Ukraine's Naftogaz Freezes Russian Assets in Finland

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Oct 27, 2024, 13:00 ET

NEW YORK, Oct. 27, 2024 /PRNewswire/ -- Ukrainian oil and gas company Naftogaz has frozen Russian state-owned real-estate holdings and other assets in Finland, valued in the tens of millions of dollars. Naftogaz is represented in Finland by HPP Attorneys, with the support of Covington & Burling LLP, which acts as lead counsel in coordinating Naftogaz's global enforcement efforts against Russia.

The asset freeze, which went into effect on October 24 and implements a previously undisclosed Helsinki court order from August, is part of Naftogaz's ongoing efforts to enforce a USD 5-billion arbitration award against Russia for the Kremlin's unlawful expropriation of Naftogaz's property in Crimea in 2014, and it prevents Russia from dissipating assets in Finland while proceedings to enforce the award are ongoing.

Naftogaz commenced arbitration proceedings against Russia in October 2016, seeking compensation for Moscow's seizure of its property in violation of a bilateral investment treaty between Ukraine and Russia. Naftogaz had been the leading player in the natural-gas industry in Crimea, active in gas exploration, production, transport, storage, processing, and distribution. The company's property included special permits for subsoil use; equipment and infrastructure; pipeline and gas-storage operation rights; ownership interests in gas pipelines; and over 675-million cubic meters of stored gas.

After a years-long arbitration, on April 12, 2023, a tribunal in The Hague ordered Russia to pay Naftogaz more than USD 5 billion for Russia's treaty violations. The tribunal's damages award followed a prior award in which the tribunal found that it had jurisdiction to hear Naftogaz's claims and that Russia was liable for the expropriation of Naftogaz's property. While Russia initially declined to participate in the case, it later changed course, taking an active role in the damages phase. The hearing on damages took place at the Permanent Court of Arbitration, in The Hague's Peace Palace, and it was ongoing at the time of Russia's full-scale invasion of Ukraine, in late February 2022.

Notwithstanding the tribunal's award, Russia has refused to pay Naftogaz the amount due. Naftogaz has therefore launched an international enforcement effort, seeking to enforce the award in countries where Russia holds assets.

Naftogaz CEO Oleksiy Chernyshov explained that "since Russia refuses to pay the amounts owed under the award, [Naftogaz] will continue to leverage all available mechanisms to ensure recovery of these funds in target jurisdictions hosting Russian assets."

David Pinsky, a partner at Covington who serves as counsel for Naftogaz, commented, "The Finnish asset freeze is only one step in Naftogaz's global strategy to ensure that the company is compensated for Russia's theft of its property in Crimea."

Naftogaz is also seeking to enforce the award in the United States, in the United Kingdom, and in other strategic jurisdictions. Interest on the award will continue to accrue until Russia pays the full amount owed.

The HPP team includes partners Mikko Leppä and Tatu Jaarinen. In addition to Mr. Pinsky, the Covington team includes partner Clovis Trevino, special counsel Paris Aboro, and associate Dean Acheson.

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