Estonia draws up scheme for using frozen Russian assets

DBT (Dry Bulk Terminal) buildings and fertilizer tanks at Muuga Port. Photo: Madis Veltman

Estonia became the first European country to draw up a legal scheme that allows the use of frozen Russian assets to help Ukraine, the scheme should receive government approval in the coming weeks, the daily Postimees writes.

Already at the very beginning of the war in Ukraine, the countries of Europe tasked the European Commission with developing a legal scheme that would help use frozen Russian assets to help and rebuild Ukraine. On Jan. 4, the then government of the Reform Party, Isamaa and the Social Democratic Party (SDE) decided that since a solution has not yet been found in Europe, Estonia would start working on it.

Prime Minister Kaja Kallas told the daily that this was a step in the right direction.

"We now hope we will get [it] in at the European Council. Legal systems differ between countries, but we will definitely be able to move forward with the matter if there is a common basis in the European Union. We are almost ready with the solution and it has been discussed in the Cabinet, but some details still need to be specified. We can also demonstrate to other countries how the solution could work legally. How it goes is that Ukraine documents the damage the aggressor Russia is causing them. We have assets that have been appraised, we give these to Ukraine and later Russia can settle with Ukraine. If they did that, then it is already possible to show that they have caused all the damage themselves," she added.

Erki Kodar, deputy secretary general of the Ministry of Foreign Affairs, said that Estonia has prepared amendments to the International Sanctions Act, which ensure the financial responsibility of the aggressor state for damages caused by the most serious violations of international law.

"According to the draft, compensation for the damages caused by the aggressor can be carried out as a so-called advance payment from frozen assets," Kodar said. "The premise of using frozen assets in the context of the current war is that Ukraine identifies damage that needs to be compensated and Russia defaults on the obligation to compensate. Thus, the money can really only go to compensate for the damage caused to Ukraine."

Kodar added that damages will be compensated for at the expense of persons who have a sufficiently proven connection with Russian policy-making or contributing to its implementation.

"Therefore, compensation for damages will still only take place at the expense of the assets of certain persons, that is, in parts," he said.

In order to apply the scheme, an international agreement with Ukraine or an international compensation mechanism is needed to keep track of damages and compensations.

"As a first step, a register of damages has been created at the Council of Europe," Kodar said. "Estonia wants to set an example with this draft and to urge other European Union countries to look for and find solutions for the use of frozen and blocked assets. Both the European Union institutionally and other member states have shown interest in the solution and we have shared it with them."

According to the Financial Intelligence Unit (FIU), 34.8 million euros have been frozen in Estonia as of the beginning of June due to sanctions, including more than 8.7 million euros in advance payment accounts of the Tax and Customs Board. This does not include other tangible assets, such as the value of companies and fixed assets, claims or lost income.

"For the most part, the funds mainly belong to the companies of two oligarchs, Andrey Melnichenko and Viatcheslav Kantor, who are included in the European Union's sanctions list," Onne Mets, head of the FIU's communications and cooperation department, told the daily.

The former owns Eurochem, which mainly operates in Sillamae, while the latter owns DBT in Muuga.

Mets added that the volume of frozen assets may change over time due to the exceptions provided in the regulations of the European Union, which allow sanctioned companies to make essential expenditures under certain conditions, such as paying utility bills. These companies can also continue limited economic activity within the framework of the exceptions provided for in the legislation. For example, to sell chemicals and receive payment for sales or service, if this is necessary to ensure the safety of people and the environment. The money received from the economic activity taking place as an exception is frozen.

"Russia must be held responsible for the destruction caused by the cruel war in Ukraine, both morally and financially, and immediately, not after Ukraine's victory," Foreign Minister Margus Tsahkna told the daily. "The sanctions have frozen the assets of Russia and Russian war supporters responsible for the aggression. Estonia's proposal is to use these assets to help rebuild Ukraine, whose critical infrastructure has been heavily damaged. Ukraine and Ukrainian people need help today. This gives them hope, among other things."