Espreso. Global

How to drive Russia from sanctions to reparations

16 August, 2023 Wednesday

Currently, the civilized world has imposed numerous sanctions on Russia and Belarus to stop the largest military conflict in Europe. Leading countries have also agreed that Russia must be held politically, legally, and economically accountable. But how to make the aggressor pay?

Each of the components of responsibility deserves a separate discussion, so I will now focus only on the economic responsibility of the aggressor. I will then talk about reparations, i.e. compensation for the damage caused by the aggressor country to the victim country. Taking into account international experience and current political and economic realities, experts today talk about several mechanisms for paying reparations. 

They include, firstly, the classic option, when a post-war peace agreement seals the unconditional obligation of the Russian Federation to compensate Ukraine for the damage caused. Additionally, the agreement must outline a well-defined international procedure to compel Russia into making reparations to Ukraine and punishment for possible refusal to pay reparations after the signing of a peace agreement. This proposed mechanism hinges on a situation where Ukraine achieves an unquestionable military victory. This is the only scenario that is possible in terms of historical justice. At the same time, reparations will be paid only after such an agreement is concluded. 

The second option is the seizure of assets by a decision of the UN Security Council. But today this option is impossible, because Russia has a veto in the Security Council. Therefore, the UN Charter must first be amended in terms of the rules and procedures of the Security Council, which is a very difficult and lengthy process.  It should be noted that both politicians and experts have been talking about the need to reform the UN for a relatively long time. Moreover, the issue of adequate representation of countries in the Security Council and its (the Council's) functionality is being discussed most actively today. Thus, this option looks theoretically possible, but practically unlikely in the short term.  

The third option is the decision of the International Court of Justice. But here, too, we have a number of problems in terms of enforcement of court decisions. As in the previous cases, the implementation of this option requires time and cooperation of all stakeholders. 

“Ukraine already needs funds to finance the ongoing reconstruction. Therefore, Ukraine and its partners are considering the practical possibilities of transferring frozen assets (primarily state-owned) for the needs of Ukrainian recovery. It is worth noting that this scheme (the fourth option for compensation) is now explicitly mentioned in the relevant policy documents.  The undoubted advantage of this option is that Ukraine's allies have direct actual control over the relevant funds.”

In my opinion, this option is purely political and makes it possible to start implementing the principle of the aggressor country's responsibility as soon as possible. In fact, this will be practical evidence of the inevitability of the aggressor's economic punishment. I believe that the beginning of the transfer of assets to Ukraine will strengthen the political position of Ukraine and our allies with respect to Russia and will influence the positions of other international players - countries and institutions.

The implementation of this option requires resolving a number of issues that are already on the agenda today. What are we talking about? First, the European Commission has spoken in favor of a kind of "inventory" of frozen assets, as this information is accumulated at the national level and is not always available in an aggregated form. Secondly, while it is relatively easy to freeze an asset, the confiscation of frozen funds and their subsequent transfer to Ukraine requires a legally clear and flawless procedure. To do this, it is necessary to amend the national legislation of many countries. Thirdly, the issues of confiscation and transfer of funds to Ukraine need to be regulated at the international level.

“Given the obvious difficulties of implementing this option, the EU came up with the idea of transferring not assets but income from their investment in various financial instruments to Ukraine. In the EU's view, such a scheme is more legally secure, as the assets remain "in place." The European Commission estimates that such a scheme could generate about EUR 3 billion annually.”

At the same time, there are other proposals for the use of frozen funds. For example, it is proposed to consolidate Russian money in a special so-called escrow account. This fund can be used by Ukraine as collateral for the issuance of government bonds. 

Well, the conclusion is simple. Russia must bear real responsibility for its aggression against Ukraine and compensate for the losses caused by the aggression. Not only Ukraine needs it, but also the international community as a form of vaccination against future aggressions.


About the author. Ihor Burakovskyi, Chairman of the Board of the Institute for Economic Research and Policy Consulting.

The editorials staff do not always share the opinions expressed by the blog authors.

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