Confiscation of (Pro-)Russian Assets for Ukraine’s Benefit

OBJECTIVE

Transparency International Ukraine strives to make asset confiscation mechanisms as effective as possible against those backing armed aggression. For Ukraine, this ensures that the aggressor state is held financially accountable for its war crimes, at the very least.

Confiscated assets should be used effectively in Ukraine’s interests, which is why we advocate for high-quality management and, when necessary, their proper sale. We also strive to minimize the risk of Russian asset owners successfully challenging confiscation in court.

After the full-scale invasion began, Ukraine amended its sanctions legislation to enable the confiscation of assets belonging to individuals who support Russia’s armed aggression. Although the initial version of the law had certain shortcomings, it served as a response to Russia’s unprecedented crimes and established a new precedent in both national and international legal practice.

Since the confiscation mechanisms began operating in spring 2022, UAH 26.8 billion from the recovered property has been transferred to a separate budget program. Also, real estate, transport assets, corporate rights, works of art, and other valuables belonging to sanctioned individuals have been placed under the management of the State Property Fund. 

TI Ukraine closely monitors the entire process of confiscating Russian assets and compiles relevant data. Below is a summary, with the full dataset in a table available for download.

COMPLETE DATABASE OF CONFISCATED ASSETS (in Ukrainian)

SUMMARY TABLES OF CONFISCATED ASSETS (in Ukrainian)

Our team is actively working to establish procedures for confiscation and asset management in Ukraine, ensuring that all assets benefit the state and the citizens who have suffered enormous losses due to Russian aggression.

Through our expertise, we want to help the country get all the assets of Russia as a state and individuals who support its armed aggression against us. We also aim to ensure that these funds are used effectively for restoration and compensation of losses. 

OUR PRIORITIES

1. Strengthening the Sanctions Mechanism for Asset Confiscation in Ukraine

Currently, Ukraine has four legal mechanisms for recovering Russian assets and those of their associates: recovery through sanctions, confiscation via criminal proceedings, forced property recovery, and nationalization of banks through market withdrawal procedures. You can read more about these mechanisms in this article.

TI Ukraine experts monitor all of these mechanisms, with particular focus on the sanctions-based mechanism, as it sets a novel legal precedent. Sanction-based confiscations have proven highly effective—since its introduction, the HACC has issued an average of two decisions per month to recover Kremlin-linked assets. Such court activity, along with the publicity of these proceedings, allows us to continuously monitor the dynamics of judicial practice in sanctions cases.

Problems of confiscation of (pro)Russian property 

Despite its high effectiveness, the sanction-based mechanism carries risks, as with any new approach. Some of these risks are justified by the novelty and the reactivity required by the critical circumstances of a full-scale war. However, there are also clear challenges in the sanctions mechanism that can and should be addressed to align with basic international law standards.

The biggest challenge is ensuring respect for human rights in judicial proceedings. By addressing this, we safeguard Ukraine from potential lawsuits by Putin’s cronies and protect the rights of third parties. After all, many companies targeted for confiscation include legitimate Ukrainian businesses and non-sanctioned entities with no direct ties to Russian interests.

Another critical aspect for improvement is the asset freeze process. Freezing assets before initiating confiscation proceedings is legally required to prevent their alienation. However, this process is often ineffective. Identifying and blocking the assets of sanctioned individuals at the NSDC decision stage is crucial.

Another drawback of the sanctions mechanism is that assets blocked prior to legislative amendments in response to Russia’s full-scale invasion cannot currently be confiscated under sanctions. Therefore, to recover these assets, they must be “re-blocked.” 

Barriers to the sale and management of confiscated assets

TI Ukraine conducted a special study revealing that confiscated assets face numerous obstacles at nearly every stage—from the decision to confiscate to the final sale. These barriers prevent the assets from effectively benefiting the state.

After the introduction of the new sanctions-based mechanism for the confiscation of assets, the parliament could not decide for a long time who should dispose of them and how. This resulted in delays in transferring assets for management. After the Verkhovna Rada adopted Law No. 3137-IX at the end of May 2023, the State Property Fund was designated as the sole manager of assets confiscated through the sanction-based mechanism. The government retains the right to appoint another manager, which is relevant for specific assets such as art or aircraft parts.

The next step is asset analysis. According to the SPFU, 70% of the confiscated enterprises lack documents on their financial condition. This situation arises from the concealment, retrieval, or even destruction of information. Another portion of the assets is located in the temporarily occupied territory or near the front line, restricting access to them.

When it comes to asset sales, the statistics are disappointing: 70% of all assets recovered for the national budget cannot be sold due to legislative restrictions, delays in decision-making, their location in temporarily occupied territories, or their allocation to defense needs. 

For a long time, the sale of assets was hindered by the requirement that assets must belong to residents of states engaged in armed aggression against Ukraine. Despite the unblocking of the sale, potential buyers face security risks and distrust regarding the asset’s background due to the relatively new confiscation mechanism. While security is a complex issue, the Constitutional Court is already reviewing the legality of collecting Russian assets following a complaint from one of the former owners.

