How Criminal Seizure “Hinders” Sanctioned Confiscation and Who Benefits from It

The legislation on sanctions was updated in May 2022 and amended a year later, yet some continue to manipulate its implementation. Unfortunately, this sometimes complicates the process, causing unreasonable delays in the enforcement of confiscation.

A recent vivid example is ARMA’s outrage over the HACC’s decision to ban the sale of Viktor Medvedchuk’s seized and confiscated property. “Will the state benefit from the confiscation of Viktor Medvedchuk’s yacht, Royal Romance?” — ARMA’s information space was flooded with such loud questions following the ban. Given the same legislation, this resembled one of the acts in the “battle for powers,” rooted in an ill-conceived state policy linking sanctioned confiscation to criminal seizures.

At TI Ukraine, we consistently monitor the development and implementation of sanctions policy while also keeping track of ARMA’s work over the years. This allows us to share insights into what is truly happening.

A brief history of the issue

Following the full-scale invasion in 2022, the state introduced a mechanism to purge the economy of Russian assets. In administrative proceedings, the High Anti-Corruption Court was authorized to consider claims from the Ministry of Justice to transfer the property of individuals posing a threat to national security to the national budget.

At that time, the procedure for implementing sanctions decisions was highly uncertain. The law stated that the court’s decision on sanctions is sent to the Cabinet of Ministers, which may delegate the management of recovered assets to the relevant state bodies — ARMA, the State Property Fund, military administrations, or other state authorities.

This procedure quickly proved ineffective. The Cabinet of Ministers was slow to implement the HACC’s asset recovery decisions and struggled for a long time to determine which body would be responsible for their implementation. While the involvement of the SPFU is straightforward, as it manages the processes of state property administration, sale, valuation, and the activities of appraisers, ARMA’s role in such processes became increasingly difficult to justify. 

The Agency played a highly situational role in the sanctions processes — searching for Russian assets and managing property seized in criminal cases. In May 2022, ARMA was also granted the authority to purchase war bonds using seized funds held in its accounts.

With the introduction of the sanction mechanism, the state adopted the practice of seizing assets belonging to sanctioned individuals through criminal proceedings and transferring them to ARMA for management. Notable examples include the assets of Mykhailo Shelkov (Demurinsky Mining and Processing Plant LLC), Viktor Yanukovych (Tantalit LLC), Viktor Kononov (Vinnytsiapobutkhim), and Andrii Molchanov (Aeroc LLC). This was likely due to the lack of effective measures to enforce potential sanctions at the time.

ARMA has not shown much success in managing the bulk of seized Russian assets. In 2022, the lack of well-developed mechanisms for the transparent selection of managers, coupled with widespread distrust in the Agency’s leadership, raised the question of whether to liquidate the body. It is not surprising that in the political contest over who would manage sanctioned assets, the State Property Fund “won” and was entrusted with the task, following amendments to the sanctions legislation.

It is important to note that the issue of confiscating Russian property is highly communicative and grants the responsible state agency significant influence. As a result, ARMA, under new leadership, sought to reclaim its lost positions.

Are there any contradictions between criminal cases and sanctions cases?

From the very beginning, TI Ukraine was skeptical about using criminal seizures to secure sanctioned cases, as criminal proceedings should not be used solely as an auxiliary mechanism for the sanctioned confiscation of property. Events should be investigated, and at the same time, the confiscation of property in the context of sanctions cases should not replace full criminal liability — the perpetrators must face complete punishment, not just financial consequences.

This approach is also shared by the HACC Appeals Chamber, as evidenced by its decision to dismiss ARMA’s appeal against the HACC ruling to secure the claim for the recovery of assets belonging to Viktor Medvedchuk and Oksana Marchenko. The judges emphasized that the sanctions mechanism is not identical to, nor can it be replaced by, measures to secure criminal proceedings as defined by the Criminal Procedure Code of Ukraine, particularly property seizure. The application of a sanction does not relieve the state of its obligation to conduct criminal prosecution and hold those responsible accountable, even after the sanction has been applied.

It should be noted that the purpose of transferring seized property to ARMA is to preserve it until the court determines the outcome of the criminal proceedings. Following the court’s verdict, the property may either be confiscated to the national budget or returned to the owner. Thus, the Agency’s responsibility for seized assets must persist as long as the asset is owned by a private individual or legal entity. Property collected for the national budget under sanctions legislation clearly does not fall into the category of private property.

