Revised Draft Law on ARMA Reform: Legal Analysis

On February 12, 2025, the Verkhovna Rada of Ukraine adopted draft law No. 12374-d in the first reading, which is intended to serve as the basis for a comprehensive reform of the Asset Recovery and Management Agency.

Since the end of 2024, discussions have continued on how exactly to reform the ARMA. While stakeholders largely agree on changing the rules for the competition to select the ARMA’s head and the procedure for externally assessing the agency’s effectiveness, their views diverge on the methods of managing seized assets.

It is worth noting that on December 30, 2024, the government registered a draft law aimed at enhancing the ARMA’s institutional capacity. On January 8 and 14, MPs submitted alternative draft laws: the first was registered by Oleksandr Tkachenko, Antonina Slavytska, and others, while the second was submitted by Oleksii Movchan, Anastasiia Radina, Yaroslav Zheliezniak, and others.

On February 10, 2025, following a meeting of the anti-corruption committee, its members registered a revised draft law, No. 12374-d, which became the subject of our analysis. Just two days later, on February 12, the parliament adopted it in the first reading. This draft introduces several significant changes compared to the second alternative draft law but retains some risky provisions that require correction.

 Brief conclusions

• The revised draft law addresses some critical comments on the second alternative draft, particularly by removing provisions that would have expanded the authority to recover assets.
• Additional guarantees of the Agency’s independence are formally established, but the requirements for its head have been reduced.
• At the same time, significant risks remain regarding the proposed asset management models and control mechanisms.

Key suggestions:

• Expand the qualification requirements for the head of the ARMA to include the option of having an economic education. Currently, the requirement for exclusively law degree unnecessarily limits the pool of potential candidates and overlooks the need for managerial and economic competencies to effectively manage the Agency.
• Introduce an incentive mechanism for managers with a lower base salary (1-3 minimum wages) and a higher percentage of profit (20-25%), reducing the burden on the state budget. The current incentive scheme creates risks of inefficient management, as the guaranteed payment from the budget may seem more attractive than earning a profit.
• Develop clear quantitative and qualitative criteria for evaluating management effectiveness across different types of assets and allow for the hiring of industry experts. The legislation has yet to establish clear criteria for how the ARMA should monitor the effectiveness of asset management and ensure the preservation of their economic value, as confirmed by the conclusions of the Accounting Chamber.
• Simplify the transition period by introducing a pilot project for managing seized assets, involving arbitration managers and private bailiffs. The transition model proposed in the draft law unnecessarily complicates the development of bylaws and blurs responsibility for inefficient management due to the need to create a temporary model for selecting managers through Prozorro.Sales.
• Improve the maintenance of the Unified Register of Seized Assets. For effective public control, the register should include at least the start date of property management activities, the announcement of the competition for the manager’s position, key terms of the management agreement, the amount of remuneration and guaranteed payment, as well as the results of measures to assess the effectiveness of asset management.

What do the alternative draft laws have in common with the government’s and revised draft laws?

All draft laws modify the procedure for selecting the head of the ARMA, specifying that the commission should consist of six members. Half are appointed by the government, while the other half are appointed by international partners that have supported Ukraine in combating corruption.

The revised draft law allows only lawyers to head the ARMA, whereas the second alternative draft expands eligibility to candidates with legal or economic degrees.

Interestingly, only the second alternative draft law stipulates that the competition for a new head should begin upon the law’s entry into force. The draft mentions January 1, 2026, but this is likely a typo. The revised draft no longer includes this requirement. Instead, it initiates the establishment of an independent external audit commission and a Civil Oversight Council.

All draft versions modify the external audit procedures, establishing a three-member commission appointed by the government based on recommendations from international partners. If the audit results are negative, the head of the ARMA will be dismissed.

However, the draft laws differ in audit frequency. The government’s version proposes audits one and three years after the appointment of a new head of the National Agency, while the alternative versions require annual audits. The revised draft law follows the government’s model for external audits in terms of frequency.

Another substantive issue—transparent management of seized assets—is addressed differently in all four draft laws:

• The government’s version proposes resolving this issue in a Cabinet of Ministers’ resolution, in line with the principles of public procurement.
• The 12374-1 version suggests using electronic auctions on Prozorro.Sales, in accordance with the procedure approved by the Cabinet of Ministers of Ukraine.
• The 12374-2 version proposes that assets be managed by a certified special commission under the ARMA, alongside an arbitration manager and private bailiffs.
• The revised draft law presents three distinct approaches: the continuation of existing asset management agreements; until January 1, 2026, the appointment of managers through electronic auctions on ProZorro.Sales, following a procedure approved by the Cabinet of Ministers of Ukraine; and, after January 1, 2026, the management of assets by arbitration managers and private bailiffs certified by the ARMA Commission.

Core questionable aspects

Given that the anti-corruption committee recommended parliamentary support for the revised draft law at its meeting on February 10, 2025, we will focus on its shortcomings.

