ARMA and Social Housing: Draft Law 11009 Deficiencies

On April 23, the Anti-Corruption Committee recommended that the Verkhovna Rada of Ukraine adopt draft law 11009 on improving the efficiency of asset management by the ARMA in the first reading.

This is a draft law registered on February 12, 2024, and this document concerns the features of managing social housing that fell under the management of the ARMA. The Agency wants such assets to be managed by state-owned organizations to meet the needs of the state and accommodate internally displaced persons (IDPs), family members of servicemen, rehabilitation of war veterans, and other needs.

We at TI Ukraine have analyzed this document. The problem that is raised is important and urgent, but the means proposed to solve it are inappropriate.

Brief conclusions:

• the legal nature of the seizure of property transferred to the ARMA will not allow achieving the goals declared by the draft law;
• the declared goals can be achieved by other mechanisms available in the legislation;
• the changes do not take into account other legislative initiatives and are introduced in a manner that violates the logic of the internal structure of the ARMA law.

We propose:

• to improve social and household needs using only confiscated assets to avoid the risks of sudden cancellation of the seizure and eviction of people who have just begun to hope for housing;
• to provide for temporary residence of persons without amending the law, but by indicating the relevant requirement to the managers of seized assets in the conditions of a tender;
• the existing mechanisms defined by the Law of Ukraine on Transfer, Forced Alienation or Seizure of Property under the Legal Regime of Martial Law or State of Emergency should be used for the purposes of state defense.

Current management of seized assets

According to the data provided by the ARMA in the explanatory note to the draft law, it manages 311 seized sanatorium-resort facilities, including 38 sanatoriums, 5 hotels, a sports base, a cultural center, and non-residential premises. The Agency believes that these assets can be used to meet vital needs, including those of the military.

Amendments are proposed to be introduced to Article 21 of the ARMA Law. According to the current legislation, seized assets are managed in three main ways:

• money and precious metals are placed on the ARMA’s deposit accounts in state-owned banks;
• movable and immovable property, securities, property rights and other rights are transferred to private managers determined by the ARMA or sold if these items are difficult to store or they deteriorate quickly;
• in exceptional cases, movable and immovable property, securities, property rights and other rights are transferred to state-owned organizations determined by the Cabinet of Ministers (this procedure is regulated in a separate Article 21-1 of the ARMA Law).

This exceptional procedure applies when:

• when there is a risk of disruption and/or interruption of the operation of such assets, which may lead to emergencies or disruptions in heat, power, electricity, water supply, wastewater disposal, or natural gas supply;
• if there is a risk of interruption of the operation of enterprises, institutions, and organizations of the military-industrial complex and/or the aircraft industry that own such assets.

The ARMA then informs the government about the need to apply this procedure, and the Cabinet instructs the ministry or other central executive body to consult on determining a manager. Based on the results of consultations, the relevant ministry or other central executive body, in agreement with the ARMA, submits a draft decision on the transfer of assets to management for the government to consider.

The decision of the Cabinet of Ministers of Ukraine is the basis for the transfer of assets to management. However, this procedure is exceptional and should not be applied in all cases.

ARMA’s proposal

The ARMA proposes to introduce changes according to which the seized assets can be transferred to the management of state-owned organizations to meet the needs of the state and the rehabilitation of servicepeople and war veterans.

Such a decision will be adopted under the same principle as in Article 21-1 of the ARMA Law, but there must be specific needs for it:

• accommodation of internally displaced persons for the implementation of national social programs;
• providing servicepeople and members of their families with living quarters;
• rehabilitation of servicemen, including those discharged from military service due to illness associated with the performance of military duties, war veterans;
• ensuring the readiness of public authorities to implement measures to protect the sovereignty of the state and its defense capability, tasks of civil protection in a special period, in particular during the period of martial law.

What are the risks of the proposed changes?

1. The legal nature of the seizure of property transferred to the ARMA will not allow achieving the goals declared by the draft law.

Seizure is an indefinite means of ensuring criminal proceedings. Given the legal nature of the assets that are transferred to the ARMA for management, the seizure is primarily imposed on material evidence in order to preserve it.

However, the seizure may be lifted by the court of appeal when, in its opinion, the decision of the court of the first instance is illegal or unreasonable. It can also be done by a court of the first instance when it believes that there is no need for this measure, or the seizure, again, was unreasonably imposed.

Therefore, after the adoption of draft law 11009, when people begin to settle in the seized housing, they will not have certainty about the period of residence in the premises because the seizure of this property can be lifted at any time. Thus, the housing will not fulfill its main function as a place of permanent residence for IDPs or servicepeople, ensuring their privacy is protected.

The ARMA Head declares that she is aware of the risks of this approach. She indicates that people should have information in advance that the seizure may be lifted off the property and it might return to its owner. The authorities should think in advance about the mechanism for providing alternative housing. However, according to the current law, such property must be returned to the owner within 10 working days. These terms are too short to come up with alternative accommodation options for people who could be settled there.

