Hidden Threat: Why SPFU Will not Be Able to Sell (Pro-)Russian Assets

The sale of the Mykolaiv Alumina Plant of Oleg Deripaska and the Demurinsky Mining and Processing Plant of Mikhail Shelkov alone could bring at least UAH 7 bln to the Fund for the Elimination of the Consequences of Armed Aggression of russia. According to YouControl, this is what their value was estimated at last year — this is more money than was allocated for eRecovery from this fund (UAH 4.4 bln). It is even more than the cost of 159 first reconstruction projects, for which UAH 6.6 bln has been recently allocated.

These are only two assets of russian oligarchs. As of June 2023, within the framework of the sanctions mechanism, more than 130 real estate objects, corporate rights and shares in more than 40 enterprises were confiscated. Their sale can and should fill the budget of Ukraine.

However, because of one amendment to the draft law, which was supposed to regulate and accelerate the sale of sanctioned assets, they get stuck in the State Property Fund without the possibility of sale. Accordingly, the funds from the sale will not replenish the Elimination Fund, and they will not be used to rebuild and compensate the Ukrainians who suffered from the russian military aggression.

Let’s find out what happened and how it can be remedied.

One amendment — a bunch of problems

It all started with draft law 8250, which had a good goal — to settle who will manage the recovered assets on a permanent basis. Transparency International Ukraine generally did not object to its adoption. The document had a number of shortcomings, but they could have been eliminated at the level of bylaws.

But on the day of voting for it, the specialized committee submitted for consideration and immediately considered a proposal with a new wording of amendments to the Law “On Sanctions.” It specified that the State Property Fund would be able to sell only those assets that belonged to residents of states that carried out armed aggression against Ukraine.

At first glance, everything is logical. But from a legal perspective, this one formulation jeopardized the entire sale of the confiscated assets for several reasons at once.

The first problem is the term “resident.” In Ukrainian sanctions legislation, this term is used exclusively for legal entities operating in accordance with the legislation of Ukraine on its territory, whose founder (participant, shareholder) or beneficiary is russia, directly or indirectly.

Such an amendment cuts off the possibility for the SPFU to sell the confiscated assets of any natural persons, as well as legal entities, for example, companies that are not related to russia in terms of the ownership structure. At the same time, out of 23 cases of asset recovery, sanctions were applied specifically to natural persons in 21 cases.

We are talking not only about russians, but also Ukrainians who contribute to the aggressor. The HACC has already recovered the assets of fugitive President Viktor Yanukovych, Kherson collaborator Saldo, and deputy head of the so-called “Public Chamber of the Donetsk People’s Republic” Kateryna Martyanova, who is also a citizen of Ukraine.

The second problem is that when assets are recovered into the national income, they cease to belong to the previous owners. Therefore, the clarification adopted by MPs — that the confiscated assets must necessarily belong to residents — generally makes it impossible to sell them. After all, the State Property Fund will not be able to fulfill such requirements of the law.

Who benefits from it?

Of course, I would like to hope that this is an unintentional mistake. However, we cannot exclude the interest of individual Ukrainian citizens and companies to avoid the risk of possible sanctions against them and the recovery of their assets in the future.

First of all, everyone who has fallen or may fall under sanctions will benefit from such legislative activities because, eventually, it will not be possible to sale everything that will be confiscated from russian oligarchs or companies and Ukrainian traitors.

How to fix this?

The President has already signed the mentioned law, so it will not be possible to implement the scenario with the veto and return it to the Verkhovna Rada for reconsideration.

Fortunately, the new changes will take effect only in three months. So, there is time to rectify the situation. This can be done in several ways. The most appropriate one is to adopt new amendments to the Law “On Sanctions.”

At the same time, it is important to adopt them within the next three months — in order to avoid the described risks. The new amendments should enter into force only after the amendment enters into force in September.

The assets of the aggressor and its accomplices should be channelled to the reconstruction of the country. We should neutralize all the threats that creep into the newly created and quite positive laws at the beginning.

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