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.

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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.

What is the problem with such “confiscation”? 

First of all, the question remains about who exactly, in what way, and for how long will pay Ukraine the mentioned USD 50 billion.

From the experience of making such unpopular decisions, it seems that this should be a shared responsibility because, during the full-scale invasion, no country has yet confiscated frozen Russian sovereign assets. The United States seems to be the closest to such a prospect, as last month Congress passed the REPO Act, which empowers the president.

However, according to various estimates, less than a third of all frozen Russian assets are stored in the United States. Most of them are concentrated in the EU, which is most cautious about the issue of confiscation and relies on legal and economic risks. Despite this, at this stage, it is clear that the issue of confiscation is primarily political, and the full-scale aggression of Russia has shown that the economic European Union lacks political unity.

International and national lawyers long ago answered the question about the legal possibility of confiscating sovereign assets and overcoming their immunity. The international doctrine of “countermeasures” allows confiscation of state assets if such a state has violated its security obligations. Moreover, according to this principle, freezing assets is also a countermeasure, so the states in which the assets of the central bank of Russia are stored have already violated immunity when they froze these assets.

It is also important that under the proposed scheme, the main frozen USD 285 billion of Russian assets will remain unconfiscated. According to recent political statements, Western partners want to withhold this amount in case of Russia’s lawsuits. On this issue, international lawyers also spoke out critically, noting that no international court would consider such a lawsuit because Russia did not recognize its jurisdiction.

Russia began to appropriate private assets of Western enterprises a long time ago, and in response to the risk of confiscation of its sovereign assets in the United States, Putin quickly adopted a decree on the so-called “confiscation for confiscation.” The only difference between what is feared in Europe and what Russia is already doing is that when resolving the issue of confiscation, Putin does not worry about violated international legal guarantees, “dangerous” economic precedents, and political support.

Thus, we expect a detailed plan from the G7 leaders on the use of Russian assets. But for now, the process looks like a bureaucratic postponement of the painful issue of confiscation and the transfer of such necessary funds of the aggressor to Ukraine.

Instead of being able to fight at the expense of Russia, we will again receive money for military and post-war needs from the pockets of taxpayers of partner countries—Americans and Europeans. Such a decision definitely cannot be called a victory, either in the financial sense or in any other sense.

We believe that all frozen sovereign assets of Russia, as well as any income from them, should be directly transferred to Ukraine in the near future within the framework of the international doctrine of “countermeasures” as a response to the unprecedented aggression of Russia and its numerous violations of international law. Further delay in adopting this purely political decision demoralizes and humiliates Ukrainians, who confront the aggressor every day.

 

*While drafting this text for publication, the G7 countries stated that they would create a fund to support Ukraine, using the proceeds from frozen Russian assets. The United States, the United Kingdom, Japan, and other countries will make contributions in the form of loans, and the return on investment of frozen assets will be used to repay these loans. Effectively, assistance to Ukraine will be provided in the form of donations, so we will not need to repay this money. 

This explains the mechanism to some extent, but the main problem with the unwillingness of partners to confiscate Russian assets, unfortunately, is not be solved. And these funds will not be used to Ukraine’s advantage yet.

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.

What does the REPO Act propose? 

The document proposes to give the U.S. president the authority to confiscate the sovereign assets of Russia, which directly or indirectly belong to the government of Russia, the central bank, and the Russian direct investment fund. 

The mechanism is as follows:

• within 90 days from the entry into force of the act, the president, through official requests, shall identify the financial institutions where the assets of Russia are stored and report such property to the Secretary of the Treasury;
• no later than 180 days after the entry into force of the act, and then annually within 3 years, the president shall submit to the relevant congressional committees a report detailing the status of Russian sovereign assets previously notified to the Secretary of the Treasury;
• 30 days after the president has submitted the relevant reports to the congressional committees, he may, by his decision, confiscate any sovereign assets of the aggressor state in whole or in part for the purpose of transferring them to Ukraine. 

