Prior to 2015, the assets seized in criminal proceedings were either in safe custody of the suspect/accused, or of the investigator/prosecutor himself. However, such storage often ended in disaster for the asset itself. For example, the case of “East/West Alliance Limited v. Ukraine.” The actions of state bodies resulted in the destruction and damage of the seized assets. The ECHR ordered Ukraine to pay more than 5 million euros in damages in this case.
In 2015, the Verkhovna Rada adopted the Law of Ukraine “On the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (hereinafter — ARMA or the National Agency). Thus, the Parliament introduced a new anti-corruption body for Ukraine into the anti-corruption system. At that time, similar institutions had already been successfully functioning in the EU and in the world for quite a long time.
The ARMA in Ukraine was supposed to ensure the preservation of the economic value of seized assets in criminal proceedings. But the inconsistency of the Specialized Law and the Criminal Procedural Code, the lack of stable judicial practice, court decisions that do not recognize the discretionary powers of the ARMA in choosing the way to manage assets, blockage of the work of the National Agency and its inability to ensure effective management of certain types of assets led to extremely negative consequences.
To eliminate the existing problems in the work of the ARMA, on April 14, 2020, members of the Parliament registered a draft law “On amendments to certain legislative acts of Ukraine on improving the effectiveness of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crime.”
The proposals of MPs can be divided into three groups:
- regarding the definition of the role of the ARMA in matters related to the management of seized assets;
- regarding prevention of blockage the work of the Asset Recovery and Management Agency;
- regarding the improvement of the efficiency of asset management to preserve their economic value.
The role of the ARMA in matters related to asset management in criminal proceedings.
According to Article 21, part 3 of the Law of Ukraine “On the ARMA” and paragraph 4 of the Regulation on the ARMA, approved by Directive of the Cabinet of Ministers on July 11, 2018 No. 613 on the National Agency, the management of seized assets must be aimed at maximum efficiency and preservation of the economic value of the assets.
According to current legislation and practice, the Agency receives information about the transfer of assets for management after the relevant court decision has been made. In other words, ARMA is not involved in decisions on whether it makes sense to transfer assets, the amount of seizure, the method of management, etc. This causes a situation when assets unsuitable for management/sale are transferred to the ARMA.
The inability to prepare for the management of specific assets before the actual transfer sometimes causes inefficient and slow management.
MPs propose changes that can solve this problem. In particular, they propose to provide law enforcement officers and judges with explanations about the possibility of coordinating their actions with the ARMA before the court decision is made. It is also proposed to identify the Agency and its authorized persons as participants in criminal and judicial proceedings in order to ensure the participation of the ARMA in the decision on the transfer of assets to management, cancellation of the transfer or seizure of assets.
These changes will facilitate planning before the seizure/transfer of assets and remove unnecessary burden from law enforcement agencies regarding the judicial appeal of the transfer of seized assets.
As an example, we can cite the arrest and transfer for management of not an entire property complex, but only real estate, which led to the potential manager being unable to organize production. For example, this happened in the case of the Bratsk oil pressing plant. This did not allow for the effective preservation of the economic value of the seized asset.
Prevention of blockage the work of the Asset Recovery and Management Agency
ARMA has repeatedly faced attempts to block its asset management work. One of the options used by people with vested interest to block the work of the National Agency is provisional injunction.
With the help of ingrained problems of the judicial system, ill-intentioned stakeholders are getting decisions made about provisional injunction concerning assets transferred to the ARMA. Judges of administrative / economic courts come up with pseudo-legal grounds for rendering effective management of seized assets impossible.
For example, there are several decisions:
- the decision of the judge of Kyiv Economic Court of September 6, 2018, on the case No. 910/11517/18, which prohibits the manager and the ARMA to fulfill the terms of asset management agreements and transfer money generated from the management of seized assets to the budget (Parkovyi center);
- the decision of the judge of Kyiv Administrative Court of March 21, 2018, on the case no. 826/4264/18. This decision prohibited the ARMA from performing any actions to manage the seized assets, which could lead to the depreciation or loss of the seized property (we are talking about assets in the case of the former Minister of Revenues and Duties of Ukraine).
This leads to a situation where the ARMA has to fulfill two valid decisions which contradict each other. In one, it is obliged to accept the seized asset and implement management measures, and in the other (from courts of other jurisdictions) it is prohibited to perform actions in relation to this asset, for example, to enter into contracts to ensure management.
The changes proposed in the draft law allow us to minimize such situations. It is proposed to make changes to the Civil Procedural Code of Ukraine, the Code of Administrative Procedure of Ukraine, the Economic Procedural Code of Ukraine, which will make it impossible to use preliminary injunction to suspend the decisions and acts of the ARMA.
Improvement of the efficiency of asset management to preserve their economic value
The ARMA can manage the asset by selling it, transferring it to management under a contract, or using another method defined by the law (Regulation on the National Agency, clause 4, sub-clause 15, approved by the Directive of the Cabinet of MInisters of Ukraine of July 11, 2018 No. 613).
We can consider the history of two thermal power plants in Lviv region, which were transferred to the National Agency in 2019. The ARMA was supposed to implement effective management to preserve their economic value. How? By transferring it to a temporary manager under a contract. This led to an acute crisis in the region and a possible emergency situation. Eventually, the Cabinet of Ministers had to intervene in the resolution of this case.
If the draft law is passed, such stories can become a thing of the past. After all, it will be possible to transfer such assets to the management of an enterprise or organization from the jurisdiction of a certain ministry or a different executive body.
Sale as a management method is essential to preserve the economic value of the seized property. The mechanism provided for by current legislation for selecting the seller of seized assets does not allow engaging the leaders of public bidding and selling assets quickly and at the highest price.
As an example, we can recall the transfer of beer and low-alcohol beverages to the ARMA in November 2018 based on the decision of the investigative judge. As of April 2020, these assets, which are subject to rapid deterioration, have never been sold. The existing selection mechanism does not enable engagement of a different bidding organizer.
The inefficient model for sale of assets transferred to the ARMA affects the amount that can be sent to the budget of Ukraine in the future and, if a certain court decision is made, violates the rights of the asset owner.
The proposed changes will attract a wide range of public auction market leaders and enable the sale of the seized assets at the highest price.
Overall, the changes proposed in draft law No. 3335 are evaluated positively by the experts of Transparency International Ukraine. If the Parliament does pass this bill, it will eliminate a number of shortcomings and should improve the efficiency of the National Agency.
The column is co-written by Transparency International Ukraine’s legal advisor Oleksii Danyliuk