Who will pay for reparations for Russia's aggression and what's the problem now?
On 16 December, in The Hague, with the participation of the President of Ukraine, 34 states and the European Union signed a convention on the establishment of an International Commission to consider claims for damage caused by Russia's aggression against Ukraine, which, by analogy with its predecessors, is called the "Compensation Commission".
This important event, however, does not mean that the reparations mechanism will start working the next day.
The Convention is yet to enter into force, which requires at least 25 ratifications, technical work on the establishment of the Commission as an institution, and the search for sources from which the awarded compensation can be financed.
Read more about further challenges in launching the compensation mechanism in the article by lawyer Ivan Horodysky of the Dnistryansky Center: The Compensation Commission established: what comes next, and what challenges Ukraine may face?
Resolving this issue was crucial to ensuring future reparations, particularly in light of earlier precedents.
Indeed, the United Nations Compensation Commission, which awarded compensation for damage resulting from Iraq’s aggression against Kuwait in 1990–1991, was funded by payments that Iraq made voluntarily over a period of nearly three decades.
There is, therefore, a risk of repeating another precedent: the Eritrea–Ethiopia Claims Commission. Established in 2000, this international institution considered mutual claims and awarded compensation; however, neither party voluntarily complied with its awards, and no separate enforcement or financing mechanism was created.
Consequently, the search for mechanisms to finance future reparations has been one of the most important processes unfolding in parallel with the establishment of the Register of Damage and the Compensation Commission for Ukraine.
Most importantly, this formula served as an argument for refraining from a decision to confiscate approximately $300 billion in Russian Central Bank reserves frozen abroad (around USD 200 billion of which are held in Belgium and Luxembourg).
At a certain point, however, a clear dichotomy emerged: while the Ukrainian government supported both the creation of an international compensation mechanism and the confiscation of Russian assets, these two processes were not treated as mutually reinforcing or institutionally linked.
That is, in the event of confiscation, the intended purpose of these funds was envisioned as separate from the financing of reparations.
At a press conference following the signing of the convention establishing the Compensation Commission, President Volodymyr Zelenskyy, commenting on the fate of these assets, referred specifically to Ukraine’s urgent needs rather than to financing the reparations awarded by the Commission:
As a result, the question of how to finance reparations becomes an even more acute challenge.
As far as is known, since at least the summer there have been efforts to persuade stakeholders in Brussels and Kyiv to direct at least part of the frozen Russian assets or the proposed "reparations loan" toward financing priority reparations.
The European Commission’s draft decision on the "reparations loan" includes an option to allocate part of the funds to a Compensation Fund, to be established following the creation of the Compensation Commission.
At the same time, alternative financing mechanisms are also being explored.
In a recent interview, Markiyan Klyuchkovskyi suggested, in particular, considering the model used in the case of Iraq – namely, the imposition of duties on energy exports: "It is possible to reach a compromise under which certain sanctions are eased in exchange for 5, 10, or 15 percent of export proceeds being directed to a compensation fund."
The establishment of the Compensation Commission, as well as the earlier creation of the Register of Damage, represents a major achievement of Ukrainian diplomacy.
The formal creation of institutions alone is not enough: they must be capable of delivering tangible results and fulfilling their intended purpose. The compensation mechanism for Ukraine should aspire to become the most successful reparations precedent in history.
The necessary prerequisites for this have already been put in place.