Who Should Pay?

From confiscating Russian assets to a Ukraine Claims Commission: Ideas for financial reconstruction

While the world awaits progress in the peace negotiations between Russia and Ukraine, each new attack on Ukraine brings the question of reconstruction and its costs back into focus. Where will the money come from to compensate Ukraine for the damage and rebuild its economy? Valentin von Stosch conducts research in the field of international law with a focus on financial sanctions. In this interview, he lays out the available options.

Mr. von Stosch, who has to pay for a war of aggression if a peace treaty were to be concluded?

In principle, international law establishes clear responsibilities. When a state breaches its international obligations, it is obliged to make reparation for the injury caused. This can take various forms, including compensation. In the case of Russia's war of aggression against Ukraine, there is a clear violation of the prohibition of the use of force under international law. Ukraine is therefore entitled to claim reparation from Russia.

However, Ukraine and Russia may also agree on alternative terms in a future peace agreement, including the possibility of waiving compensation. Naturally, there are other interests that will play a role in the negotiations as well. Nonetheless, it is important to emphasize that a peace agreement concluded under the use or threat of force may be rendered null and void under international law, should Ukraine invoke this ground. It is also disputed whether an agreement could effectively exclude individual claims for compensation by victims of most serious war crimes.

Is the defeated party required to pay for the damage?

No. Although this was often practiced in the past, today's international law follows a different approach: Whether a state "wins" or "loses" a war is generally irrelevant to the question of reparations. What matters instead is whether a State has violated international law, particularly the prohibition of the use of force, or whether specific provisions have been agreed upon in a peace agreement.

What options does Ukraine have to finance the reconstruction?

Ukraine has suffered massive destruction as a result of the Russian aggression. According to the latest "Rapid Damage and Needs Assessment" report issued by the United Nations, the EU, and the World Bank, the estimated cost for reconstruction amounts to approximately 500 billion US dollars, an enormous figure.

The realistic options for financing reconstruction depend significantly on the outcome of the war. From the perspective of international law, it would be desirable for Russia, as the responsible state, to pay damages to Ukraine. Politically, however, it is unlikely that Russia would voluntarily and fully assume such financial responsibility. A more realistic scenario involves a financing mix that relies heavily on multilateral support from the EU, the United States, and other partner states. This assistance could take the form of direct aid, low-interest loans, or favorable trade and raw materials agreements.

At the same time, the question arises whether claims for compensation against Russia could also be enforced through a form of self-help. Two types of assets are in focus: the assets of sanctioned Russian individuals (especially oligarchs) and the assets of the Russian state held abroad, in particular those of the Russian Central Bank.

However, there are significant legal obstacles to making use of the assets of sanctioned individuals, as their property and procedural rights must be respected. A more promising avenue, therefore, appears to be the frozen or immobilized assets of the Russian Central Bank. Estimates suggest that approximately 300 billion US dollars of such assets are currently frozen in Western countries. Nevertheless, legal and political challenges also arise in this context.

In 2022, Russian assets were frozen. Can they be made available for reconstruction?

In February 2022, in response to Russia's aggression, several countries including all G7 member states immobilized the assets of the Russian Central Bank under their jurisdiction. This measure, as part of a broader package of sanctions, aimed to weaken the Russian economy to the point that it would be compelled to end the war. The freezing of Russia's currency reserves was at times referred to as a financial "atomic bomb," as a state deprived of access to its currency reserves faces significant difficulties in managing its economy. However, neither this measure nor the broader sanction regime has succeeded in forcing Russia to end the war.

Freezing or immobilizing the assets means that neither Russia nor third parties can access them. However, this does not place the assets under the immediate control of the sanctioning states either. For the assets to be liquidated and transferred to Ukraine, an act of confiscation would be necessary first.

At present, most of the immobilized assets are held by Euroclear, a Brussels-based financial services company that serves as a central securities depository. A substantial portion of Russia's reserves is located there, making Belgium and the European Union more broadly key actors in deciding how to proceed with these assets.

Would confiscation be permissible under international law?

This is a complex question. As a general rule, the assets of foreign states are protected under international law and enjoy immunity. This immunity is not only violated by permanent confiscation, but already by the mere freezing of such assets. However, international law provides for the possibility of justifying such a violation under certain circumstances.

