Preparations for reparations: How Russia can compensate Ukraine for economic damage from the war

On April 16, the Parliamentary Assembly of the Council of Europe (PACE) adopted a resolution calling for “frozen Russian state assets to be transferred to a new fund to reconstruct Ukraine.” The body’s 134 delegates voted unanimously in favor. Russia has repeatedly called such actions “banditry and theft.” But this has not stopped Western institutions from exploring ways to make Moscow “pay its bills” for the physical destruction its war of choice has wrought. Historical experience shows that reparations payments by the losing side of a war are rarely made voluntarily. Nevertheless, if the West demonstrates sufficient political will, there are mechanisms available that can compel Russia to compensate at least some of Ukraine’s losses, even before the fighting ends.

Content

• What reparations are and who has already paid them

• A Marshall Plan for Ukraine

• Use of Russian POW labor? No.

• Seizing Russian assets? Yes.

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At the start of Russia's full-scale invasion of Ukraine, Volodymyr Zelensky advised Russians to learn the words “reparations” and “compensation.” “We will rebuild every house, every street, every city. You will repay us for everything you did against Ukraine. In full,” Zelensky said.

On November 14, 2022, with the support of 94 member countries, the UN General Assembly adopted a resolution on war reparations to Ukraine. The Kremlin dubbed the move an “attempted robbery” and “the beginning of agony,” essentially announcing its refusal to pay.

As of January 2023, Kyiv estimated the damage from Russia’s invasion to be $700 billion. A year later, the figure has grown considerably, with the destruction of the dam at the Kakhovka Hydroelectric Power Plant (HPP) resulting in losses of $2 billion, according to the Ukrainian Ministry of Economy. And the toll continues to rise. Russia has destroyed a significant number of Ukrainian power plants and other urban infrastructure in the last month alone.

What reparations are and who has already paid them

The payment of war reparations is a relatively new practice in world history, and the money is rarely given over voluntarily. The losing side, as a rule, does its best to avoid being saddled with financial obligations, while the winning country or coalition acts as a “collector,” forcing the debtor to pay the bills.

War is very costly for all participants, but it comes at an especially high price for the loser — which, more often than not, is the aggressor. This was the case with World War I, and following the conflict, the Treaty of Versailles obligated defeated Germany to pay the enormous sum of 226 billion Reichsmarks to help rebuild the victorious Entente countries. But while it is widely believed that unsustainable reparations and misguided Allied policies helped bring Hitler to power, in reality, the first decades of the 20th century were a time of revolutions, the collapse of empires, and the rise of dictatorships throughout post-war Europe.

Irina Shcherbakova, a co-founder of Russia’s now-banned Memorial human rights organization — and also a historian and expert in German studies — does not believe reparations played a decisive role in the Nazis' rise to power:

“The First World War was the trigger for the collapse of an outdated system, which was replaced by terrible left-wing dictatorships and, belatedly, a right-wing dictatorship in Germany. It must be said that they also influenced each other. Stalin played a major role in bringing the Nazis to power in Germany. Germany during the Weimar Republic was torn by terrible political and social contradictions. The Entente wanted to take advantage of this and finally drown it. There was unemployment, there were soldiers who returned from the war and found themselves homeless, unclaimed and humiliated, living in barracks for long periods of time and providing a good testing ground for all sorts of conspiracy theories. It was the mix of all these factors that brought Hitler to power.

It may seem that the Allies are to blame for what happened — many claim that's what these sorts of policies and the Versailles Treaty led to. In fact, the main reason is that as a result of this crazy war, which determined much — and perhaps still determines much today — empires were destroyed and Germany’s Kaiser system collapsed. It wasn't just Germany that was in crisis. It wasn't reparations. It was just that at that time no country could put together a Marshall Plan. The 1920s also saw the start of the Great Depression in the United States.”

Prior to Black Tuesday — October 29, 1929, when prices collapsed on the New York Stock Exchange — the U.S. had provided Germany with substantial economic aid: multimillion-dollar loans, reparations deferrals, and favorable trade contracts. After the stock market crash and the onset of the Great Depression, the aid ground to a halt, and the German economy, which had been revitalized after a bout of hyperinflation in 1923, was again hit by crisis. Germany continued to demand (and receive) deferrals on reparations, and in January 1932, during the Lausanne Conference, refused to pay them outright. Despite initial French opposition, the Allied countries agreed to this measure. Hitler was appointed Reich Chancellor only in 1933.

