Compensating Ukraine

Iryna Mudra, Deputy Minister of Justice of UkraineMonday 22 January 2024

An aerial view shows residential buildings that were damaged during Ukraine-Russia conflict in the southern port city of Mariupol, Ukraine 3 April 2022. REUTERS/Pavel Klimov 

In this article, written exclusively for Global Insight, Iryna Mudra, Deputy Minister of Justice of Ukraine, describes recent progress towards the establishment of an international mechanism to compensate the country following the horrors of Russia’s invasion.

In November 2022, at the UN General Assembly, 94 member countries supported the idea of creating an International Compensation Mechanism for Ukraine. A year later, we can say that the international community has taken colossal steps forward, from doubting the possibility of using assets seized from the Russian Federation in order to pay compensation to Ukrainians affected by the war, to supporting the idea of overcoming sovereign immunity.

The support of the majority of the UN General Assembly creates legitimacy for all elements of the mechanism, which includes a Register of Damage, the Commission for the Assignment of Payments and the Compensation Fund. This solution, developed by Ukrainian and international experts based on the experience of other countries, makes creating a fair system of compensation payments under independent international supervision possible without waiting for the consent of the aggressor state.

How does the Register work?

The International Register of Damage already has official legal registration in The Hague will start operating at full capacity during the first half of 2024. Currently, the formation of its structure is underway. In mid-November 2023, at a conference of participating countries, the Board of the Register was formed. The Board includes seven specialists from the following countries: Finland, Germany, Iceland, Italy, Poland, Ukraine and the US. The main tasks for the Board are the development of detailed rules and procedures defining categories of damage, loss and injury, and a list of evidence and procedures for submitting applications for compensation to the Registеr. The government of Ukraine, on the recommendation of the Ministry of Justice, has already proposed ready-made categories. On 12 December 2023, the first meeting of the Board of the International Registеr of Damage for Ukraine was held in The Hague, during which the categories proposed by the Ministry of Justice of Ukraine were discussed. The next stage is the final approval and launch of the Register. The registration of applications will begin in the first quarter of 2024.


Iryna Mudra, Deputy Minister of Justice of Ukraine

Preparatory work is important, because according to preliminary estimates, the number of applications will reach hundreds of thousands. Currently, more than 500,000 applications for the restoration of damaged property are registered in the Ukrainian registry based on the ‘Diya’ application. Given that the International Register will cover more than just this category, the number of applications will be much larger. This will be a huge database, and it is very important that as many countries as possible support its work at the legal level.

At the moment, 43 countries and the European Union have already joined the treaty on the International Register of Damage. Among the recent new signatories is Switzerland. Other countries are expected to join soon. The Ukrainian team plans to include all 94 countries that voted for the Compensation Mechanism at the UN in the Register.

Preparatory work is important, because according to preliminary estimates, the number of applications will reach hundreds of thousands

The next element of the Register is the Commission for the Assignment of Payments. Its task is to award fair payments. Specialists in international law are creating a legal framework on the basis of which the Commission will act. It will be based on an international agreement, for which the Ukrainian team and allied countries are currently looking for the most effective legal solution.

This process cannot be quick, because in international law, all important decisions are made after long negotiations and through diplomatic conferences, as their results will affect many countries. In fact, this is a process of historical scale, and therefore requires time. Simultaneously, the Ukrainian team is betting on the digitalisation of processes in order to speed up the consideration of applications and the appointment of compensation in the future.

However, the architecture of the Commission for the Assignment of Payments is already clear – the basis is the model of the Compensation Commission, which was created by the UN after the end of the Iraq war against Kuwait. Within that body, each category corresponded to a group of commissioners that formed a subcommission. However, in the case of the Compensation Commission, the function of the secretariat was performed by the UN Secretariat. In the case of Ukraine however, this is impossible. Achieving a UN Security Council decision, where the aggressor country has the right of veto, is an impossible task.

Taking a historical step

The frozen assets of the aggressor state and sanctioned persons should be the basis for compensation payments. Currently, there are about $300bn in such funds – the frozen assets of the Central Bank of the Russian Federation – in different countries of the world. However, the confiscation and transfer of these assets to Ukraine requires political will from many countries. In this regard, there are positive dynamics as well.

Recently, numerous lawyers have put forward various models allowing for the confiscation of frozen assets. The war in Ukraine has led to tectonic changes in jurisprudence, forcing the reconsideration of what was considered immovable for decades. This includes issues of overcoming sovereign immunity and the desire to convert the regime of seizure of assets into a regime of confiscations. A year ago, this seemed impossible to many experts, but today it is becoming a reality.

The war in Ukraine has led to tectonic changes in jurisprudence, forcing the reconsideration of what was considered immovable for decades

See, for example, the actions taken by Canada and the US. On 7 November 2023, the Committee on Foreign Affairs of the US House of Representatives considered the Bill H.R. 4175 on the confiscation of assets of the Russian Federation in favour of Ukraine (the REPO for Ukrainians Act), with a similar bill being considered in the US Senate. This draft law provides the US President with the authority to confiscate Russian sovereign assets frozen in the US and allows for their subsequent transfer towards the restoration of Ukraine. The Committee unanimously supported the Bill and recommended it for consideration by the House of Representatives. The draft law must be approved by the Committee on Financial Services of the House of Representatives. After this, the Speaker of the House will have the right to determine the date on which the draft law will be put to a vote in the hall. On 10 January 2024, meanwhile, there was good news as the Biden Administration declared its backing for the proposed legislation.

Recently, Senator Ratna Omidvar presented Bill S-278 in the Parliament of Canada, which would amend the country’s Special Economic Measures Act (SEMA) on the ability to dispose of the assets of a foreign state. The bill will introduce amendments to SEMA to allow a legal method for the confiscation and repurposing of Russian state assets, including the reserves of its Central Bank.

Amendments to the law will allow the Governor in Council to dispose of the confiscated assets of a foreign state without a court decision, meaning Russia cannot invoke sovereign immunity.

Of course, there is still a lot of work ahead. Soon, the Ukrainian team plans to present a road map with specific deadlines for concluding an international agreement on the creation of the Compensation Mechanism. The presentation and discussion will take place among the G10 leaders: the ‘Big Seven’ countries, alongside the European Union, the Netherlands and Ukraine. At the same time, Ukraine’s partners are already demonstrating their support for confiscations to fill the Fund. They are not discussing whether it’s possible or necessary to do it, but instead are talking about what exactly is needed to begin all of the processes correctly.

We also expect a meeting of G7 leaders in February, where the issue of confiscation of frozen assets of the Central Bank of the Russian Federation and their transfer to Ukraine will be one of the main points of discussion. Among the G7 countries, we have the unequivocal support of Canada, the UK and the US, as confirmed by the Agreement on Security Guarantees signed in Kyiv on 12 January 2024 between the UK Prime Minister, Rishi Sunak, and Ukraine’s President, Volodymyr Zelensky. One of the clauses of the Agreement is ‘Compensation for losses and damage caused by Russian aggression’. With this clause, the UK confirmed that Russian sovereign assets under its jurisdiction will remain frozen until Russia compensates for the damage it has caused to Ukraine.

The Resolution of the UN General Assembly of 14 November 2022 launched a very important process. The result of that vote gives legitimacy to compensation. No court, including the Arbitration Court, can make a decision on compensation for losses, and the Compensation Mechanism is the only possible option. And progress in how the international community perceives this mechanism is significant. We observe how political will is gradually strengthening towards changing international law – while preserving its spirit – in the quest for justice.