From Court Decision to Auction: Obstacles to Sale of Confiscated Russian Assets

n May 2022, in response to the aggression of Russia, the parliament introduced a new type of sanctions—the recovery of assets into the national income. 

For more than 2 years, 58 individuals and companies have been subject to the sanctions mechanism; more than 1,700 assets have been recovered: from real estate and corporate rights to works of art and weapons. Their sale would provide the means to rebuild the destroyed infrastructure and compensate the people affected by the war.

As of mid-August, Ukraine confiscated from the Russians and their accomplices the following assets:

•     works of art—537 (31%),
•     weapons—336 (19%),
•     vehicles—292 (17%),
•     aviation parts—92 (11%),
•     real estate—181 (10%),
•     corporate rights—69 (5%),
•     financial assets and property rights—63 (4%),
•     land plots—41 (3%).

To date, the state has managed to sell only 35 assets (approximately 2% of their total number). Only 4 objects were sold, and the rest are the transfer of confiscated funds to the budget. 

Overall, the income from Russian assets amounted to approximately UAH 837 million—an insignificant amount, especially given that the assets transferred to the agency are estimated at almost UAH 15 billion. 

You’d think why wouldn’t the state simply sell all the confiscated enterprises, real estate, and land plots of Putin’s accomplices and channel these funds to compensation for the victims or reconstruction? In a special study, we found that at almost all stages of working with assets, difficulties and obstacles arise that inhibit or even make it impossible to sell them.

Let’s delve into these obstacles.

Delays in the transfer of assets

When launching the new sanctions mechanism, the law did not clearly define the period within which the government had to choose an asset management body. As a result, the adoption of relevant decisions was often delayed. 

From December 2022 to August 2023, the Cabinet of Ministers identified managers for the assets of 18 sanctioned persons, and the procedure took an average of three months. However, for a part of the assets, this period was significantly longer. For example, it took more than five months to transfer Deripaska’s former assets to the SPFU. The process of finding a manager for the shares in the First Investment Bank of the Russian oligarch Giner lasted nine months.

Finally, in May last year, the parliament entrusted the functions of the manager of confiscated assets to the SPFU, removing the “intermediary” represented by the government. This approach optimized the procedure, and in four and a half months, assets of 23 sanctioned persons were transferred to the management of the Fund.

Difficulties in analyzing and accessing assets

According to the SPFU, 70% of confiscated enterprises do not have documents confirming their financial condition. This situation arises due to the concealment, removal, or even destruction of information. 

We observed this in the cases with the seizure of the Demurinsky Mining and Processing Plant, owned by the Russian oligarch Shelkov, and the AEROC plant, which had belonged to a company associated with the Russian oligarch Molchanov before the confiscation. The destruction of documentation caused delays in the procedure for accepting these and a number of other assets for management and preparation for further sale because the restoration of financial data can take up to 2–3 months.

In addition, access to part of the assets is limited if they are located in the temporarily occupied territories or in zones of active hostilities. As of mid-August, at least 101 objects (not including vehicles, the location of which cannot be accurately determined) are located in the temporarily occupied territories. Such assets will be in a frozen state until the restoration of state control in these territories. 

Another third of the confiscated companies are located in the 40-kilometer zone from the contact line, which complicates the appointment of new management to prepare these assets for sale.

Seizures and encumbrances

Numerous seizures and encumbrances of property remain an obstacle to the prompt transfer of assets in the management of the SPFU. 

For example, in preparation for privatization, in regard to one asset alone—the already mentioned sanctioned company AEROC—7 arrests in various criminal proceedings were lifted. According to the SPFU, 80-85% of assets recovered into the national income and transferred to the management of the body are still seized within the framework of criminal or enforcement proceedings. 

Lifting arrest in criminal proceedings can take from 2 to 3 weeks to several months. The hearing of such cases is carried out according to the rules not of special (sanction), but of general procedural legislation by the courts of general jurisdiction. Therefore, due to the workload of judges, it is often impossible to quickly establish full control over assets—due to the postponement of cases or delays related to the preparation of court decisions. For example, when the seizure of corporate rights of PJSC Pentosan was lifted, the issuance of the full text of the ruling took several months. Accordingly, it was simply impossible to carry out registration actions in relation to it and, moreover, to prepare the enterprise for sale.

Asset features

Not all assets recovered by the court can be sold, both considering legislative restrictions and the inexpediency of such a sale. 

Half of all confiscated assets are works of art that belonged to ex-president Yanukovych (their value is estimated at EUR 18.7 million) and the “collection” of firearms of traitor Bohuslayev. Art objects from Mezhyhirya have had the status of museum objects since 2014, and the legislation restricts the alienation of such cultural values. The procedure for the sale of state-owned firearms is not defined in legislative documents. 

Currently, the sale of land plots is also blocked, all because of the inconsistency between the Land and Budget Codes and the Law on Sanctions regarding the crediting of funds from their sale. Therefore, without amendments to the legislation, the important layer of assets continues to be a liability.

But even if it is possible, not all assets should be sold at an auction. For example, 5 companies from the aviation industry, as well as the Ministry of Defense of the Republic of Belarus, were immediately sanctioned. As a result, another 11% of the total number of recovered assets are aviation parts and equipment. The sale of such objects is inexpedient because they can be used to enhance our defense capability. By the way, as of August, the procedure for their transfer to the Defense Forces is underway.

Harmful legislative initiatives and lack of buyers

Due to problems with the transfer of assets to management, the first attempts to sell them took place only in the summer of 2023. At the time, the SPFU announced the sale of an agricultural enterprise in the Dnipro region, which had previously belonged to the Russian oligarch Shelkov. But the company could not be privatized; no one participated in the first auction, and due to the problematic nature of the asset, the SPFU canceled the second auction.

But even before that, in May, legislators had blocked the sale of confiscated sanctioned assets for as long as 7 months with one amendment proposal to the draft law, and only in March 2024 made the necessary changes to the law. In mid-May of this year, the State Property Fund for the first time managed to sell the confiscated assets—two apartments in Odesa—for UAH 6.9 million. Subsequently, two more assets were sold—a plant in the Kyiv region and the already mentioned agro-enterprise in the Dnipro region.

In total, four out of 10 attempts to sell confiscated assets were successful. At the same time, only two of them demonstrated competition and had more than one participant. The absence of investors in the bidding may be due to both a security factor and distrust in the background of assets associated with a relatively new mechanism of confiscation and the risks of its appeal by the former owners. 

To date, for potential buyers of sanctioned assets, the legislation provides for an only one type of guarantee—a restriction on the claim by the previous owner of the privatized property. However, such guarantees do not apply to all assets, so legislators should provide additional protection for investors.

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In general, 70% of all assets recovered into the national income cannot be sold due to legislative restrictions, location in the temporarily occupied territories, or allocation for defense needs. The low effectiveness of the sale of sanctioned assets has also led to delays or unreasonable decisions on the part of the authorities involved in the management of sanctioned assets or the settlement of this field. 

Recently, many obstacles at the legislative level have been eliminated, which has led to the first results at auctions. However, there are new challenges, in particular related to the need to attract additional resources for the assessment and inventory of assets that continue to accumulate. The ensuring of proper accounting and monitoring of all this property is still questionable.

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.