Funds from confiscated Russian assets will go to a special fund for support to Ukraine, which will be administered by the U.S. Secretary of State. Every 90 days, the Secretary of State must submit a report on exercising such powers to Congress, regardless of whether they have been exercised or not. 

The act also provides for a clear, targeted use of the funds confiscated in this way, in particular for reconstruction and humanitarian assistance to the people of Ukraine. Assistance projects will be approved by the fund and the Administrator of the United States Agency for International Development (USAID). Priority projects will be determined at the request of the government of Ukraine. By the way, there is no mention of military assistance in this document at this time. 

In addition, the REPO Act obliges the President of the United States to work with allies and partners to create an international compensation mechanism for the transfer of confiscated or frozen Russian sovereign assets to assist Ukraine. To this end, the United States and allies shall create a Common Ukrainian Fund. It shall use the assets of the U.S. fund for support to Ukraine and contributions from foreign partners who also confiscated Russian sovereign assets to provide compensation to Ukraine.  

The activities of the Common Ukrainian Fund will be regulated by bilateral and multilateral agreements on compensation mechanisms for Ukraine, including an orderly and transparent distribution of these assets. Thus, the United States is ready to take the initiative and be a leader among Ukraine’s partners in the issue of accumulation and distribution of confiscated Russian assets. 

In addition, the REPO Act prohibits the return of any sovereign assets to Russia until it ceases hostilities and pays full compensation—voluntary or involuntary—to Ukraine for the damage caused by the invasion. In the event of such an unlikely scenario, the decision to lift the seizure off the Russian assets will also be made by the president, having previously notified Congress. 

The REPO mechanism will operate for 5 years or until Russia agrees to pay reparations to Ukraine.

What are the risks of this law?

The REPO Act establishes that the decision to confiscate the sovereign assets of Russia will not be subject to judicial appeal by Russia as a state in U.S. national courts, but individuals and legal entities still have the right to do so. That is, we should expect lawsuits, at least from Russian banks and companies, regarding the confiscation of their assets.  

The new law also recognizes the possibility of Russia’s appeal to international courts based on international treaties, where the parties are the United States and the aggressor country. This effectively allows the possibility of considering the dispute in the International Court of Justice. 

The process of appealing the confiscation of certain assets of Russia may delay their transfer to Ukraine for several years. According to international standards, it is important that the owners of confiscated property have an effective remedy, so we cannot do without courts. 

Another problematic point is that the act stipulates that the confiscation of assets by the U.S. president must be agreed upon with international allies, primarily the G7 and the EU. Thus, the decision on confiscation should be common. Such a step was obviously envisaged in order to somewhat “blur” the responsibility. International experts and U.S. lawyers criticized this provision as unprecedented and unconstitutional because never before did domestic decisions of the American authorities require prior consent from outside. 

If, at the political level, there are statements that the sovereign assets of Russia should be used to support Ukraine, then in practice, the collective West finds it more difficult. At a recent meeting, G7 finance ministers were unable to agree on how to use the frozen Russian assets. They said they would continue to work on options to present them to the G7 leaders ahead of a summit in Italy in June. 

It is also important to remind ourselves of some tensions surrounding the U.S. presidential election, which is due to take place in November 2024. Since, according to the REPO Act, the decision to confiscate or lift the seizure off frozen Russian assets is made solely by the president, there are some fears that if Donald Trump wins the presidential election, he will not rush with confiscation, to say the least. That is why it is important to quickly apply the law before the next presidential election.

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What are we left with? Western partners of Ukraine continue to work on the analysis of risks and benefits in the confiscation of Russian assets. Now, we have an example demonstrated by the USA.  

The REPO Act is a good transition from conversations and concepts to specific legislative steps. Currently, the rest of the Western world is still thinking about how to approach the sovereign assets of Russia: either exclusively within the criminal process or by additional taxation of income from such assets, while lawmakers in the United States are acting.  

I hope that each day of discussions will bring us closer to specific steps. For example, the transition to the introduction of a completely reasonable idea of 100% taxation of future income from the sovereign assets of Russia (approximately EUR 192 billion), which are stored in Euroclear in Belgium.  

