Fair Use of Assets Seized from Russia and Its Residents: Analysis of Draft Law No. 13268

On May 8, 2025, the President of Ukraine registered Draft Law No. 13268, declared it urgent, and submitted it to update the functions of ARMA concerning seized sanctioned property. 

The explanatory note states that the draft law is intended to improve ARMA’s management of seized movable and immovable property, as well as corporate rights of Russian individuals and entities, in the interests of Ukraine.

Brief conclusions:

• The draft law allows ARMA to retain seized funds even if the asset freeze imposed on property belonging to the Russian Federation and related persons is lifted, and also expands the grounds for the sale of seized real estate;
• Although the law has a strategic goal to protect Ukraine’s national interests in wartime, its provisions need to be balanced to protect against potential abuse.

What we recommend: 

• Implement ARMA reform before expanding its powers: Additional functions should only be granted after ensuring a transparent and competitive selection of the Agency’s leadership, strengthening accountability and regulation of key processes, and introducing mechanisms for the independent evaluation of its performance.
• Balance risks in applying new mechanisms: The grounds for applying special mechanisms must be clearly defined and aligned with the principle of proportionality.
• Limit the law’s application to the period of martial law: The final provisions should establish a clear timeframe for the operation of special powers—limited exclusively to the period of martial law and one month after its termination, following the model of current ARMA provisions on the purchase of war bonds.
• Strengthen procedural safeguards: Clear criteria should be established for asset identification, deadlines for property sales, and mechanisms to prevent sales at unreasonably low prices to mitigate the risk of abuse.

What is it like now?

Currently, under the provisions of the ARMA law, movable property may be sold by decision of an investigating judge or court without the owner’s consent if it is perishable, subject to rapid depreciation, or if the cost of storage exceeds 50% of its value over the course of a year. In contrast, immovable property cannot be sold without the owner’s consent until a final court decision on confiscation or transfer to state ownership is issued. Overall, the law does not differentiate the management approach to seized assets based on the citizenship or residency of the asset owner.

An asset manager holding a share in the authorized (pooled) capital, or shares or units, must coordinate their actions with the asset owner when exercising ownership powers in the highest governing bodies of the relevant legal entity.

Current Cabinet Resolution No. 187 of March 3, 2022, establishes a moratorium on the fulfillment of obligations to the Russian Federation and related persons, and prohibits the alienation of property by such persons. The measure applies to Russian citizens (excluding those who legally reside in Ukraine), Russian companies, and organizations in which Russian individuals hold at least a 10% ownership share. 

The document contains some exceptions under certain conditions for Ukrainian banks, communications companies, and international business groups. Any transactions concluded in violation of the above-mentioned moratorium are considered null and void. This resolution of the Cabinet of Ministers will remain in force until the adoption of a special law, but no longer than one month after the lifting of martial law in Ukraine.

What is proposed in a new draft law?

The draft law effectively incorporates into the ARMA law the provisions of Cabinet Resolution No. 187, which prohibit the fulfillment of obligations to the Russian Federation and related persons. However, it proposes to implement these provisions with certain specificities, particularly by expanding the grounds for the interim sale of seized real estate.

1. A moratorium on the return of assets in the event of seizure cancellation will be introduced

If the seizure of Russian property is lifted, funds held in ARMA’s deposit accounts will not be returned to the following individuals and entities:

• Russian citizens (excluding those who legally reside in Ukraine);
• legal entities registered in the Russian Federation;
• Ukrainian companies in which 10% or more of the authorized capital is owned by Russia, Russian citizens (excluding those who legally reside in Ukraine), or Russian companies.

This prohibition is intended to protect Ukraine’s interests in potential future legal proceedings against the Russian Federation for its armed aggression.

2. The grounds for the sale of movable property will be expanded, and the sale of real estate will be permitted prior to a final court decision

Following the adoption of the new law, movable property may be sold by court decision without the owner’s consent, if it belongs to:

• Russian citizens (excluding those who legally reside in Ukraine);
• Russian legal entities;
• Ukrainian companies where 10% or more of the capital belongs to Russia, Russian citizens (except for those who legally reside in Ukraine), or Russian companies.

Real estate of the same owners can be sold before the final court decision on confiscation or recovery for the national budget is made.