As mentioned above, the draft law authors propose a radical change to the model of managing seized assets. They suggest dividing them into complex assets (corporate rights, unified property complexes, and assets valued at more than 20,000 times the subsistence minimum for able-bodied persons as of January 1 of the current year) and simple assets (all others). At the same time, they propose involving arbitration managers for complex assets and private bailiffs for simple ones. They also aim to introduce an automated system for appointing managers and establish a Qualification and Control Commission within the ARMA to certify managers and oversee their activities.

This draft law contains several problematic aspects that must be addressed to ensure a high-quality reform of the ARMA.

1. Shortcomings of the new asset management model

The draft law stipulates that a manager will receive basic remuneration (1–3 minimum wages) and bonuses (10% of the profit). However, if asset management does not generate sufficient funds, the remuneration will be covered by the ARMA special fund or the state budget.

This model creates risks of inefficient management, as managers may lack sufficient motivation to generate profit from asset management.

As an alternative solution, we suggest introducing a progressive reward scale, where the fixed component is reduced, and a larger share depends on management effectiveness. For example, the base rate could remain at 1–3 minimum wages, while the profit-based percentage could be increased to 20–25%. Payments from the state budget should be made only in exceptional cases where an asset’s non-profitability results from objective factors.

No significant changes are proposed for monitoring management effectiveness. As previously mentioned, the main issue with this mechanism is that most inspections are off-site, relying solely on documents provided by managers. On-site inspections are much less frequent, with only 5 conducted in 2023. There are also concerns about whether the ARMA staff can serve as experts in the various sectors of seized businesses transferred to the Agency’s management.

This aligns with the conclusions of the Accounting Chamber, which note that the legislation does not establish clear criteria for the ARMA, as an authorized state body, to monitor the effectiveness of asset management or the preservation and increase of their economic value.

However, the draft law does not provide ways to improve this response tool, aside from granting asset owners the right to file complaints about the failure or improper performance of asset managers’ duties and setting the percentage of profitability in the management contract.

We suggest considering the following option to address this issue: develop and establish clear quantitative and qualitative criteria for evaluating management effectiveness for different types of assets in regulations. It would also be advisable to allow for the hiring of industry experts to assess the effectiveness of managing specific assets. It would also be worth introducing mandatory quarterly on-site inspections for assets valued above a certain amount.

In addition, there are certain corruption risks in the mechanism for compensating the manager’s “necessary expenses.”

The draft law defines the right of managers to be reimbursed for necessary expenses incurred in connection with asset management, with these funds being deducted directly from the income generated by the assets under management. However, the draft does not specify what happens when such revenues are insufficient.

Although the draft law requires documentary confirmation of such expenses, it does not establish clear criteria for their validity or limits on their size. This could lead to artificially inflated costs due to potential collusion between a manager and service providers.

Therefore, it is necessary to establish a clear list of types of expenses that can be considered essential and introduce limits on the amount of such expenses as a percentage of the asset value. Additionally, a mechanism for the preliminary approval of expenses exceeding the established limits should be provided, involving a special ARMA commission, along with a mandatory independent audit of expenses when their volume is significant.

2. Expanding the Agency’s functionality may lead to an overload, compromising its ability to effectively perform its core functions

The authors propose to expand the ARMA’s functionality to include the storage of seized assets and oversight of how owners of such assets use their property, provided that an investigating judge allows the assets not to be transferred to the ARMA in exchange for guaranteed payment.

This approach cannot be implemented efficiently without appropriate amendments to the Criminal Procedure Code of Ukraine. Such a draft law, which would define the specifics of introducing a guaranteed payment as an alternative to transferring an asset to the ARMA, has not yet been registered in parliament. Therefore, it is difficult to assess the quality of the proposed legislative framework. However, in our opinion, the ARMA lacks the resources to effectively implement such functions.

If the Agency’s functionality is supplemented with the authority to control the use of property that has been seized but not transferred from the owner, it would be more effective to delegate these powers to the level of interregional territorial offices. However, the draft law does not address the differentiation of functions between the central office of the ARMA and its territorial offices, and in practice, the latter have remained understaffed for extended periods.

3. Shortcomings in the regulation of qualification requirements, competitive procedures, and grounds for dismissal of the ARMA head

The revised draft law shares the same issues as the government’s draft law. One of them is the requirement for a degree in law and experience in the field, which unnecessarily narrows the pool of potential candidates for the ARMA head position.

This requirement is undoubtedly excessive, as it unreasonably narrows the pool of potential candidates for the position. The head of the ARMA should primarily have managerial experience and a solid understanding of effective asset management principles, with a good grasp of the criminal justice system. Legal support can be provided by the Agency’s specialized divisions.

Previous competitions for the position of the ARMA head have demonstrated that relatively few candidates apply. In 2023, only 10 candidates advanced to the final interviews, and very few of them had experience in criminal justice or asset management. To broaden the pool of potential candidates, the requirement for education and experience solely in the field of law should be removed.

