Finnish precedent: how Helsinki increases chances of getting compensation from Russia

Finland has the second-longest border with Russia in Europe after Ukraine and a history of challenging relations with its eastern neighbor.

The government is well aware of all the risks, and after the start of Russian aggression, Finland promptly joined NATO and closed its border with Russia.

However, the confrontation between Suomi and Russia has another important aspect: the issue of frozen Russian assets and their future fate.

And for Ukraine, cooperation with Finland in this area could become an important element of its international reparation strategy.

Victory in Helsinki

In late October, NJSC "Naftogaz Ukraine" announced that the District Court of Helsinki had granted its petition and seized Russian assets in Finland, estimated at tens of millions of dollars.

Some Ukrainian media mistakenly called it "confiscation of Russian assets", which is an incorrect translation of the term "seizure", which in this case means "arrest", not "confiscation".

However, in fact, this ruling was issued by the District Court of Helsinki back in August 2024, and two months later, on October 24, the executed it by blocking the relevant Russian assets.

More than 40 properties were seized.

Half of the blocked property is diplomatic real estate, including residences of diplomats.

Although there is no talk of asset confiscation at this time, the steps taken are of great symbolic and practical importance. The request of Naftogaz concerned the execution of the ruling of the Permanent Court of Arbitration in The Hague, issued in April 2023, to compensate for the losses incurred by the company as a result of the expropriation of its assets in Crimea by Russia in 2014.

In its decision, the Chamber recognized that Russia had violated the Agreement on Mutual Protection of Investments. The court found that the amount of compensation should correspond to the "fair market value" of assets of Naftogaz at the time of their expropriation.

These assets included special permits for subsoil use, infrastructure facilities, and more than 675 million cubic meters of gas in storage. The total amount of compensation was estimated at $5 billion.

Due to the refusal of the Kremlin to voluntarily comply with the arbitration award, Naftogaz initiated its enforcement in jurisdictions where it has Russian assets.

In particular, on December 5, 2023, the High Court of Justice in England and Wales recognized an arbitration award to compensate Naftogaz for $5 billion in damages for assets seized by Russia in Crimea.

In addition, Naftogaz filed a motion with the U.S. District Court for the District of Columbia to confirm the award.

However, it was the actions of the Finnish justice system and executive bodies that became the first practical steps towards the implementation of the Permanent Court of Arbitration award in the interests of Naftogaz.

This award will send a powerful signal to other companies.

Firstly, for those who are engaged in arbitration disputes with Russia over compensation for damages caused by the aggression against Ukraine, about the real prospects for the enforcement of such decisions.

It is also important that, in addition to the interests of Naftogaz and Ukraine as a whole, this ruling is in Finland's interest.

Finnish compromises

Finland has demonstrated consistent support for the use of Russian assets to compensate Ukraine for its damages.

The country has supported all six UN General Assembly resolutions on the situation in Ukraine adopted in 2022 and 2023, including the resolution of November 14, 2024, which recognizes Ukraine's right to receive compensation for damage caused by Russian aggression.

In addition, as of March 2023, it was reported that Russian private and public assets totalling about $200 million had been frozen in Finland since the beginning of the full-scale Russian invasion.

The Finnish government has long been aware that the presence of Russian property on Finnish territory could pose a threat to national interests and security. Accordingly, the country is taking measures to minimize this impact.

In the summer of 2024, Prime Minister Petteri Orpo announced his intention to introduce preventive measures to protect the country from a possible increase in Russian influence.

And in September, the government announced that it was preparing a bill that would completely ban the purchase of real estate by Russian citizens for reasons of national security.

In this context, the ruling of the District Court of Helsinki to seize Russian assets in favor of Naftogaz is not only a manifestation of support for Ukraine, but also part of Finland's broader strategy to counter hybrid threats from Russia.

However, Russia also responded by actually confiscating the assets of Finnish businesses in Russia.

The Finnish energy company Fortum became one of the first companies to have its assets effectively nationalized by the Kremlin under the Russian President's decree on "temporary" state control over the assets of companies or individuals from "unfriendly" states.

In April 2023, the Russian authorities transferred assets of Fortum to the Federal Agency for State Property Management, which resulted in the company losing control of its Russian assets worth about $1.9 billion.

Although the decision of the District Court of Helsinki to seize Russian assets in favor of Naftogaz cannot be seen as a direct "retaliatory strike" against the expropriation of assets of Fortum, this fact is likely to become part of a strategy of Finland to protect its national interests.

Ukraine should be prepared that the Finnish government will act in its own interests along the way. In particular, there is a possibility that "softer" rulings on Russian assets may be made if it is necessary to reach compromises in the interests of Finland and Finnish business.

For example, in November 2023, it became known that the Helsinki authorities were planning to expropriate one of the country's largest concert arenas, Helsinki Halli, owned by oligarchs from Putin's inner circle, Hennadii Tymchenko and Roman Rotenberh, in order to preserve the facility itself.

Although the expropriation process was supposed to begin in early 2024, the Helsinki authorities have not yet taken the necessary measures. Only a year later, in November 2024, the Finnish Ministry of Foreign Affairs announced a deal to buy the arena for $64 million.

Thus, although the Russian oligarchs lost their assets, this did not happen without compensation for these "inconveniences".

Hidden challenges for Ukraine

Although the future success of Naftogaz in Finland is not guaranteed, this precedent is important. It demonstrates the possibility of progress in the enforcement of arbitral awards and court decisions against Russia in favor of Ukrainian and foreign investors.

Although the end result – the confiscation of Russian assets – is still a long way off, this decision opens up prospects for scaling up this practice in other countries, creating the effect of a "thousand small cuts" tactic.

Thus, it will increase the likelihood of overcoming sovereign immunities, which are the main obstacle to the confiscation of Russian assets, including at the multilateral level.

At the same time, the Ukrainian government needs to take into account the specifics of the situation in Finland and systematically cooperate with its allies to overcome the challenges posed by the blocked assets of Western companies in Russia.

The Kremlin is already using these assets as an instrument of covert blackmail.

In the future, this leverage may become a subject of bargaining in the context of discussions about the confiscation of reserves of the Central Bank of the Russian Federation, the main expected source of funding for compensation to Ukraine.

"The Russian Federation will defend its property interests, so we will use all legal mechanisms to protect our interests", Kremlin spokesman Dmitry Peskov has already said. And Moscow's interpretation of what exactly is "legal" can be very broad.

Businesses whose property is de facto blocked in Russia can put pressure on their governments to prevent their expropriation. Compromises, which Russia has hinted at earlier, could be very painful for Ukraine and complicate the final confiscation of Russian assets to compensate for the damage caused by the aggression.

Ukraine should offer convincing solutions to Finland and other countries, including as part of a strategy to create an international compensation mechanism.

These steps will not only help address their current concerns, but will also bring reparations closer to Ukrainians.

Ivan Horodyskyy, Director of the Dnistrianskyi Centre,
Sofia Kosarevych, Analyst of the Dnistrianskyi Centre

The material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase IV: Addressing Specific Issues to Ensure Compensation.