Compensatory function of sanctions: mechanisms for providing restitution to victims

russian aggression against Ukraine has caused damage amounting to more than $500 billion and hundreds of thousands of casualties. Compensation is left to the affected State and its international partners, which contradicts the fundamental principle of justice that “the one who caused the damage should compensate for it”. The compensatory function of sanctions offers an alternative, transforming the understanding of the sanctions mechanism from solely an instrument of pressure to an instrument of compensation for damages. 

The analysis presented highlights two key mechanisms for implementing the compensatory function:

1. Transfer of confiscated assets and fines for sanctions violations directly to the affected state. International practice demonstrates the effectiveness of this approach. In particular, the US transferred more than $5.4 million in confiscated assets, and Lithuania allocated €167,000 in fines to the rehabilitation of Ukrainian military personnel. In addition, Estonia will spend nearly $500,000 on rebuilding Ukraine’s energy infrastructure.

2. Confiscation of frozen assets belonging to designated persons to pay compensation to victims. Under this approach, Ukraine has collected more than ₴561 million, more than $236 million, and approximately €440,000 in state revenue. Canada and Estonia have adopted national legislation allowing for the implementation of this mechanism. Moreover, Canada has already started applying it.

The potential of the compensatory function is significant, as thousands of cases of sanctions violations, along with mechanisms for confiscating the frozen assets of designated persons, can generate billions of dollars in compensation for victims.

However, for the compensatory function of sanctions to be effective, coordinated and systemic actions by states are necessary, in particular with regard to:

Criminalizing sanctions violations, ensuring effective detection and freezing of assets.

Adopting legislation on the allocation of confiscated assets and fines collected in criminal, civil, and administrative cases to the benefit of victims.

Reconsidering existing timing, sectoral, and territorial limitations in countries that have already established those mechanisms.

Developing legal tools to confiscate frozen assets of designated persons to pay compensation to victims, with the right of recourse for reimbursement of incurred costs.

The international community has a unique opportunity to transform its sanctions policy not only by ensuring compensation for victims of russian aggression, but also by setting a universal precedent of accountability that will serve as a deterrent to future acts of aggression.