Still, after the Allied victory in World War II, the winners attempted to take past experience into account and behave more prudently. The final decisions on reparations were made in Potsdam, and rather than being obliged to work off its debt to the wider world, all German assets that could be found were simply confiscated, and the country was divided into zones administered by the various victorious powers. Since the USSR had suffered the most during the war, it was given priority over areas containing over 30% of German export industries. In the Soviet Union itself and in the Eastern Occupation Zone, German POW labor was used intensively, and the conditions were often inhumane. And the Soviet victors did not neglect the arts: library and museum collections that included the infamous “Priam’s Treasure” — a cache of gold and ancient artifacts claimed to belong to the Homeric king of Troy — were taken to the Soviet Union.

After the end of WWII, all German assets that could be found were confiscated by the Allies

Irina Scherbakova told The Insider how the partition of Germany led to the Marshall Plan:

“The dismantling was very extensive — and was carried out very brutally. The Allies allowed exports from their territories in exchange for the USSR's promise to supply food to the western zones. However, in 1946, the Allies stopped exports and dismantling from their occupation zones, saying, ‘Since you are not supplying us with food, there will be no dismantling.’ The Cold War was coming, and it was clear that this confrontation would take a different course.

The Allies quickly began to prepare the Marshall Plan — and generally ramped up aid to West Germany. When the USSR imposed the blockade of West Berlin in 1948, the Allies organized an airlift. Planes carrying supplies were called ‘raisin bombers’: they landed almost every ten minutes with supplies, flooding the Western zones of occupation with food and all kinds of goods. So the Americans demonstrated their capabilities. The aid given to Germany under the Marshall Plan was very large, and most importantly, reparations and dismantling were suspended and economic support began. But the Allies turned a blind eye to the fact that the denazification of West Germany was winding down, and an attitude of ‘we are one nation, we must take back Germany and roll up our sleeves’ was in the air. This was followed twenty years later by major crises and, in a sense, a sort of Red Terror. The trials of the Nazi criminals waited another fifteen years, until the beginning of the sixties, when Germany began to face a very slow reckoning. That's how the Germans, having repressed everything [that happened during the Nazi period] and closed their eyes to the past, began to push like mad for an economic miracle, and it was built. But nothing in history is clear-cut.”

The next major precedent involving reparations is the Gulf War. The UN Security Council decided to collect payments from Iraq that would go to the Kuwaiti government, along with corporations and individuals who suffered from Iraqi aggression. In addition to economic damage, the commission demanded that Iraq compensate for environmental harm caused by its invasion. During its during the retreat from Kuwaiti territory, the Iraqi army had opened the valves of the oil terminal in Port Ahmadi and discharged oil into the Persian Gulf, leading to a large-scale ecological environmental disaster in the region comparable to Russia’s 2023 destruction of the Kakhovka Hydroelectric Power Plant in Ukraine. In addition, Iraqi military engineers mined a number of Kuwaiti oil industry facilities and fired artillery shells at oil wells and refineries, leading to fires that were extinguished only after 258 days.

In total, reparations requests totaling $352 billion were made, and a Compensation Commission (UNCC) was tasked with deciding which cases had merit. The UNCC ultimately determined that Iraq needed to pay $52.4 billion in damages, and a special fund was created to collect Iraqi oil revenues for this purpose. At first, around 30% of revenues were dedicated towards reparations, but the fluctuating percentage was subsequently dramatically reduced — sometimes to as low as 0.5%. Iraq made its final payment on the $52.4 billion obligation only in February 2022.

Often, however, countries' demands for reparations are not met. For example, the dispute between Serbia and Croatia over the payment of reparations and the prosecution of alleged war criminals lasted more than twenty years. On July 2, 1999, the first complaint was filed by Zagreb against Belgrade at the UN “for alleged violations of the Convention on the Prevention and Punishment of the Crime of Genocide.” The Croatian government demanded that those who participated in crimes against humanity be punished, that cultural property confiscated during the war be returned to Croatia, and that reparations be paid. In addition, the demand was made that Belgrade clarify what had happened to 1,400 Croats reported missing during the war.