One possible justification lies in the concept of "countermeasures". Countermeasures are lawful responses by a state to an internationally wrongful act committed by another state, in which the responding state temporarily suspends certain international obligations owed to the violating state. Given Russia's breach of the prohibition on the use of force, suspending the immunity of Russia's state assets might, under certain circumstances, be legally justified under international law.

Under what circumstances?

Countermeasures must meet certain requirements: they must be intended to induce the violating state to return to compliance with international law and must not serve a punitive purpose. They must also be reversible and temporary. These conditions are more readily met by the freezing of assets than by their permanent confiscation. Either way, it is disputed under international law whether third states not directly injured by the internationally wrongful act may invoke countermeasures at all.

Nonetheless, several scholars have developed legal arguments in support of confiscation under certain conditions. The former German government, however, expressed a contrary position in a response to a parliamentary question. In the broader debate, French President Emmanuel Macron and Belgian Prime Minister Bart De Wever have so far voice skepticism towards confiscation. Friedrich Merz has yet to take a definitive position, but has expressed his general willingness to make use of the assets, provided a solid legal basis can be established.

Yet, the interest on these assets can already be utilized...

Yes and no. Certain "extraordinary revenues" - around 2 billion euros per year - are already being transferred to the EU by Euroclear, where most of the assets are held, or are being levied by Belgium. However, these are not "interest" payments on the assets of the Russian Central Bank in the strict legal sense. These revenues arose because certain assets accumulated at Euroclear as result of the immobilization and were reinvested by the company itself. As such, these profits most likely do not legally belong to the Russian Central Bank.

These "extraordinary revenues" are intended, among other things, to be used to finance a 50-billion-euro loan to Ukraine, which is to be repaid from these revenues. However, the loan has not yet been fully disbursed to Ukraine.

Experts are discussing whether it might be more practical to offer loans to Kyiv using the frozen Russian assets as collateral. Russia would then have to choose between paying direct compensation to Ukraine and the collection of these assets. Would this be a lawful option under international law?

This proposal is based on legal considerations. It is uncertain whether permanent confiscation could be justified as a countermeasure, since confiscation is generally neither reversible nor temporary. By contrast, using the assets as collateral meets these conditions, as long as the collateral is not claimed.

In the spring, the USA and Ukraine agreed on a recovery fund. Could Ukraine's creditors or economic partners claim confiscated assets and/or interest?

No, creditors or economic partners do not have a legal entitlement to such claims. If the EU decides to confiscate the assets, it assumes control over them and has the authority to determine their use. How these funds should be most effectively used would then require careful and deliberate consideration.

Your research focuses, among other things, on the law of central banks. Which institution should manage the funds for the reconstruction of Ukraine?

One possibility would be to manage the funds within the framework of the EU Peace Facility, an existing extrabudgetary EU financial instrument designed to strengthen the EU's defense and peacekeeping capabilities.

Alternatively, the funds could be transferred to a future Ukraine Claims Commission. A claims commission is an international institution tasked with adjudicating post-conflict compensation claims. An example is the United Nations Compensation Commission, which was established following the Second Gulf War. In fact, the Council of Europe has already taken a first step in this direction by establishing a register of damages, which serves to document and record the damage caused by the war in Ukraine.

What options does Russia have to regain access to assets and/or interest?

Generally speaking, Russia currently has no means to regain access to its frozen assets. A resolution through international courts, especially by the International Court of Justice in the Hague, seems unlikely as Russia has not accepted the Court's general jurisdiction.

Instead, the Russian Central Bank could launch an application to the European Court of Human Rights or turn to an international investment arbitration tribunal. Both routes would, however, require overcoming significant procedural hurdles.

Could the Russian assets be used to enforce judgments of international courts against Russia?

The question also touches on the issue of State immunity. It There is an ongoing debate about whether an exception to immunity could apply for the enforcement of judgments of international courts. Under international law, immunity primarily governs relations between states, whereas the involvement of international courts may fall outside this traditional scope. For instance, it is debated whether judgments of the European Court of Human Rights against Russia could be enforced by confiscating the frozen Russian assets. However, this would be uncharted legal territory, and it would likely require amendments to national legislation to recognize ECtHR judgments as enforceable titles.

Please note: This English version is a translation of the original German interview, which is the authoritative text.

Interview: Michaela Hutterer