Legal analysis of the reparations loan for Ukraine: why it does not create new material legal risks

KSE Institute, together with the Centre for Liberal Modernity (LibMod) and a group of international experts, has released a new analytical report examining the legal risks associated with the reparations loan for Ukraine — a European Union initiative aimed at providing long-term financial support to Ukraine using immobilised assets of the Central Bank of Russia.

The report analyses potential litigation risks across jurisdictions in the European Union and the United Kingdom and assesses whether this mechanism creates additional legal exposure for states or financial institutions. The authors conclude that the reparations loan is designed in a way that does not generate new material legal risks beyond those already arising from the existing sanctions regime for the following reasons:

• Russian courts. Any judgment of a Russian court would not be recognised or enforced in the European Union or the United Kingdom. This follows from public policy considerations and the absence of jurisdiction, provided that respondents do not voluntarily submit to Russian court jurisdiction or engage with the merits of a claim.

• National courts in the EU and the United Kingdom. It is unlikely that Russia or the Central Bank of Russia would bring claims before national courts in the EU or the UK. Doing so would carry a significant risk of waiving sovereign immunity and could expose them to counterclaims.

• Court of Justice of the European Union. Claims by Russia or the Central Bank of Russia before the CJEU would face an exceptionally high threshold. Any successful action would require proof of a sufficiently serious breach of EU law and demonstrable damage. Given the non-confiscatory nature of the reparations loan, meeting these conditions is highly unlikely. In any event, any such claim would be directed at EU institutions rather than individual Member States.

• International courts. No international court has jurisdiction to hear claims by Russia or the Central Bank of Russia related to the reparations loan. Russia does not accept the jurisdiction of either the European Court of Human Rights or the International Court of Justice in such matters.

• Investment arbitration. Claims brought under bilateral investment treaties between Russia and Belgium, as well as some other EU Member States, are unlikely to be admitted for consideration, as the terms of the legacy USSR bilateral investment treaties require the fact of alleged expropriation to be established by the national courts of the respondent state. Even in a hypothetical merits review, prospects of success would remain extremely limited, while enforcement of any award would be blocked on public policy grounds.

• Inter-state arbitration. Potential inter-state proceedings would most likely be limited to questions of treaty interpretation rather than compensation claims. However, if Russia is admitted to bring its own substantive claims and/or exercise diplomatic protection of russian entities, the doctrine of countermeasures would preclude the wrongfulness of conduct by Belgium or other respondent states.

The report notes that key legal and financial concerns raised by some countries and stakeholders relate primarily to the underlying sanctions and the immobilisation of assets, rather than to the design of the reparations loan itself. At the same time, the mechanism incorporates a multi-layered system of safeguards aimed at minimising any residual risks for EU Member States and financial institutions and is assessed as a legally sound, non-confiscatory instrument for long-term support to Ukraine in the context of Russia’s aggression.

The analytical paper was first published by the Centre for Liberal Modernity. The report was prepared by a group of international lawyers and economists with the participation of KSE Institute experts, including Tetyana Nesterchuk (Barrister, Fountain Court Chambers; Non-resident Senior Legal Fellow at KSE Institute), Anna Vlasyuk (Head of International Law and Policy Research, KSE Institute), together with Patrick Heinemann (Partner, Bender Harrer Krevet), Anton Moiseienko (Senior Lecturer and Director of Research, ANU College of Law), Philip Zelikow (Botha-Chan Senior Fellow, Hoover Institution, Stanford University), Yuliya Ziskina (Senior Legal Researcher, Razom for Ukraine), and Tom Grant (Senior Research Fellow, Wolfson College, University of Cambridge; Fellow of the Lauterpacht Centre for International Law).