Serbia countersued regarding the expulsion and deaths of some 200,000 Serbs as a result of the liquidation of the autonomous Republic of Serbian Krajina. The Serbs also threatened to remind the Croats of World War II, when Hitler gave the green light to the Croatian far-right movement Ustaše to carry out a genocide of the Serbs while adopting racial policies modeled on the Nazis’ 1935 Nuremberg Laws.

In the end, the dispute came to nothing. The court ruled that Croatia had “failed to prove Serbian crimes” and that Serbian actions during the 1991-1995 war were not aimed at exterminating Croats.

Notably, the only party to pay compensation as a result of the Yugoslav conflict was the United States — not to the Serbs or Croats, but to China. During the bombing of Belgrade on May 7, 1998, the Chinese embassy was destroyed and several Chinese journalists and their families were killed. The U.S. government paid China $28 million in damages.

A more recent example, however, demonstrates the difficulty inherent in any attempt to force a rogue nation to compensate its victims. On October 8, 2020, three minutes after takeoff from Tehran airport, a Boeing 737 civilian airliner belonging to the Ukrainian company UIA (Ukraine International Airlines) was shot down by surface-to-air missiles. All 167 passengers and 9 crew members on board were killed. Among them were citizens of Canada, the UK, Sweden, and Ukraine. The Iranian authorities had long denied the involvement of its Revolutionary Guard Corps in the plane's destruction, but finally admitted the obvious. The International Commission for Victims Assistance called on Tehran to pay reparations to the countries whose citizens were killed, as well as compensation to the families. But that never happened. Negotiations on the payments are ongoing.

A Marshall Plan for Ukraine

Having unleashed a war of conquest against Ukraine, Russia is repeating all of the above: genocide, destruction of civilian infrastructure, the creation of environmental disasters — its actions even involved striking a Chinese diplomatic facility (in Odesa in 2023) and shooting down a Boeing civilian airplane (over Donetsk Oblast in 2014). This pattern of behavior suggests that the reparations experience will be applied to Russia in full.

Waiting until the fighting ends, however, is not an option. Back in 2022, the independent Centre for Economic Policy Research (CEPR) published a detailed plan for Ukraine’s postwar recovery — A Blueprint for the Reconstruction of Ukraine. The authors of the document believe that the Marshall Plan — the unprecedented, large-scale aid programme enacted to restore European infrastructure and economic vitality following World War II — was started several years too late, as it came into force only three years after the end of the war. In the CEPR authors’ view, actions to restore Ukraine's economy are needed now. They add that the aid should be provided by an agency authorized by the European Union, as well as by independent, non-government donors.

Of course, both justice and economic necessity demand that Russia contribute to this reconstruction effort, even as the war grinds on with no end in sight. But how can Russia be compelled to pay its debt to Ukraine? Potential recovery mechanisms have been in the works since the beginning of the invasion — some of them more realistic than others.

Use of Russian POW labor? No.

Ukraine adheres to the Geneva Conventions and has declared that it will not make use of forced labor. First, it is economically unprofitable. Additionally, Ukrainians are unlikely to want to work side by side with Russian POWs. According to lawyer Ilya Novikov:

“There will be a lot of legal problems that the USSR did not have [with regards to German POW labor following WWII] — including the need to comply with modern humanitarian law. And the Ukrainian economy after the war will be more in need of paid jobs for its own [people] than in the labor of prisoners, whose maintenance and protection will probably cost more than the salaries of free men. Maybe there will be some mechanism to reduce the sentences of convicted war criminals for their voluntary participation in dangerous jobs like demining, but so far there hasn’t been anything of the sort.”

After the war, Ukraine will be more in need of jobs for its own people than of labor from Russian POWs

After World War II, the Allies actively recruited German citizens to work in the reburial of prisoners murdered in concentration camps. The process was intended to serve as a kind of “re-education” for those who had been blinded by Nazi propaganda. However, Novikov believes that Ukraine does not need such a practice:

“You can spend 100 hryvnias on feeding and guarding prisoners who are doing a half-assed job only while they’re being watched. Alternatively, you can spend it on the wages of your own citizens on, say, a construction site. In the Soviet Union, the cost of labor, convoys and approaches to the use of forced labor were quite different, and it is impossible and unnecessary to revive them now.”

