Who will pay for reparations for Russia's aggression and what's the problem now?
On 16 December in The Hague, 34 states and the European Union signed a convention establishing an International Claims Commission for Ukraine to review claims for damage caused by Russia’s aggression. By analogy with similar bodies in the past, it is often referred to as a Compensation Commission.
This important step, however, does not mean that the reparations mechanism will become operational overnight.
The convention must still enter into force, which requires at least 25 ratifications. This will be followed by the technical work of setting up the Commission as an institution and, crucially, by the search for funding sources from which awarded compensation could be paid.
Read more about further challenges in launching the compensation mechanism in the article by lawyer Ivan Horodyskyi of the Dnistryansky Center: The Compensation Commission for Ukraine has been created. What’s next?
The most crucial for ensuring future reparations is securing financing for compensation payments.
While Iraq voluntarily paid compensation for damage caused by its aggression against Kuwait in 1990–1991, there is clearly no expectation that Russia would agree to pay reparations voluntarily.
This raises the risk of repeating another precedent – the Eritrea-Ethiopia Claims Commission. Established in 2000, that international body reviewed mutual claims and awarded compensation, but neither side complied voluntarily, and no separate enforcement mechanism existed.
As a result, identifying funding mechanisms for future reparations has been one of the key processes unfolding in parallel with the creation of the Register of Damage and the Compensation Commission for Ukraine.
Ukraine has viewed frozen Russian Central Bank reserves abroad, approximately $300 billion, including around $200 billion held in Belgium and Luxembourg, as the primary potential source of compensation for damage caused by the aggression.
At a certain point, however, a dichotomy emerged: the Ukrainian government supported both the creation of an international compensation mechanism and the confiscation of Russian assets, but the two processes were not treated as interconnected.
In other words, if confiscated, those funds were envisaged for purposes other than financing reparations awarded by the Commission.
Speaking at a press conference after the convention establishing the Compensation Commission was signed, President Volodymyr Zelenskyy referred to the fate of these assets in terms of urgent needs rather than financing reparations awarded by the Commission.
This makes the question of how to fund reparations an even greater challenge.
Since at least the summer, there have been efforts to persuade stakeholders in Brussels and Kyiv to channel at least part of the frozen Russian assets or a so-called reparations loan towards financing priority reparations.
A draft European Commission decision on a "reparations loan" includes an option to allocate part of the funds to a Compensation Fund, which is to be established after the Commission itself. However, the terms and format of the loan decision may still change.
At the same time, alternative mechanisms are being explored.
In a recent interview, for example, Markiian Kliuchkovskyi suggested considering a model used in the case of Iraq, export duties on energy resources: "It may be possible to reach a compromise whereby sanctions are eased in exchange for directing 5, 10 or 15 percent of export revenues into a compensation fund."
The creation of the Compensation Commission, like the establishment of the Register of Damage before it, is a major achievement of Ukrainian diplomacy.
But the formal creation of institutions alone is not enough. They must be effective and capable of fulfilling their mandate. There is hope that Ukraine’s compensation mechanism will go down in history as the most successful reparations precedent to date.
The prerequisites for this are already in place.