In addition, the grounds for dismissing the head of the ARMA do not include violations of anti-oligarchic legislation.

The absence of such grounds for dismissal creates a gap in the mechanisms designed to prevent illegal oligarchic influence on the Agency’s activities. Given the ARMA’s work with assets often owned by individuals linked to oligarchic structures, the absence of clear anti-oligarchic safeguards can result in conflicts of interest and inefficiencies in asset management. Therefore, the list of grounds for dismissing the head of the ARMA should be expanded to include relevant anti-oligarchic provisions.

In our opinion, addressing these shortcomings is essential for the successful reform of the Agency.

4. The unjustified introduction of meetings involving representatives of public associations

The draft law introduces the concept of meetings with representatives of public associations in addition to the existing Civil Oversight Council at the ARMA, which will replace the Public Council. These meetings will delegate representatives to participate in the competitive selection of ARMA employees.

Such inconsistencies in the mechanisms of civil oversight can lead to blurred responsibilities and ineffective supervision of ARMA’s activities. The unjustified creation of an additional body complicates public oversight procedures, exclusively for the competitive selection of agency employees, without providing clear benefits.

Moreover, the regulation of the powers of the Civil Oversight Council does not align with the requirements of the State Anti-Corruption Program, which stipulates that representatives of this body should be involved in monitoring asset management performance.

5. Shortcomings of the transition model

After the adoption of the revised draft law on the ARMA reform proposed by the authors, the following approaches for determining asset managers will be implemented:

• maintaining existing asset management agreements;
• until January 1, 2026, managers will be selected through electronic auctions on Prozorro.Sales, in accordance with the procedure approved by the Cabinet of Ministers of Ukraine;
• after January 1, 2026, arbitration managers will be appointed to manage complex assets, while private bailiffs will handle the management of simple ones.

It seems that this approach unnecessarily complicates the development of bylaws for manager selection competitions and blurs responsibility for inefficient management of seized assets. After all, a new model for selecting managers through Prozorro.Sales will need to be developed and implemented, yet it will only be in effect for less than a year.

Therefore, it is advisable to simplify the transition to the new asset management system by eliminating the intermediate stage involving Prozorro.Sales. Instead, we suggest implementing a pilot project involving arbitration managers and private bailiffs to test the new model and identify potential issues before full implementation.

Conclusions

The revised draft law incorporates the following recommendations, which we identified as critical for the ARMA reform:

–       Competition for the position of the ARMA head. Instead of the current model, in which the commission is formed by various political actors, a balanced approach is proposed, ensuring equal representation of the government and international partners. However, there are still issues with the requirements for the head of the Agency.

–       ARMA external audit issues. It is proposed to create an independent assessment commission to reduce political influence on this process.

–       Coordination between the corporate rights manager and the asset owner (for Russian and Belarusian assets) will be partially eliminated.

–       An asset identification stage will be introduced, during which the Agency will carry out a series of measures to determine the nature, characteristics, and specific features of an asset in order to assess whether it can be effectively managed and its economic value preserved.

However, this draft laws does not address the primary issue of criminal asset seizure (except for sanctioned assets), nor does it improve the maintenance of the Unified Register of Seized Assets.

At the same time, the implementation of the provisions proposed by the draft law will require expenditure from the state budget, at least for the following:

• the ARMA  will have to conduct an asset assessment with the involvement of a professional evaluation entity;
• managers may receive remuneration from the state budget if asset management does not yield profits;
• the ARMA will be given the authority to store assets, which will also entail additional costs for hiring specialized organizations or ensuring asset protection.
• Accordingly, the state budget of Ukraine should allocate sufficient funds for implementing these provisions of the draft law.

The above reservations indicate that, despite several positive changes compared to the alternative and governmental versions, the revised draft law still requires significant improvements to minimize the identified risks.

1. Introduce an incentive mechanism for managers with a lower base salary (1-3 minimum wages) and a higher percentage of profit (20-25%), reducing the burden on the state budget.
2. Develop clear quantitative and qualitative criteria for evaluating management effectiveness across different types of assets and allow for the hiring of a specialized monitoring unit consisting of industry experts.
3. Establish an exhaustive list of necessary expenses with maximum amounts and a mechanism for preliminary approval of excess expenses.
4. Clearly delineate the powers between the central office and the territorial offices of the ARMA, transferring the functions of monitoring the use of seized property to the local level.
5. Expand the qualification requirements for the head of the ARMA to include the option of having an economic education.
6. Include a provision on violations of anti-oligarchic legislation in the list of grounds for dismissing the head of the ARMA.
7. Refuse to create a separate concept for meetings of representatives of public associations in favor of expanding the powers of the Civil Oversight Council.
8. Simplify the transition period to a new asset management model by introducing a pilot project involving arbitration managers and private bailiffs.
9. Improve the maintenance of the Unified Register of Seized Assets.

Transparency International Ukraine recommends refining this draft law in advance of its second reading and ensuring the comprehensive development of the associated legislation.