The system of electronic trade in seized property. Two sections of problems that need to be solved.
Since the beginning of 2019, Asset Recovery and Management Agency has obtained almost UAH 145 million from sales of various types of seized property. If we compare this amount to the 2018 figure, in just half a year, it increased times 47.
How Do These Sales work
In Ukraine, there are several state-owned enterprises that serve as platforms for sales of property. One of them is the system for electronic trade of seized property (SETAM). In February, the Ministry of Justice transferred this state-owned enterprise under the management of the Asset Recovery and Management Agency (ARMA).
ARMA has pointed out numerous times that, to sell seized property, it needs a platform which would enable storage, transportation and sales of assets. SETAM is the only enterprise that complies with these requirements. On the one hand, this decision makes sense, on the other hand, there are numerous questions. Some of this system’s characteristics are not consistent with the recommendations that Transparency International Ukraine provided back in the day.
Here is some explanation for those who are not quite familiar with the activity of SETAM:
The system will provide comprehensive services to the Asset Recovery and Management Agency. In theory, it is supposed to provide identification, inventory check, packaging, transportation and storage of assets from the moment when they are transferred to the ARMA by a court decision. At the same time, the Government is primarily interested in selling the lot in the least time and for the highest possible price. To make this happen, we need to improve upon the sales mechanisms and offer innovative solutions to existing problems.
We spoke with experts and business representatives and identified two kinds of problems in the activity of SE “SETAM” that need to be resolved ASAP.
The Government is primarily interested in selling the lot in the least time and for the highest possible price. To make this happen, we need to improve upon the sales mechanisms and offer innovative solutions to existing problems.
1. Conflict of Interest
The main problem of SE “SETAM” is that the same legal entity combines the functions of the bidding organizer (electronic platform or seller) and the electronic system administrator. This is a direct conflict of interest, when the administrator of the CDB (controller) competes with platforms (brokers).
SE “SETAM” is the controller. SE “SETAM” is an electronic platform. What do we do if the controller is interested in selling not at the highest price, but selling at all, as soon as possible? Or what if they are interested in selling as long as needed to sell the asset to a specific participant?
This combination is in direct contradiction with the fair authority balance in electronic auctions. The absence of proper control leads to possible violations when it comes to compliance with sales procedures.
Business representatives consider it a problem that you effectively cannot dispute the actions of the bidding organizer with its controlling authority, since both are the same entity – SETAM.
There is actually no system of sanctions that the supervisor can impose on the bidding organizer (electronic platform or seller), such as disconnection in case of grave violations. Why would SETAM disconnect itself, essentially?
2. Opaque functioning and absence of publicly available information
SE “SETAM” has an opaque process of verification of potential buyers. The state-owned enterprise usually verifies the participants by itself. And on their website, it is unclear who rejected a participant from the auction, why and when it happened.
For instance, the system states that there was a participant of the bidding but his proposal was rejected at some point. You cannot find the details of the verification and qualification process anywhere – there is no system for recording the disqualification process in SETAM, which makes the whole thing the least transparent possible.
Besides, the system contains no information on the participants and the documentation filed by them both before and after auctions. This means that the participants may have some connections with the procuring entity, and SETAM will be the only entity disposing of this information. And there is no guarantee it will take action.
SE “SETAM” does not publish eventual agreements either. So it is impossible to tell if the lot has been sold at all, and if yes, on what terms.
Just to add another thing, there is also the risk of bad descriptions on the SETAM website. It is not a stretch that “good” lots with potential insider buyers would be given a boring description to only catch the eye of somebody with insider information. There is no website functionality that would make it possible to ask the organizer additional questions, which could engage more buyers.
Too much power, no supervision, bad description of lots and no option to ask additional questions, absence of proper client support – all of this enables numerous violations. For instance, there’s the criminal proceeding on “acceptance of an offer, promise or receipt of undue benefit by an official” where the head of Kropyvnytskyi branch of SETAM is implicated.
Today, public institutions are obliged to comply with standards of transparency, accountability and openness. State-owned enterprises, likewise, should implement these standards as much as possible. Now it’s up to ARMA to oblige SE “SETAM” to change the way it works so all the above problems would be resolved. The public, for its part, will continue supervision of this process.
Specially for NV Business
Article prepared together with TI Ukraine’s legal advisor Oleksii Danyliuk.
The main problem of SE "SETAM" is that the same legal entity combines the functions of the bidding organizer (electronic platform or seller) and the electronic system administrator. This is a direct conflict of interest, when the administrator of the CDB (controller) competes with platforms (brokers).
For reference
Transparency International Ukraine (TI Ukraine) is an accredited chapter of the global movement Transparency International, taking a comprehensive approach to the development and implementation of reforms to reduce corruption.
TI Ukraine has administered and provided the government such electronic systems as ProZorro, ProZorro.Sale, eHealth, and E-Data. Our other ongoing projects include the Transparent Cities Ranking and development of the DOZORRO community for control over public procurement.
Media contact: Olesia Koval, [email protected]
This publication has been prepared with the financial support of the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.
Transparency International Ukraine works with the National Agency within the project Enhancing the Role of Civil Society in Public Finance Oversight, financed by the European Union. The project aims at empowering civil society and journalists with effective anti-corruption, asset recovery and anti-money laundering tools to perform the public finance oversight, support the launch of Asset Recovery and Management Agency (ARMA) and to update the list of Politically Exposed Persons. Find out more at https://goo.gl/Jgr9ic