3. The obligation of the corporate rights manager to coordinate their actions with individual owners of seized assets will be abolished

The proposed rules provide that the manager of assets (shares, interests, or units) will not be required to coordinate their actions with the owner if the assets belong to:

• Russia;
• citizens of the Russian Federation (excluding those who legally reside in Ukraine), or persons who reside or conduct their principal business in the Russian Federation;
• legal entities that are registered in Russia, operate primarily within its territory, or are established in Ukraine or another country but have Russia as a direct or indirect founder, beneficiary, or participant.

What risks arise if the law is adopted in its current form?

Although the law has a strategic goal to protect Ukraine’s national interests in wartime, its provisions need to be balanced to protect against potential abuse.

1. Without improving ARMA’s operational mechanisms, there is a risk of serious abuse

It should be noted that abuses in the sale of real estate prompted amendments to the ARMA law prohibiting such actions, as law enforcement agencies found in several criminal proceedings that assets had been sold at undervalued prices. 

Despite improvements to the property sale mechanism, opportunities for abuse remain, particularly in the transfer of assets for sale that ARMA has not fully identified. In other words, under the proposed changes, the Agency may be able to sell assets in configurations that do not ensure the highest possible price at open auctions.

In addition, the ARMA Law does not establish timeframes for the sale of property or for other actions related to asset management. This creates room for abuse, as assets subject to unlawful arrangements with ARMA officials may not be sold but instead “held” until more favorable conditions arise for their owners. 

In addition, overall confidence in the Agency remains low due to issues with the competitive selection process for the ARMA head, as well as the absence of mechanisms for independent and impartial evaluation of the Agency’s performance. In this context, expanding ARMA’s powers should be considered only after comprehensive institutional reform.  

2. The proposed changes will duplicate the sanctions process with significantly lower procedural standards 

The most effective tool for cleansing the Ukrainian economy of Russian companies remains the sanctions mechanism introduced in May 2022. However, its application has revealed certain shortcomings, which we have analyzed in detail in a separate study. 

Currently, the law on sanctions provides that the recovery of assets for the national budget, including those belonging to Russian citizens or companies, is carried out on the basis of a decision by the High Anti-Corruption Court upon a claim filed by the Ministry of Justice. In such cases, the court thoroughly examines the proportionality of applying the sanction, including establishing a connection to the grounds for sanctions based on evidence presented in administrative proceedings.

The draft law proposes a mechanism similar to that used in sanctions, which leads to the same consequences—the effective inability of the owner to use the seized assets and the non-return of such property if the seizure is lifted. However, under the draft, this decision would be made solely by an investigating judge or court (during the judicial review stage) based on a motion from an investigator or prosecutor to transfer the assets to ARMA for sale. 

In other words, under the new mechanism—which is essentially equivalent to the existing sanction-based confiscation of property—the level of judicial scrutiny applied to the transfer of assets to ARMA will be significantly lower than in sanctioned cases heard by the HACC or in decisions imposing penalties following a full judicial review of a criminal case. This reduction in scrutiny stems from the lower standard of proof applicable to asset seizure and transfer to ARMA, which typically occurs at the pre-trial investigation stage and constitutes an interim measure. In such cases, the court assesses “a set of grounds or reasonable suspicion,” whereas in sanctions proceedings, the applicable standard is the “balance of probabilities” within an adversarial process. The latter represents a more balanced and thorough evidentiary threshold for judicial decision-making. 

In addition, the draft law proposes to introduce an additional ground for applying the new mechanisms—ownership of 10% or more of a company’s authorized capital by Russians.

For nearly two years, the case concerning the recovery of assets related to the VS Energy group of energy companies has remained under consideration. The group’s beneficial owners are reportedly sanctioned Russian oligarchs Evgeniy Giner, Mikhail Voevodin, and Alexander Babakov. The case involves an attempt to confiscate corporate rights in 8 regional power companies, 6 hotels, 2 metallurgical plants (Dniprospetsstal and the DSS Cutlery Factory), a shopping mall, and 31 other companies. It illustrates that the recovery of large-scale assets located in Ukraine—and affecting the rights of numerous individuals and entities—requires a lengthy and thorough judicial process.