In this discussion, in addition to risk analysis and searching for options, it is worth remembering that attempts to use peacetime tools in times of war may be of little effect, and we will simply lose precious time.

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.

1. VS Energy 

The case of VS Energy is currently the largest of all that has been in the practice of the HACC. The Ministry of Justice filed a lawsuit against the European owners of this company in Ukraine because of their potential connection with the Russians close to Putin: Yevgeny Giner, Mikhail Voevodin, and Alexander Babakov. 

Thus, officially, the owners of the Ukrainian branch of VS Energy are citizens of Germany and Latvia, who are actively defending their independence from Putin’s henchmen in court. However, law enforcement agencies have evidence to the contrary, which was the basis for seizing the assets of this company. After the full-scale invasion, they had grounds to file a claim for confiscation by the Ministry of Justice. 

VS Energy International Ukraine owns 8 regional electricity distribution companies (3 of them partially), 2 hotel chains under the Premier and Accord Hotels brands, First Investment Bank, Metropolis and Metrograd shopping centers in Kyiv, and 2 factories. In addition, VS Energy has corporate rights in another 31 companies that can also be confiscated. 

The case has been heard by the HACC since June 2023, and more than 100 people are involved in it, so the decision should not be expected soon. We wrote more about this case and its complexity here.

2. HMS Group (Hydromashservice) 

The Ministry of Justice filed a lawsuit against the HMS Group Company, as well as its owners — Russian businessmen father and son Lukyanenkos and Herman Tsoi — in November 2023. The reason is that this company is one of the largest machine-building holdings in Russia, which produces pumping equipment for the oil and gas complex, energy, housing, and municipal services and water management of the Russian Federation. The HMS Group has its assets in Belarus, Germany, and Ukraine. 

In particular, in Ukraine, this company owns shares in the Sumy Pumping and Power Engineering Plant Nasosenergomash, Sumy Machine-Building Scientific and Production Association (former Frunze plant), Heavy Drill and Lead Pipe Plant, SMNVO-Engineering, Atommashproekt Consortium, and Yubileinyi Hotel Complex. 

In addition to these enterprises, the Ministry of Justice also asks to recover the corporate rights of the HMS Group in 13 more companies, as well as to confiscate 21 land plots, 2 apartments, 1 house, 6 vehicles, funds on an account, and 8 guns.

3. ROYAL PAY EUROPE

Royal Pay Europe is registered in Latvia and provides services for electronic payments and other financial solutions for businesses. 

In 2023, the State Bureau of Investigation (SBI) opened criminal proceedings against this company on the fact of embezzlement of funds allocated by foreign banks to one of the Ukrainian commercial banking institutions for a total amount of more than EUR 30 million.  

According to the materials of this investigation, the company, during the hostilities in Kharkiv Oblast, tried to re-register the property rights to the real estate of one of the Ukrainian banks, which is in the process of dissolution. In addition, the SBI established in the course of this investigation that the beneficiary of Royal Pay Europe is Sergey Kondratenko, a Russian citizen associated with the Russian bookmaker 1xBet. 

As part of the open criminal proceedings, the assets of Royal Pay Europe were seized and transferred to the management of the ARMA. However, it is much easier to confiscate assets through a sanction case than to wait for a decision in criminal proceedings. The Ministry of Justice mainly bases its lawsuits on the materials of criminal proceedings. 

Because of this, the ARMA acts as a third party in the sanction case against Royal Pay Europe. In the event of granting the lawsuit, the funds and securities under its management will be transferred to the SPFU. The assets that might be confiscated amount to about UAH 2 billion.

4. The case of Bohuslayev and Kononenko 

The last high-profile case that was opened following a lawsuit of the Ministry of Justice was the case against Vyacheslav Bohuslayev, the former president of Motor Sich JSC, and Petro Kononenko, the senior manager of the enterprise. 

Since October 2022, Bohuslayev has been suspected of collaboration and has remained in custody. 

