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In mid-May, Estonia became the first country that passed legislation allowing the confiscation and use of frozen Russian citizens' and businesses' assets. The Parliament amended, to that extent, existent sanctions acts. Theoretically, the assets should go to Ukraine, but there are still some hurdles to be passed before that happens. Assets frozen in Estonia are just the tip of the iceberg; most of the Russian money and goods were frozen in other EU countries and the US.
Estonia took the first step, but the assets problems remains largely unsolved
The conservative EKRE party opposed the move, with its leader Martin Helme stating that this was an unthoughtful and slogan-based plan that could lead to Russian retaliatory steps. The centrists also disapproved of the initiative, citing the legal unsoundness of the bill. Nevertheless, the amendments were passed with 65 votes in favor out of 101 MPs.
Estonia has been consistently moving towards this decision. The issue of what to do with frozen assets became acute in the summer of 2022, when authorities faced the need to deal with tens of thousands of tons of Russian fertilizers, including explosive ammonium nitrate, stuck at the ports of Muuga and Sillamäe. The problem was resolved at the time by allowing an exception for the sanctioned company because otherwise the fertilizer could threaten the environment and human health. An Estonian company eventually bought the fertilizers from the Russians.
However, the problem of frozen assets in general remained unsolved. On the international level, Estonia continued to defend the necessity to allow the confiscation of Russian property and its transfer to Ukraine as compensation for the war damages. Prime Minister Kaja Kallas called on Western allies to confiscate Russian assets before the US presidential elections.
Two Steps Forward, Three Steps Back. Why it is so complicated to seize Russian assets
The most lucrative of these assets are the funds belonging to the Central Bank of Russia, most of which are stored in the European depository Euroclear.
Earlier this year, it was reported that the European Commission finally reached an agreement on these frozen funds. €191 billion plus interest from their investments would be directed to a special fund until the EU countries agreed on their transfer to Ukraine. However, the idea of full confiscation of these assets gave way to less radical plans.
By the end of May, EU countries agreed that the frozen assets of the Russian Central Bank would remain in the European depository as a guarantee to cover risks, such as potential lawsuits against Russia. Meanwhile, the revenues from these assets, which are estimated to be around €5 billion, are planned to be transferred to Ukraine twice a year. These funds should become available to Ukraine starting from July this year.
Hungary, which has regularly raised objections when it came to supporting Ukraine, has opposed this project as well, blocking a unanimous decision needed in this case. Efforts are being made to find a solution that would satisfy this country as well.
At the G7 level, negotiations were no less problematic. On May 25, the finance ministers of the G7 countries announced progress in negotiations and their readiness to use income from Russian assets to aid the war-affected Ukrainian country. No mention of confiscation was made, of course: "According to the principles of our legal systems, Russian sovereign assets in our jurisdictions will remain frozen until Russia pays for the damage caused to Ukraine", the ministers declared.
In the USA, a legal mechanism allowing for the confiscation of assets has not yet been agreed upon, but there are plans to transfer $50 billion to Ukraine – in the form of loans or bonds – which will be secured by revenues from frozen assets. Meanwhile, Vladimir Putin has already signed a decree allowing the confiscation of property belonging to American citizens and companies as compensation for the seized Russian assets.
There’s little Kremlin can do if Estonia seizes its assets
From Estonia's perspective, the financial measures taken by Western countries against the aggressor state are slow and insufficient. Estonia's ambassador to the EU, Aivo Orav, stated that all frozen principal funds, not just the interest from them, could be transferred for the reconstruction of Ukraine. The parliamentary majority holds the same view.
The value of assets frozen in Estonia itself is quite modest—amounting to €37 million. Foreign Minister Margus Tsahkna stated in an interview with ETV+ that the amendments allowing the use of confiscated Russian assets to aid Ukraine are just, as so far this assistance from Estonia had been possible solely at the expense of taxpayers.
Estonian government is not overly worried about retaliatory measures, as there is practically nothing with which the Kremlin can blackmail it: in essence, only those private individuals and companies who still own property in Russia may have some problems. However, Estonian authorities have long warned them that personal and economic ties can be maintained exclusively at their own risk.
Why seizing assets would breach Estonia’s Constitution
However, there are complications here as well: legal experts doubt that the amendment, which includes the power to confiscate property from private individuals, is constitutional. For this reason, Paloma Krõõt Tupay, an associate professor of constitutional law at the University of Tartu, believes that the law it will be challenged by the chancellor of justice.
Indeed, paragraph 32 of the Constitution of Estonia states that everyone's property is inviolable and equally protected, reminds Ksenia Kravchenko, an attorney at law from WIDEN law firm. She, like many of her colleagues, believes that if the law does come into force, the decision on confiscation could be challenged in court.
“The USA has so far applied the asset seizure procedure four times (including the recent REPO Act), but all these cases concerned state assets. Since state assets are protected by the principle of state immunity, this process is always associated with a lot of irregularities. Seizure of the assets of private individuals to compensate for damage caused by their state has not, to my knowledge, been carried out in this form. On the territory of the EU, confiscations still occur in the usual manner of execution of court decisions, in compliance with guarantees of the inviolability of private property, “ she explains to Veridica.
The main role of Estonia, in her opinion, is to raise alert rather than to create a viable mechanism of compensation for war damages, considering that the amount of Russian assets in Estonia is negligible compared to the amount required to restore Ukraine. “The changes in the law in question provide that, in order for the Ministry of Foreign Affairs to be able to begin the alienation procedure, it is necessary, firstly, that the responsibility of the state causing the harm be accepted at the international level (that is, within the framework of international legal proceedings), and secondly, the mechanism must be created to allow the owner to receive compensation”, Kravchenko says.
This presupposes that Russia accepts jurisdiction on the first issue and submits to enforcement on the second one. “In today's situation, both elements, unfortunately, are difficult to implement and probably require a change in the political regime of a country that violates international law,“ she adds.
"By doing so, we will also burden our judicial system. The decisions they make and how they will be challenged at the European level will be an additional load and extra expenses for our state”, said Lauri Laats, a member of the Centrist Party, during parliamentary debates.
The Russian Embassy stated that Moscow intends to reserve the right to take retaliatory measures, but none have been taken so far, unless one considers another provocation at the Estonian-Russian border as such. On the night of May 23, Russian border guards removed more than 20 buoys set by Estonian border guards in Estonian waters to mark the fairway. However, various kinds of provocations such as airspace violations or GPS disruptions, which interfere with airport operations, have long become routine for Estonia.
