How Sanctioned Assets Will Be Managed Under the New ARMA Law

The text was prepared in collaboration with Transparency International Ukraine experts Andriy Shvadchak and Natalia Sichevlyuk.

Recent amendments to the Law on ARMA have come into force. Along with improving the procedures for selecting the Head of the Agency, launching an independent audit of the institution, and introducing new rules for managing seized assets, the updates also affected the management of assets belonging to sanctioned persons.

The ARMA is currently in charge of a considerable number of such assets, and there have been many challenges in managing them. For instance, on July 13, the FDMU sold the sanctioned plant Vinnytsiapobutkhim, which had belonged to Russian owners. The asset’s history is complex. In July 2022, it was seized and transferred to the management of the Asset Recovery and Management Agency (ARMA). Two years later, in July 2024, the HACC ruled to confiscate the company. However, due to delays in terminating the contract with the temporary manager, the asset was only transferred to the FDMU for sale in April this year.

The new ARMA law now introduces several provisions related to the assets of the aggressor state — that is, Russia — or of sanctioned persons supporting it.

Among the key changes worth highlighting:

• A manager selected by the ARMA must now terminate asset management if the HACC rules to confiscate those assets under sanctions legislation
• The ARMA is prohibited from selling seized assets of sanctioned persons if the Ministry of Justice has filed a claim with HACC for their confiscation
• The law introduces rules for transferring military bonds purchased with sanctioned funds into state ownership.

Let’s take a closer look at how these innovations will function in practice.

Termination of asset management in the event of sanctions-based confiscation

Before the ARMA reform law was adopted, Ukrainian legislation contained no provisions directly regulating cases in which an asset under ARMA’s management was later confiscated by the HACC to the benefit of the state.

Under the updated Article 21 of the Law on ARMA, if the HACC adopts a decision to confiscate an asset connected with Russia or another aggressor, the contract with the asset manager must terminate on the day the asset is accepted by the State Property Fund of Ukraine or another authority or enterprise designated by the government. This condition must also be explicitly included in management contracts concluded between the ARMA and asset managers.

These provisions are designed to prevent situations in which the ARMA delays the transfer of assets confiscated under sanctions to the FDMU, as happened with Vinnytsiapobutkhim.

Since July 2022, the company’s assets had been under seizure in criminal proceedings, and in April 2023, the ARMA awarded management of the enterprise to a contractor selected through a competition. In July 2024, the HACC granted the Ministry of Justice’s claim to confiscate the company’s corporate rights to the benefit of the state. Yet instead of transferring the asset to the FDMU within five working days, the ARMA only began the process in mid-September 2024.

Moreover, the Agency tried to use the Vinnytsiapobutkhim situation to lobby legislative amendments on managing sanctioned assets in its favor. The ARMA’s leadership publicly issued ultimatum-style statements claiming it was impossible to sell sanctioned property due to its seizure in criminal proceedings.

However, all assets of sanctioned persons transferred to ARMA’s management are by definition material evidence, as under the Criminal Procedure Code of Ukraine, ARMA can manage only such assets. As court practice has confirmed, once the asset is confiscated by the state, the seizure may be lifted because it is no longer needed as evidence — the ownership has already changed.

Ultimately, the ARMA had to back down. Nearly nine months after the court’s confiscation decision took effect, the management contract for Vinnytsiapobutkhim was terminated, and the enterprise was finally transferred to the FDMU.

Legislative regulation of this process should significantly reduce such delays in the future. However, this will also require well-crafted implementing bylaws.

Neither sanctions legislation nor bylaws or FDMU’s internal regulations properly define the procedure for accepting an asset, including when exactly that moment occurs or how it should be documented. Meanwhile, Article 5-1 of the Law on Sanctions stipulates that an asset must be transferred to the FDMU or another designated authority within five working days after a court decision takes effect. Therefore, a clear mechanism is needed to prevent delays in the actual transfer.

Furthermore, the termination of a management contract and the FDMU’s physical acceptance of the asset are separate in time — they do not occur simultaneously. Therefore, secondary legislation should define the contract’s termination as occurring within a specific number of days after the court decision on confiscation takes effect, with the asset being transferred to the FDMU on that same day.