The Ministry of Justice motivates the lawsuit by the fact that Bohuslayev, together with Kononenko, supplied the aggressor country with products manufactured by Motor Sich JSC and its separate subdivisions since 2014. It was done despite the legislative restrictions on the prohibition of the export of military goods to the Russian Federation through a number of enterprises owned by them. Even after the full-scale invasion on February 24, 2022, they ensured the supply of engines for the Russian army so that it could continue to produce and repair combat helicopters (Mi-8, Mi-24, Mi-28, and Ka-52). All these helicopters were actively used by the Russian Federation in attacks on Ukraine, especially at the beginning of the full-scale war. 

The Ministry of Justice asks the court to confiscate 10 apartments, 3 houses, 8 land plots, 12 non-residential real estate objects, corporate rights in 11 enterprises, property rights, money on accounts, and more than 600 guns in favor of Ukraine. The parties to the case, together with the defendants, are their relatives as co-owners of certain property and the mentioned 11 enterprises.

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Thus, we see that during the second year of the full-scale invasion, the Ministry of Justice began to increase the scale of its lawsuits to confiscate Russian assets in Ukraine. This is undoubtedly a positive pattern that needs to persist and improve because the work done must not only end in success in the High Anti-Corruption Court but also withstand potential international appeals. To this end, first of all, it is important to ensure proper procedural rights for all participants in the trial.

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.

What do we know about the Russian oligarchs Giner, Voevodin, and Babakov? 

First of all, all three beneficial owners are long-time supporters of Vladimir Putin, as directly evidenced by the data from their biographies. 

Yevgeny Giner is the head of the Finance Committee of the Russian Football Union and the CSKA football club, which was previously subordinate to the Russian Ministry of Defense. In the past, Giner was the vice-speaker of the Russian Federation Council, and now he is a member of the State Duma Committee on International Affairs and Putin’s special representative for interaction with compatriots’ organizations abroad.

 Yevgeny Giner

 Mikhail Voevodin is a crime boss recognized by Interpol. He is known for his ties with criminals, in particular, his participation in raider seizures of enterprises, threats of physical violence, violent protests, and assaults. According to journalists, Voevodin organizes schemes to withdraw funds from Russia to foreign countries with their subsequent cash-out, including using a controlled financial institution.

Mikhail Voevodin

Oleksandr Babakov is Deputy Chairman of the State Duma of the Federal Assembly of the Russian Federation. He publicly expressed support for the death penalty to citizens of foreign countries who opposed the aggression of Russia against Ukraine and also called for the Azov Regiment to be recognized as a terrorist organization. He is included in the sanctions lists of the EU, USA, Canada, Switzerland, Australia, Japan, etc.

Alexander Babakov

VS ENERGY INTERNATIONAL N.V. itself is registered in the Netherlands, but through the Ukrainian company VS Energy International Ukraine LLC owns significant assets in Ukraine in the fields of energy, metallurgy, and finance. 

In particular, this company owns 5 regional electricity distribution companies (oblenergos): Khersonoblenergo, Kirovohradoblenergo, Zhytomyroblenergo, Rivneoblenergo, and Chernivtsioblenergo. VS Energy International Ukraine LLC has corporate rights in three more oblenergos: Sevastopolenergo, Khmelnytskoblenergo, and Mykolaivoblenergo.  

In addition, VS ENERGY owns Premier and Accord Hotels, First Investment Bank, Metropolis and Metrograd shopping centers in Kyiv; the list of such property is not exhaustive. 

Our journalists, public officials, and law enforcement agencies are well aware of such a powerful set of assets of the Russian VS ENERGY, but this property has not yet been confiscated in favor of Ukraine. 

What prevented the confiscation of the property of Russian oligarchs in Ukraine? 

The official beneficiaries of the assets of VS Energy International Ukraine are the citizens of Germany and Latvia Valts Vigants, Oleh Sizerman, Natalia Selivanova, Maryna Yaroslavska, Arturs Altbergs and Vilis Dambins. 