Additionally, land sales are blocked due to discrepancies between the Land Code and the Budget Code regarding who receives the proceeds from asset sales. While the Codes stipulate that the money must be transferred to the national budget, the Law on Sanctions designates the Fund for the Elimination of the Consequences of Armed Aggression as the final beneficiary. Addressing these discrepancies would allow the sale of at least 74land plots under the management of the SPFU to proceed.

What we are doing:

1. monitoring court proceedings in sanction cases and analyzing HACC decisions on asset confiscation;
2. overseeing the management and accounting processes of confiscated assets;
3. analyzing legislative initiatives related to the sanctions mechanism and asset management, and offering our proposals, which we advocate for when engaging with lawmakers and other government representatives; 
4. developing draft laws and regulations to enhance the sanctions mechanism;
5. advocating for beneficial changes to ensure the effective management of recovered (pro)Russian property.

2. Acceleration of the confiscation of Russian assets abroad

Voluntary compensation for Ukraine’s losses by the aggressor country is unlikely. Therefore, a more practical solution remains the confiscation of Russia’s state assets, as well as those of its citizens and companies supporting the criminal regime in various countries worldwide. 

The main obstacle is the doctrine of immunity of sovereign foreign assets, which is enshrined in the UN Convention and national legislation in most countries. Also, Ukraine’s international partners fear that the precedent of confiscating Russian sovereign assets could undermine confidence in their financial systems and prompt countries to reconsider storing their reserves in foreign currencies, particularly euros and dollars. However, most of these concerns have already been addressed and refuted by lawyers, economists, and academics, both nationally and internationally. Thus, there is now a consensus that the only obstacle to holding Russia financially accountable as a state is the lack of political will.

However, over the three years of the full-scale war, Ukraine’s international partners have taken certain steps to address this issue.

In October 2024, the G7 leaders agreed to provide Ukraine with a $50 billion loan, to be repaid using the income generated by blocked Russian assets. This scheme bypasses the confiscation of the main $300 billion of frozen Russian assets and does not apply to income accumulated before the relevant decision is made. However, the conditions for such “confiscation” resemble a delay in adopting a specific decision, as even the approximate timeline for its implementation remains unknown.

On April 24, 2024, the US Congress passed the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act (the REPO) which was supported by the US House of Representatives on April 20. 

Support for the REPO law allows for the transfer of up to $5 billion in frozen Russian assets to Ukraine, with the corresponding powers granted to the country’s president. However, less than a third of all frozen Russian assets are stored in the United States, and it is uncertain whether the new President Trump will proceed with confiscation.

Most of the assets are concentrated in the EU, which is highly cautious about the issue of confiscation due to legal and economic risks. However, the bloc has still made a unanimous decision to confiscate the interest from frozen Russian assets held in European depository institutions, which have accumulated unauthorized profits. It is these interest funds that should form the basis for repaying the $50 billion loan to Ukraine from the G7.

TI Ukraine believes that all frozen sovereign assets of the Russian Federation, as well as any income from them, should be directly transferred to Ukraine in the near future under the international doctrine of “countermeasures.” This is how our partners will be able to really respond to Russia’s unprecedented aggression and numerous violations of international law. This requires only a political solution, as all the legal foundations for it have already been established by the UN Charter and other acts of international law. 

As for the private assets of Kremlin supporters, several countries, including the United States, the EU, the UK, Canada, Switzerland, Australia, and Japan, have blocked them by imposing sanctions on the property owners. However, such sanctions are primarily a means of political influence and, therefore, cannot be considered a legal method for confiscating assets.

What we are doing:

1. analyzing the legislative and political processes of Ukraine’s international partners aimed at confiscating Russian assets and providing our suggestions for improving them;
2. advocating for the confiscation of all reserves of Russian sovereign assets through the publication of materials, holding, and participating in discussions and meetings with national and international partners.  

3. Introduction of criminal penalties for circumventing sanctions in Ukraine

The assets of Russian companies or individuals abroad can be confiscated if they violate imposed sanctions. For example, in February 2023, a US court confiscated $5.4 million from Russian oligarch Konstantin Malofeev for circumventing sanctions imposed against him, with the funds planned to be transferred to Ukraine. 

In May 2024, the European Union adopted the Directive on the definition of criminal offenses and penalties for the violation of Union restrictive measures. 

Depending on national legislation, liability for circumventing sanctions does not always involve the confiscation of the violator’s property or, even more so, its transfer to Ukraine. However, there are positive examples, such as in Latvia and Lithuania, where cars with Russian license plates were allowed to be confiscated, as these countries have a ban on the entry of Russians within the framework of their sanctions policy. The confiscated cars are planned to be handed over to Ukraine as a gesture of solidarity.

In Ukraine, violating sanctions has not yet been criminalized. At TI Ukraine, we are convinced that circumventing sanctions should be classified as a crime under the Criminal Code of Ukraine, with confiscation of the violator’s property as one of the potential punishments. 

Such a step is a natural continuation of the sanctions policy of a warring state and corresponds to international practice, in particular the EU and the United States. Furthermore, criminalizing the circumvention of sanctions would not only result in fines or asset confiscation for Kremlin supporters but also punish them with imprisonment. 

What we are doing:

1. advocating for the adoption of draft law No. 12406 on criminalizing sanction violations, aligning with the EU Directive on the definition of criminal offenses and penalties for the violation of Union restrictive measures.