Suitcase without Handle: Why ARMA Liquidation Won’t Solve Seized Property Problems, but Will Create New Ones

In the past six months, almost every day, we read the news that the SSU, the NABU, or other law enforcement agencies have exposed collaborators or corrupt officials, whose property was seized and transferred to the state management. The descriptions of such assets are sometimes striking — they can be thousands of tons of iron ore that russian oligarchs could not take out of the Odesa port, agricultural land sown with sunflower and corn, or shares of large companies. 

 All these remarkable assets under the current legislation are transferred to the management of the Asset Recovery and Management Agency (ARMA) — until the court decides the fate of criminal proceedings or specifically seized property. But recently, there has been an intention of changing the order of things.

 The first sign was the statement of the leader of the Servant of the People faction, Davyd Arakhamia, when he proposed to close the ARMA and transfer its powers to the SPFU. Back then, this proposal caught the public by surprise — did the leader of the mono-majority make a mistake? But the further, the more reports appeared that such wishes come from the Presidential Office, stating that the ARMA should be liquidated due to the lack of efficiency of its work. 

But why, if the work of the ARMA is not satisfactory, liquidate it? After all, it is obvious that such “simple solutions” will not lead to any positive result. The destruction of the body will not exactly solve all the troubles, improvement and changes in such circumstances are unlikely to take place, and currently, even before the publication of proposals for updating the processes of managing seized property, much bigger problems are looming on the horizon.

What’s wrong with the ARMA?

Over the years, the Asset Recovery and Management Agency has turned into a suitcase without a handle — an institution that is extremely important, certainly necessary, but with some constant failures in its work. However, despite the increase in “diseases” of the body caused by shortcomings in legislation or questionable steps of the Agency’s management, the restart of the ARMA was too often postponed, while problems have accumulated.

But still, over the past few years, representatives of the Agency, parliamentarians, and the public have repeatedly discussed what changes in the work of the ARMA should be implemented, and looked for ways to solve all the problems collected by the institution. Some proposals for improvement were already considered in the updated legislation, others were almost past the discussion stage in the specialized committee of the Rada, and we were already waiting for these amendments to be considered in the session hall.

That is, the legislative branch of power, despite certain stalling processes, went the most logical way — to identify weaknesses in the work of the ARMA and eliminate their causes. Only after such a comprehensive work, after the introduction of changes that have been talked about for years, would it be possible to properly assess the effectiveness of the institution.

But a month ago, all these attempts came to a standstill — because the Presidential Office, it seems, decided otherwise. They decided to throw this suitcase away without even looking inside. 

Now, the reform that required years of development by experts has turned in an unpredictable direction — towards the liquidation of the ARMA as a body or the deprivation of its property management function. 

The most likely scenario is the transfer of this function to the State Property Fund. It supposedly works with large assets, and the current head of the SPFU is now a person highly spoken of in the Presidential Office. Rustem Umerov, indeed, after his appointment, proved his effectiveness, in particular, by continuing the course of privatization, for which he received well-deserved approval from the representatives of the parliament and the public. But the transfer of powers of seized property management to the SPFU causes new problems.

Why transferring the functions of the ARMA to the State Property Fund is not an option? Let’s try to understand some of the problems of this approach.

1. “Rollback” of the actual implementation of the European Union regulations.

The ARMA was not created just like that. As the basis of the institution, Ukraine took an example from the offices of recovery and asset management, which exist around the world. This, for its part, was very much approved by our European partners, and for a reason.

 The confiscation of funds and proceeds of crime in the European Union has attracted special attention, which was especially intensified after russia’s full-scale invasion of Ukraine last year. Directive 2014/42/EU even requires the establishment of a centralized office, a group of such offices, or an equivalent mechanism to help ensure the proper management of frozen property with a view to its eventual confiscation. 

Ukraine has already had such an institution since 2016. And this, for its part, demonstrates the high level of readiness of our country to fulfill its obligations in the field of managing the seized property. That is why the liquidation of the ARMA can mean the inability to ensure the effective search for assets of criminal origin and the management of seized assets in accordance with European standards.

2. Independence and professionalism of the leadership that will organize the management of the seized property.

 Despite the imperfection of the legislation on the work of the ARMA, there are really valuable advantages. The specialized Law contains several provisions designed to ensure the independence and professionalism of the head of the Agency: requirements for their competence, an exhaustive list of grounds for dismissal, term of office, prohibition to hold office for more than one five-year term.

These provisions exist to prevent pressure on the head of the ARMA by the authorities. However, there are no such requirements in the specialized law on the SPFU.

That is, if the functions of the Agency are transferred to the Fund, the authorities will have a greater influence on the management of the seized assets. And this will not only apply to the current composition of the government or the current president — such opportunities will remain after the change of the current government.

It is the head of the ARMA who bears personal responsibility for the transparency of the Agency’s activities and the results of its work. And this point now sounds extremely ironic because for more than 3 years, the Agency has remained without a full-fledged head, and the government, despite all the statements and promises, did not manage to hold a competition and select a competent head of the ARMA. Therefore, it turns out that no one in fact is responsible for the “inefficiency” of the institution. 

The European Commission also emphasizes the need to ensure the independence of the ARMA: “An Asset Recovery and Management Agency (ARMA) is in place, however, the Agency does not have a permanent Head since the end of 2019. Legislation related to the management of seized assets should be improved and a relevant national strategy on asset recovery adopted.”

3. Operating capacities of the State Property Fund

In December 2022, the Accounting Chamber conducted an audit of the effectiveness of property management by the SPFU. The conclusions of this analysis stated that the system of management and control over the use and disposal of state property was ineffective, which ultimately led to some shortcomings. In addition, there are risks of loss of state property for a total amount of more than UAH 56 bln. The State Property Fund effectively recognized the shortcomings in its work and, based on the results of the audit, reported on the further dismissal of dishonest employees and personnel decisions on state-owned enterprises.

Therefore, should the existing powers of the Fund include obligations to manage the seized property, monitor the effectiveness of its management, and interact with the criminal justice authorities, the staff of the SPFU — people without special skills in the field of management of seized property — may simply not be able to withstand the burden. Thus, to transfer such functions to a body that is not yet able to cope with the existing responsibilities is not a very good idea. 

Among other problems that may arise during the transfer of powers for property management from the ARMA to the SPFU, we can mention the following.

–       It is necessary to determine the outcome of the property already transferred to the ARMA.

–       It is necessary to develop an appropriate regulatory framework that will determine the procedure for the implementation of the powers of the Fund.

–       And the Fund will also have to establish communication with the authorities of the criminal justice system because at the moment, the SPFU does not deal with such things.

And this is all in addition to the already usual challenges the ARMA faced, which we described earlier. With all the above points, we should not forget that the creation of the ARMA was also one of the conditions for Ukraine to obtain the visa-free regime. 

Undoubtedly, the authorities should think twice before putting an end to the work of the body, whose creation and functioning required so much effort and money — both on the part of our country and at the international level. And, perhaps, this “inconvenient” suitcase is much more necessary than those who want to get rid of it believe. One just needs to reattach the handle.