Another example is the June 2023 decision of the HACC Appeals Chamber, which dismissed the Ministry of Justice’s request to confiscate Khustskyi Quarry PrJSC and Zhezhelevskyi Quarry PrJSC. The court found that there was insufficient evidence establishing a connection between these companies and sanctioned Russian oligarch Oleg Deripaska. The HACC concluded that there was insufficient evidence to prove that the sanctioned individual had the ability to dispose of the corporate rights.

Such cases demonstrate that the links between Ukrainian businesses and Russian citizens are not always apparent, requiring a balanced approach to investigating such connections. This mechanism functions most effectively within the framework of sanctions proceedings and, therefore, cannot be replaced by criminal procedure mechanisms.

In addition, allowing the sale of real estate owned by Ukrainian companies in which 10% or more of the capital is held by the Russian Federation, its citizens (excluding those who legally reside in Ukraine), or Russian legal entities is a disproportionate measure toward Ukrainian businesses. It violates the “proportionality test” established in the case law of the European Court of Human Rights. This principle requires that any interference with rights and freedoms must not be excessive, must be clearly linked to a legitimate aim, and must strike a fair balance between the rights of individual and interests of the public. Accordingly, the grounds for applying the new mechanisms should be defined in a balanced and proportionate manner.

3. The special powers to sell assets belonging to certain categories of entities are not limited to the period of martial law 

Section V of the current ARMA law establishes the Agency’s temporary powers, which are valid exclusively during martial law and for one month following its termination. In particular, ARMA was granted the authority to open accounts with state depository institutions and to invest up to 80% of funds held in deposit accounts in war bonds. The law also clearly outlines the procedure for returning funds to owners after the seizure is lifted, including a mechanism for distributing income from war bonds between the owner and the state.

The above-mentioned Cabinet of Ministers Resolution No. 187, which established a moratorium on operations involving Russian assets, also includes specific time limitations: “until the entry into force of the Law of Ukraine on the regulation of relations involving persons associated with the aggressor state, but not more than one month from the date of termination or lifting of martial law.” This provision is key to ensuring the temporary nature of emergency measures applied to Russian assets.

The analyzed draft law proposes amendments to the ARMA law without specifying any time limitations, thereby implying that the powers granted would be permanent. According to the principles of legislative drafting, if certain powers are intended to be temporary (e.g., limited to the period of martial law), such limitations must be explicitly stated in the final or transitional provisions of the law, rather than in its main body. This approach is precisely reflected in the current version of the ARMA law with respect to transactions involving war bonds.

The absence of final provisions establishing time limits in the draft law suggests an intention to make the proposed mechanisms for managing Russian assets permanent. This raises the risk that ARMA’s emergency powers could remain in effect after the end of martial law, even when the legal grounds for applying a special regime to the assets of foreign nationals may no longer exist.

The permanent nature of such powers may violate the principle of proportionality and set a precedent for unjustified interference with property rights in peacetime. This would be inconsistent with European standards for the protection of property and could negatively impact Ukraine’s international reputation as a state governed by the rule of law.

Conclusion

TI Ukraine recommends that Draft Law No. 13268 be revised and finalized. In particular, we believe the following changes are necessary. 

1. Implement ARMA reform before expanding its powers: Additional functions should only be granted after ensuring a transparent and competitive selection of the Agency’s leadership, strengthening accountability and regulation of key processes, and introducing mechanisms for the independent evaluation of its performance.
2. Balance risks in applying new mechanisms: The grounds for applying special mechanisms must be clearly defined and aligned with the principle of proportionality.
3. Limit the law’s application to the period of martial law: The final provisions should establish a clear timeframe for the operation of special powers, limited exclusively to the period of martial law and one month after its termination, following the model of current ARMA law provisions.
4. Strengthen procedural safeguards: Clear criteria should be established for asset identification, deadlines for property sales, and mechanisms to prevent sales at unreasonably low prices to mitigate the risk of abuse.

TI Ukraine supports the effective use of assets belonging to Russian individuals and entities for Ukraine’s recovery and compensation for damages caused by armed aggression. At the same time, our recommendations are intended to protect Ukrainian businesses from potential abuses and mistakes that may result from flawed procedures and insufficient oversight of ARMA’s operations. 

A well-considered legislative approach will ensure the implementation of its strategic goal – the effective confiscation of assets linked to the aggressor, while ensuring the protection of the legitimate rights and interests of Ukrainian businesses and investors not associated with Russian aggression.