Frequently asked questions

No, a Reparations Loan is not a confiscation of Russia’s assets. Confiscation would involve displacing the Russian Federation and the Central Bank of Russia as the legal owners of the assets. In the Reparations Loan structure, Russia continues to have legal title to the funds until they are disbursed and is entitled to have those monies reimbursed if, as and when the loan is repaid from the proceeds of Russia’s reparations payments.

So does freezing the assets. Both are justified by the gravity situation and Russia’s illegal invasion. But this is not confiscation. A Reparations Loan is designed to induce Russia to stop the killing and pay reparations. If Moscow does these things, the loan gets repaid.

No. The cash would effectively be invested in the Kremlin's own obligation to pay reparations. So from its perspective, it cannot lose. If it pays damages, it gets its money back. If it defaults on this obligation, it saves the same amount of money that it loses on its investment.

The only way to avoid this conclusion would be to maintain that Russia is not obliged to pay for the damages caused by an illegal invasion of a neighbouring country – a view held only by Moscow and its acolytes.

You’re right. This is most unlikely. But that doesn’t change Russia’s obligation to pay damages under international law.

The prohibition of the use of force against another state’s territorial integrity is contained in Article 2(4) of the Charter of the United Nations. So, as virtually all legal scholars agree, Russia’s invasion is illegal.

The legal principle that a country must pay reparations for damages caused by illegal acts is equally strong. The International Law Commission (ILC), set up by the United Nations General Assembly (UNGA), says a country must “make full reparation for the injury caused by [an] internationally wrongful act.”

The most notable recent application of this principle came in 1991, after Iraq invaded Kuwait. The UN Security Council set up a compensation commission that awarded $52bn in damages to Kuwait, which Iraq paid in full with a portion of its oil revenues.

UNGA has already passed a resolution saying that Russia “must bear the legal consequences of all of its internationally wrongful acts, including making reparation for the injury, including any damage, caused by such acts.” It has also called for an international reparation mechanism. 94 countries voted in favour, while only 14 voted against. The claims commission is now being set up.

The World Bank estimates the cost of reconstructing Ukraine had already reached $524bn by the end of 2024. That number continues to rise as Russia keeps pounding Ukraine. So the damages already vastly exceed the maximum size of the Reparations Loan. That said, there is a theoretical risk that the commission awards a smaller sum. It is also theoretically possible that the commission will not complete its job or decide that Russia’s war is justified. The countries sponsoring the loan would provide an indemnity to cover these remote risks. This would ensure that Russia only loses money if it refuses to pay reparations after the commission orders it to.

That’s usually the case. But this is not a normal case because Russia left $300bn in the West when it invaded Ukraine. Those assets can be used to pay at least part of the reparations that it owes.

Sovereign immunity does not absolve a state from paying its debts. Nor does it absolve Russia of its obligation under international law to pay for damage inflicted by its invasion of Ukraine. If one really believed that sovereign immunity provided an absolute protection from interference with Russia’s assets, there would be no justification for freezing them.

The current custodians of the frozen funds (such as Euroclear) would transfer those funds to one or more special purpose vehicles set up by the countries participating in the Reparations Loan. That transfer would be mandated by local law in the jurisdiction in which the custodian is located. Those laws could also include an indemnity for any losses that may assessed against a custodian for complying with that law.

Most of the frozen assets belong to the Central Bank of Russia. Central banks are, under many legal systems, entitled to a presumption of a legal personality separate from that of their host sovereign. But this presumption is rebuttable when the sovereign exercises extensive control over the enterprise or commits injustice. It is fatuous to believe that the Central Bank of Russia has any real independence, particularly on the question of funding Putin’s war against Ukraine. It is therefore Russia’s alter ego for these purposes.

If the Kremlin ever becomes entitled to demand the return of its funds, the new custodian will discharge its obligation by transferring to Russia legal title to the reparations

loan. Moscow might then try to argue that the SPV should instead pay it cash.

But even if it persuades a court to back this weak contention, that would not be the end of the matter. The custodian would argue that, if it had a liability to provide cash to Russia, it must be deemed the owner of the loan to Ukraine. What’s more, since Moscow had refused to pay the war damages, the SPV would have inherited

Ukraine’s claim against Russia. It would then have both a claim against the Kremlin and an obligation towards it. Under the standard legal principle of set-off, it could net off the obligation against the claim.