Additionally, the legislation includes an approach emphasizing the “priority of criminal seizure,” designed to prevent asset owners from blocking the management of seized assets through courts in other jurisdictions. However, the sanctions law clarified this approach, stating that the seizure of assets, bans on them, or their pledge does not prevent the HACC from confiscating them for the national budget, and the SPFU will continue to carry out registration actions on these assets. This indicates that the HACC’s decision to recover the asset takes precedence over the property seizure.

However, for ARMA, adopting such an approach would signify a final loss in the “battle for Russian assets,” meaning the loss of a popular and attractive issue that should garner public support — support the Agency desperately lacks. Therefore, the leadership of this body leverages the opportunities available to it: it insists on protecting the rights of employees of seized businesses and emphasizes the importance of criminal proceedings, which, as we see, contradicts the current legislative norms.

The Agency has an example with the Vinnytsiapobutkhim plant, which has been managed by Crytex-Service LLC since April 2023. Based on this case, ARMA is running an active communication campaign, claiming that the state will not be able to receive funds from the sale of sanctioned assets until the Parliament approves the amendments proposed by the Agency to draft law No. 10069. This draft law proposes defining ARMA’s role in managing sanctioned assets and involving the Agency in the procedures for the forced seizure and sale of property rights owned by the Russian Federation and its residents — essentially, to some extent, restoring the powers that were taken away from the Agency in May 2023.

In late December, the assets of Viktor Medvedchuk and Oksana Marchenko were added to this portfolio, and ARMA has been rapidly selling them since the beginning of 2024. The HACC banned the sale, as the Ministry of Justice expressed concerns that it would not be possible to comply with the court’s decision on the sanction once ARMA sells all the assets and deposits the funds in its accounts, while awaiting the final decision on the criminal case — or until the seizure of the property is canceled, which is also a possibility.

Thus, the connection between criminal and sanctions cases pertains to property that the state seeks to confiscate. The law on sanctions clearly defines priorities, meaning ARMA should not interfere with the recovery of assets to the national budget, as criminal seizure is secondary to sanctioned confiscation. Since sanctioned confiscation has not yet been fully implemented abroad, it remains to be seen whether other states will comply with the HACC’s decisions regarding sanctions on assets located overseas.

Therefore, the contradictions between these processes are, to some extent, artificial, which further weakens ARMA’s arguments that it should implement the decision on sanctions. Let’s examine these points made by the Agency using the example of the Vinnytsiapobutkhim plant: it has not been sold for over five months due to the shifting stance of the pre-trial investigation body, as well as the overly rigid position of ARMA.

What is happening with Vinnytsiapobuthim?

As we have already mentioned, this plant, managed by Crytex-Service LLC, serves as the basis for ARMA’s active communication about the challenges that may arise with sanctioned assets.

The assets of Vinnytsiapobutkhim were seized and transferred to ARMA in July 2022. Investigators claim that the plant’s leadership, in collaboration with the owner of NKS Group, conspired to illegally export products from a warehouse in Vinnytsia to the Russian-occupied territories of Ukraine.

In July 2024, the HACC upheld the Ministry of Justice’s claim for the recovery of the corporate rights to Vinnytsiapobutkhim, directing their transfer to the national budget. The decision came into effect on August 1 of this year. Instead of transferring the asset to the SPFU within the required 5 business days, ARMA only started this process in mid-September.

Meanwhile, according to the court register, there has been little progress in the criminal proceedings where the Vinnytsiapobutkhim assets were seized: no one has been notified of suspicion, and investigative actions are not being carried out, partly due to ARMA’s failure to provide investigators with the necessary documents. This only reinforces our thesis that, in criminal proceedings, we should not expect an early confiscation of sanctioned assets.

In response to reproaches about the State Property Fund’s inability to take over the management of the plant in December 2024, ARMA stated: “After holding working meetings and making official appeals to the SPFU and the pre-trial investigation body, it was established that the Fund cannot sell the sanctioned asset, as its seizure cannot be lifted due to its recognition as material evidence in criminal proceedings.” However, all assets of sanctioned persons transferred to ARMA for management are, by definition, material evidence — the Agency is unable to manage any assets that do not fall under this category, as stipulated by the Criminal Procedure Code of Ukraine.