Seizing Russian assets? Yes.

The main thing Ukraine will need from Russia is money. The authors of the above-mentioned Blueprint for the Reconstruction of Ukraine name frozen Russian assets as one of the potential sources of funds to cover the costs of Ukraine's reconstruction. According to general estimates, about $300 billion in Russian sovereign funds are frozen in the G7 countries. Economist Sergei Guriev, the incoming Dean of the London Business School and one of the authors of the document, is certain that Putin will not agree to pay reparations under any circumstances. However, compensation can be compelled in another way:

“Sooner or later Ukraine will use the frozen funds. Ukraine will file a lawsuit — and win it. Then the court will say, 'Ukraine, Russia owes you 500 to 700 billion.' Ukraine will go to Putin and say that it is necessary to pay. We can see from the Yukos case that Putin does not want to pay after these kinds of verdicts. Then Ukraine will seize all the frozen funds, including the Central Bank reserves, and use them to pay the debt.”

Seized property is another potential source of assets that can be put to use in support of Ukraine. Putin's yacht “Scheherazade” alone, which is currently impounded in Italy, is worth approximately 700 million euros, and there are dozens more such Russian-owned vessels in Europe. Aside from yachts, there is also real estate, private accounts, and multiple other assets.

Seized property is another potential source of assets that can be put to use in support of Ukraine, such as Putin's “Scheherazade” yacht, currently impounded in Italy

Simon Johnson, one of the authors of the Blueprint, believes that it would be possible to transfer all of this to Ukraine as reparations. In an opinion piece for Politico co-authored with Oleh Ustenko, one of the Ukrainian President’s economic advisors, Johnson claims that the assets of people associated with Putin may be confiscated:

“[...] the assets of people associated with Russian President Vladimir Putin are coming under scrutiny and could also potentially be seized, based on further executive and legislative measures. This creates a potential pool of assets worth at least $300 billion. More aggressive action against “oligarchs” may bring in more.

It will take time to determine precisely what happens to these assets. For example, assets under U.S. legal jurisdiction may be subject to private rights of action in the form of class action lawsuits by individual Ukrainians, who can quite reasonably claim compensation for the personal harm and financial loss they have suffered.”

Sergei Guriev counters that, so far at least, there are no laws that allow for the confiscation of property — but that can change. Ukraine will prove in court that these yachts belong to the people who caused it damage, and the court will make these guilty parties personally pay for the cost of making their victims whole. However, Guriev notes that the scale of assets belonging to the Russian Federation and individuals are still quite different:

“The [Russian] Central Bank's frozen assets are 300 billion, while a yacht is worth 700 million, and most yachts are worth less. There is not just one yacht, but these are still completely different orders of magnitude. And it will not be easy to prove the ownership of these assets in all cases.”

Indirectly, the decisions of Western states regarding the transfer of frozen Russian assets to Ukraine could be influenced by the decisions of international tribunals regarding war criminals, but the two are not directly related, notes lawyer Ilya Novikov:

“When they talk about post-war tribunals, they are almost always talking about trials over war criminals, maybe organizations. Monetary reparations from the state are not directly related to these courts. It's important, but it's a different procedure.”

Novikov stresses that there are only two mechanisms for Ukraine to receive money from Russia. One is voluntary — on the basis of a ceasefire agreement or peace treaty. The other is forced — by seizing Russian assets abroad. Given the current dynamics on the battlefield, the first scenario does not appear likely to develop anytime in the foreseeable future. This means that making Russian money available for Ukrainian use will require either the active assistance of the governments of the countries where these assets are located, or a decision by the courts of these countries. Novikov explains:

“For both options, the decisions of war crimes tribunals can help Ukraine, but cannot be the decisive and only factor. The decisions of the main courts will have to wait for several years after the end of the war. A political decision to hand over Russian money arrested in one or another country to Ukraine may take place more quickly.”

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