strategy will help everyone to understand which solutions we need to work on.

Among the main goals of the centralized approach is to develop bilateral mechanisms that would allow countries to transfer confiscated Russian assets to Ukraine (the example of Canada is described below). Different goals are relevant for the decentralized approach (to circumvent the immunity of the aggressor state, to establish special tribunals based on a multilateral agreement, etc.).

Such a clear vision is important not only for Ukrainian state bodies, including diplomats, but also for civil society, legal practitioners, and academics who advocate for the development of the necessary mechanisms in Ukraine and abroad.

What is common between the two approaches? Duration.

Getting compensation from Russia or at the expense of Russian property is a long run that will last for years.

Receiving funds for post-war reconstruction (and Ukraine has already seen an unprecedented readiness of Western partners to support the post-war country) should not be tied to reparations from Russia (except for some quite creative suggestions, such as the assignment of claims for compensation from Russia to the benefit of those countries or institutions who will provide funding).

From what sources will reparations be paid?

Reparations were usually paid with the consent of the defeated state, as set out, for example, in a peace treaty. Therefore, the question of funding was decided either by this state or by its active participation. A peace treaty with Russia is a long way off. In addition, there is no information that Ukraine has raised the issue of reparation during the negotiation process with Russia.

Russia will obviously not agree to comply with the Judgment of the International Court of Justice. Furthermore, making Russia agree to pay reparations in exchange for lifting at least part of Western sanctions can take a long time. Indeed, there are examples of states that lived under sanctions for decades and remained reluctant to give up.

Therefore, one needs to consider the options to top up the "reparation fund" without the consent of the Russian Federation. The possible one is at the expense of Russian property outside the Russian Federation.

The most interesting of them is the $600 billion reserves of the Russian central bank, about half of which are frozen due to sanctions. In addition to the sovereign property, there are assets of sanctioned Russian legal entities and individuals linked to Putin’s regime or the war against Ukraine.

Despite the loud statements of some Ukrainian officials that these assets will be used to pay reparations to Ukraine, so far, it is impossible to get either of them.

Sovereign assets are protected by immunity, while non-sovereign assets are formally owned by sanctioned persons, and there are no legal grounds for their confiscation and subsequent transfer to anyone.

Such a step requires new domestic or international mechanisms.

How are other states already assisting Ukraine in the reparation process?

Several states are already actively working to create such a mechanism. Here are some examples.

Canada

1) Bill S-217 - An Act respecting the repurposing of certain seized, frozen, or sequestrated assets (the Frozen Assets Repurposing Act (FARA)).

It is designed to protect the rights of forcibly displaced persons. The bill was introduced to the Senate of Canada in March of 2019. Current Canadian legislation allows freezing the assets of corrupt foreign officials whose bad governance has led to violence, armed conflict, or persecution and who often place the illicit proceeds as assets in other jurisdictions, including Canada. However, it does not allow taking the frozen assets to help those victimized. The bill enables making that step.

It provides for the reporting and disposition of assets seized, frozen, or sequestrated under various related Acts. If passed, it would authorize Canadian courts to take the frozen assets of foreign officials whose misrule creates forced displacement.

Canada will also be able to distribute the proceeds from the sale of frozen assets to any individual or entity, including foreign states, in any amount or proportion that the court sees fit if, in the court’s opinion, the funds will be used for a purpose that the court believes is just and appropriate in the circumstances, including (a) benefitting victims, or (b) supporting humanitarian relief or the relief of forcibly displaced persons; or (c) assisting a foreign state in accommodating refugees.

It is important that the document provides for the maintenance of a register of frozen assets and a procedure for monitoring the use of funds.

The mechanisms envisaged by this bill can be used in the context of Ukraine only in part, as they will neither allow access to sovereign assets of Russia nor use non-sovereign assets to compensate the majority of losses caused to the Ukrainian economy.

2) Bill C-19 - Act to implement certain budget provisions tabled in Parliament on April 7, 2022, and other measures, short title - Budget Implementation Act, 2022, No.1.

It will allow the Government of Canada to decide at its discretion on the seizure of property situated in Canada that is owned, held, or controlled, directly or indirectly by a foreign national or a state, and the Canadian court, at the request of the ministers - to decide on their confiscation.

The Proceeds from the disposition of confiscated property will be accumulated in a special account.

The Canadian government will be entitled to pay out these proceeds at its discretion for the following purposes: (a) the reconstruction of a foreign state adversely affected by a grave breach of international peace and security; (b) the restoration of international peace and security; and (c) the compensation of victims of a grave breach of international peace and security, gross and systematic human rights violations or acts of significant corruption.

The bill does not contain any procedures for allocating these proceeds. However, it grants the Canadian Government broad discretion.

For Ukraine, this opens the door to enter into an intergovernmental treaty, allowing the Canadian Government to pay out the proceeds to Kyiv.

Such a treaty may also regulate the peculiarities of the use of these proceeds. As this is a budget bill, it has a good chance of being adopted quickly, and this is definitely an advantage for Ukraine.

USA

In March 2022, four bills were submitted to the US Senate that could affect the reparations process for Ukraine in the future. These bills provide for a variety of options for confiscating certain assets under the US jurisdiction.

They differ both regarding the assets that can be confiscated and in the possible purposes of using the proceeds from their disposition. The latter will define who will be entitled to receive these proceeds: only Ukraine or other countries that accommodate Ukrainian refugees, or other European countries as well, if Russia suddenly invades their territory, or even, oddly enough, Russians.

Only one of these bills is more or less actively considered in the US Parliament, although its content has been changed so that it has become more of a framework recommendation document defining the direction of public policy of the US Government.

It provides for the possibility of using proceeds from confiscated Russian assets for such needs of Ukraine as post-war reconstruction, humanitarian assistance, weapons for the uniformed military forces of Ukraine, and support for refugees.

Spending certain funds on IT needs and, most surprisingly, on humanitarian and development assistance to the Russian people, including democracy and human rights programming and monitoring.

* * * * *

The war in Ukraine and its challenges to the global community require conceptually new solutions from the latter, including those on Russian reparations. The lack of proper accountability and responsibility of an international criminal can pave the way for other violations of international law, so the world needs to act decisively and in a consolidated way.

If approaches to confiscating such assets change, it will mean a revolution in international law.

Adopting these Acts in the United States or Canada could trigger a wave of changes in the domestic legislation of other countries in a similar pattern.

This wave will be able to significantly affect the sources of funding and the size of the "reparation fund" for Ukraine in the future.

It will also change international approaches regarding the grounds for confiscating private property owned by people linked to Putin’s criminal regime.

Authors: Olena Perepelynska, Serhii Uvarov

Partners, INTEGRITES law firm

 Translation by Dina Mazur