The current seizure in criminal proceedings is an obstacle to the sale of sanctioned assets, as it imposes prohibitions and encumbrances, including preventing their privatization. However, in the case of Vinnytsiapobutkhim, the seizure of corporate rights was canceled back in October 2024, following a motion by the SPFU. In December 2024, seizures of the plant buildings and the company’s funds were also lifted, following a motion from the plant itself. The prosecutor did not object to the approval of these motions.

Here, we are surprised by the inconsistency in the position of the pre-trial investigation body, as in November 2024, the court dismissed the motion to lift the seizure of the production equipment and other property of Vinnytsiapobutkhim. It is noteworthy that, for some reason, the prosecutor objected to lifting the seizure. We did not see any substantive arguments for refusing the seizure in the ruling, which appeared somewhat formulaic, as the court stated that the applicant had not proven the groundlessness of the seizure or provided evidence that the need for the seizure had disappeared.

The issue of lifting the seizure of assets in criminal proceedings is not a new one. The procedure for the sale of assets seized by ARMA states that the sale of such assets serves as the basis for taking legal measures to lift their seizure, as the seizure is no longer necessary.

An identical approach could be applied in managing sanctioned assets, as outlined in the bylaw. This would eliminate the need for additional laws to sell sanctioned assets. However, this approach would also make the transfer of authority to sell sanctioned assets to ARMA unnecessary, meaning the Agency is unlikely to support this solution.

In most criminal cases involving sanctioned assets, judges have considered that criminal seizure was unnecessary and, therefore, canceled it once the asset was transferred to the national budget by the HACC’s decision. However, in the Vinnytsiapobutkhim case, we observed differing practices from the same court, as well as a rather unconstructive stance from the ARMA.

Which assets of sanctioned persons, seized in criminal proceedings, have already been sold?

Of the four sanctioned assets sold so far, only one was seized in criminal proceedings — the PentoPack plant, which was sold in June of this year for over UAH 103 million.

At the end of 2022, the property and corporate rights of this company were transferred to ARMA for management, but the Agency was unable to find a manager for nearly a year. After the confiscation, as in the case of Vinnytsiapobutkhim, the seizures became an obstacle to enforcing the court decision on recovery to the national budget and asset management. As a result, the SPFU appealed to the court to lift them.

It is noteworthy that the prosecution, represented by the investigator from the State Bureau of Investigation and the prosecutor from the Prosecutor General’s Office, did not object to lifting the seizure, so there were no issues with its removal.

However, numerous seizures in criminal proceedings remain one of the main obstacles to the prompt transfer of assets to the management of the State Property Fund. For example, in preparation for the privatization of a single asset — the sanctioned company AEROС — seven seizures were lifted in various criminal proceedings. In mid-December, an auction was held to privatize this asset, but the sale process has not yet been completed.

What are the prospects?

The lifting of seizures on sanctioned assets transferred to the national budget should occur through close cooperation between the SPFU and the pre-trial investigation body. These two institutions should ensure that the implementation of the sanction decision impacts business employees and the interests of bona fide counterparties as minimally as possible. The exercise of ARMA’s powers, when the asset is already owned by the state through a court decision, should not hinder these processes.

Additionally, assets remaining under seizure after confiscation effectively negate their benefits, as they cannot be re-registered in state ownership and sold. Therefore, the recovery of assets to the national budget should serve as the basis for the annulment of their seizure, when no further need for it exists. This would simplify the state’s acquisition of control over such assets, making amendments to the legislation necessary.

However, instead of working on an effective solution to the existing problem, we observe how the desire of certain state bodies to “demonstrate” their effectiveness reaches another level. To this end, draft law No. 10069, aimed at granting ARMA uncharacteristic powers, has already been registered. This is because the Agency’s operational capabilities are insufficient to effectively handle even the assets it receives through criminal proceedings. It is worth noting that ARMA takes nearly a year and a half just to initiate competitions for selecting asset managers.

Discussions about yet another change in the procedure for managing sanctioned assets should only take place when it is truly necessary. This should certainly not involve granting the unreformed ARMA new powers that do not align with its intended functions.

The article was written in collaboration with Nataliia Sichevliuk and Andrii Shvadchak, legal advisers at Transparency International Ukraine.