It seems that such initiatives are quite populist in nature. Instead of solving housing problems, such changes in the law can only deepen the re-traumatization of persons who have already lost their homes.

In addition, the proposed changes do not comply with international recommendations for the treatment of seized assets.

In December 2023, the StAR initiative (an initiative of the World Bank Group and the United Nations Office on Drugs and Crime) published a Guide for Practitioners on Managing Seized and Confiscated Assets. It recommends the social reuse of confiscated assets. Such use may be the most appropriate method of disposing of low-value property (for example, houses located in areas with a high crime rate) or in case of limited interest on the part of buyers (for example, if this property was previously owned by a known criminal).

Of course, the full-scale invasion causes certain challenges, but the mechanisms for overcoming them should be aimed at overcoming the existing ones and not creating new problems to the detriment of less protected segments of society.

The most appropriate way out of this situation is the use of already confiscated property (that is, the property owned by the state) for the declared purposes or the use of seized housing only as a temporary shelter for persons whose housing has been destroyed. The responsibility for organizing this process should lie with private managers, not public ones. The story of the Odesa Oil Refinery shows us that the state is not the most competent manager of seized assets.

2. The readiness of public authorities to implement measures to protect the sovereignty of the state and its defense capability can be achieved by other mechanisms that already exist in national legislation.

The use of a special mechanism can be justified by the need to provide public authorities with operational capabilities to implement measures to protect the sovereignty of the state and its defense capability, tasks of civil protection in a special period, in particular during the period of martial law. That is, according to the authors of the law, the seized sanatoriums and hotels can, for their part, help the Armed Forces and the state during the war.

Indeed, in conditions of war, there may be a need for the state to use the property of other persons. This is regulated by the Law of Ukraine on the Transfer, Forced Alienation or Seizure of Property under the Legal Regime of Martial Law or State of Emergency. The main thing it provides for is a preliminary or subsequent full reimbursement of the value of the property, as well as a special procedure for making a decision on its forced alienation.

In the practice of the HACC, there are cases when the seized property (money) was transferred to the needs of the Armed Forces of Ukraine without the consent of the owner. The court applied the provisions of the aforementioned law to compensate for the value of the property in case of the acquittal of the accused.

The proposed amendments to the ARMA Law do not establish special compensation mechanisms in cases of loss or destruction of property as a result of its use by state-owned entities. This creates additional grounds for claiming that interference with property rights is unlawful. 

Therefore, one should not establish any new mechanisms but improve the existing ones, in particular those defined by the Law of Ukraine on the Transfer, Forced Alienation or Seizure of Property under the Legal Regime of Martial Law or State of Emergency.

3. The changes do not take into account other similar legislative initiatives and are introduced in a manner that violates the logic of the internal structure of the ARMA Law.

A public discussion of the draft law on the principles of housing policy is currently underway in Ukraine. This draft proposes to provide social housing to people in need of social protection and other categories of persons defined in this and other regulatory documents.

In particular, this draft law proposes to regulate the procedure for paying the cost of housing rent and the legal grounds for accommodating or evicting people from such premises. It also provides specific guarantees to users of social housing. For example, there are guarantees to ensure the right to housing, which includes only voluntary or judicial eviction from housing.

Draft law No.11009 does not solve all these issues. It has been developed and exists abstractly from other government initiatives on the housing rights of Ukrainian citizens. 

In addition, the logical structure of the analyzed draft law contains deficiencies. The Rules for Drafting Laws indicate that the beginning of such a document shall mention provisions of a general nature that establish the principles of legal regulation. Next are the provisions grouped by individual issues related to one or another aspect of legal regulation.

These rules may be applied when amending laws. Article 21 of the ARMA Law, which is proposed to be updated, contains provisions of a general nature relating to the management of movable and immovable property, securities, property rights and other rights. Article 21-1 defines special cases—how to manage assets in exceptional cases. Therefore, it is advisable to regulate the grounds for the social use of seized assets in a special provision—Article 21-1.

Conclusions

We are certain that the problems that draft law No. 110009 is supposed to solve are quite urgent. However, it is this option that can only cause additional tension among those segments of the population that have already suffered as a result of the war, instead of relief.

Considering the above shortcomings, Transparency International Ukraine believes that draft law No.11009 needs to be substantially finalized:

• only confiscated assets should be used to improve social and domestic needs, in order to avoid the risks of suddenly lifting the seizure and evicting people who have just been given hope for housing;
• temporary residence of persons can be ensured without amending the law by indicating the relevant requirement to the managers of seized assets in the tender conditions;
• the existing mechanisms defined by the Law of Ukraine on Transfer, Forced Alienation or Seizure of Property under the Legal Regime of Martial Law or State of Emergency should be used for the purposes of state defense.