How it works

A European-led coalition of willing countries would instruct the current custodians of Russia’s frozen assets to move the money into a new special purpose vehicle (SPV).
The SPV would invest those funds in a Reparations Loan to Ukraine. The documentation would specify that Kyiv would only have to pay the loan back if Moscow pays war damages. Ukraine would assign its entitlement to receive reparations as collateral for the loan.
The coalition countries would pass legislation to authorise these two steps. They would also provide an indemnity to the current custodians to cover their legal risks.

About €210bn ($250bn) of the frozen assets are held in the European Union. The bulk of these are in Belgian clearing house Euroclear. This is why the EU should lead the coalition.

A Reparations Loan is not a confiscation of the assets. Moving the reserves to a SPV is merely a change of custodianship. Russia would continue to have legal title to the money. Investing its assets in a Reparations Loan is not confiscation either. Moscow would still own these investments.

The cash would effectively be invested in the Kremlin's own obligation to pay damages. 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 European Commission has proposed a different mechanism. This does not involve moving Russia's account to a new vehicle. Instead, the European Union would borrow the cash associated with Russia's assets from Euroclear and then lend it onto Ukraine. Both the Commission's mechanism and ours are Reparations Loans - with the key feature that Kyiv only pays back the loan if Moscow pays reparations.