Despite positive changes to the ARMA law, criminal-case seizures remain a serious obstacle to asset transfer. In particular, when confiscating corporate rights to the benefit of the state, any active seizure restricts re-registration, preventing the FDMU from taking over management. This issue also requires amendments to the Criminal Procedure Code to allow the lifting of such seizures after confiscation.

Prohibition on selling seized assets of sanctioned persons pending confiscation

The updated ARMA law prohibits selling assets that may potentially be confiscated under sanctions legislation, except for perishable property.

This change was prompted by several sanctions cases in which the HACC had to decide the fate of assets managed by the ARMA. The most high-profile case involved Medvedchuk and Marchenko. The HACC stated that “although disposal of property falls within ARMA’s powers, in the opinion of the panel of judges, such alienation could make it impossible to enforce a court decision if the plaintiff’s claims are satisfied.” The HACC Appeals Chamber upheld this decision, effectively banning the ARMA from selling the assets.

However, in another case concerning the confiscation of assets belonging to Belaruskali, the HACC and its Appeals Chamber disagreed with the Ministry of Justice’s request to ban the sale of part of the potassium stock that the ARMA had already begun to sell. The HACC explained that prohibiting the sale at that stage would contradict the law.

From this perspective, the new ARMA law’s provisions on the sale of sanctioned assets should help avoid similar disputes and eliminate such legal inconsistencies.

Regulating the transfer of military bonds into state ownership

After February 24, 2022, the ARMA repeatedly purchased military bonds using seized funds or proceeds from the sale of seized assets. However, it was unclear what to do with these securities after confiscation.

According to the updated paragraph 2 of the Final and Transitional Provisions of the ARMA law, the State Property Fund must send to the ARMA court decisions on confiscation to the benefit of the state no later than the next working day after receiving them. In turn, within 10 calendar days of receiving such a decision, the ARMA must submit a motion to the Cabinet of Ministers and, based on the Cabinet’s decision, transfer to the state ownership any military bonds purchased with confiscated assets. The same procedure applies to any interest income accrued on these bonds, which must be canceled to reduce public debt accordingly.

This amendment responded to the ambiguous situation surrounding assets confiscated from Royal Pay Europe, a company linked to the Russian bookmaker 1XBET.

In 2024, courts confiscated to the benefit of the state bonds with a nominal value exceeding UAH 1.75 billion, purchased by the ARMA the previous year with the company’s seized funds, along with the interest accrued on them. The Law on Sanctions required the confiscated assets to be transferred to the FDMU but did not specify what to do with the bonds afterward. Holding the bonds until maturity would have meant the state budget had to cover both redemption and interest payments.

As a result, the confiscated bonds remained under ARMA’s management, and in March 2024 the government authorized their resale. However, the state would still eventually need to redeem these securities and pay accrued interest. Establishing the option to cancel confiscated military bonds will therefore help prevent additional budget expenditures in the future.

Looking ahead, the provision requiring the FDMU to forward court decisions on confiscation to the ARMA should be refined in general.

Currently, the amendment was added only to the Final and Transitional Provisions concerning military bonds. In practice, however, other assets — movable and immovable property, corporate rights — are also often managed by the ARMA under criminal-case seizures before sanctions-based confiscation. Since, under sanctions law, the ARMA is not on the list of entities to which courts automatically send sanctions decisions, the Agency may be unaware that confiscation has occurred for assets under its management.

***

The amended ARMA law introduces important changes to prevent manipulation with sanctioned assets. In particular, it provides for termination of management upon confiscation, prohibits the sale of disputed assets, and regulates the transfer of military bonds into state ownership. These innovations should help prevent delays such as the Vinnytsiapobutkhim case, where the asset was transferred to the FDMU only nine months after the court decision.

At the same time, effective enforcement of sanctions-related confiscation rulings will require amendments to the Criminal Procedure Code of Ukraine to allow the lifting of seizures once assets have been confiscated to the benefit of the state.

The bylaws should elaborate on several ARMA law provisions to ensure efficient coordination between the ARMA and the FDMU. These implementing regulations should be adopted soon — the entire secondary legal framework must be developed by October 30, 2025.