According to Panama Papers documents, Latvians Vilis Dambins and Valts Vigants have repeatedly acted as Babakov’s trustees in his business in the West. Ukrainian journalists described in detail the long history of their ties to Babakov and other Russian oligarchs. In addition, another beneficiary, Maryna Yaroslavska, is the wife of Yevgeny Giner. 

Criminal proceedings were opened by the State Bureau of Investigation before the Ministry of Justice filed a lawsuit for confiscation of assets with the HACC within the framework of the sanctions process against the beneficiaries of VS Energy International Ukraine. The SBI charged these persons with:

• misappropriation of property by a group of persons or taking possession of it by abuse of office (Part 3 of Art. 191 of the Criminal Code of Ukraine),
• trespass by a group of persons against the territorial integrity and inviolability of Ukraine (Art. 110, part 2 of the Criminal Code of Ukraine),
• creation and management of a criminal community or criminal organization, as well as participation in it (Part 1 of Art. 255),
• obstruction of legitimate economic activity, committed by prior conspiracy of a group of persons (Art. 206, part 3 of the Criminal Code of Ukraine).

Law enforcement officers appealed to the court with a request to seize the assets of the company controlled by the Russians. Despite this, the State Bureau of Investigation of Ukraine failed to convince the court to seize the assets of VS Energy at the first attempt. The court motivated its decision at that time by the fact that the nominal beneficiaries of VS Energy’s assets were not in the status of suspects or accused. Therefore, the investigating judge had no legal grounds to seize their property. 

However, at the second attempt, the Pechersk District Court of Kyiv did seize the controlling shares of Europeans in Ukrainian enterprises, in particular, the oblenergos. Subsequently, at the time of consideration of the case by the court, the assets were transferred to the ARMA for management. In response to the seizure of the companies, VS Energy International Ukraine issued a statement that the seizure was unjustified because there were no citizens of Russia among the owners of the enterprise. 

The Ministry of Justice decided not to wait for the results of the criminal case and filed a lawsuit to confiscate the assets of VS Energy. This lawsuit is actually based mainly on the evidence obtained in the framework of the mentioned criminal proceedings.  

In this case, the Ministry of Justice asks to recover the corporate rights of the defendants in 8 oblenergos, 6 hotels, 2 metallurgical plants, a shopping center, and other 31 companies in favor of Ukraine. A bonus to these assets can also be cash in the amount of almost USD 2.5 mln. 

These assets are now crucial for the economic reconstruction of the country. However, despite the weaker standard of proof and shorter procedural terms than in criminal proceedings, it seems that the consideration of the sanction case against VS Energy will also be lengthy and difficult.

Why is the VS Energy property sanction case complex? 

In the sanction case against VS Energy, the defendants are both three of Putin’s henchmen and European citizens — the official owners of VS Energy International Ukraine. 

At the first court hearings, the representatives of the European defendants made it clear that they would fight for the assets of their clients. For example, they immediately appealed for a recusal of the panel of judges due to the participation of the presiding judge in an event on the confiscation of Russian property in Ukraine. The court refused to satisfy this motion. 

The main argument of the defendants is that their clients are honest foreign investors who have no ties to Russian kleptocrats. 

However, in addition to the nine defendants, this case involves more than 100 third parties, including recently Ihor Kolomoiskyi. These are all people and companies that appear in the ownership structure of assets that the Ministry of Justice wants to recover. Most of them also have representatives (mostly lawyers) in the case. Thus, during the hearings, the HACC courtroom barely accommodates all those wishing to defend their position in this case. 

The HACC case began in June 2023, and for the first three months, the court was considering many procedural issues initiated by the participants. In particular, it resolved the issue of the recusal of translators, obliged the Ministry of Justice to provide a translation of documents into the state language, and demanded the necessary evidence from the oblenergos. 

Only at the end of September did the court begin to examine the evidence in the case. The last court hearing was held on January 9; it considered the 30th volume of the case out of more than 120. By the way, the materials of this volume relate to the owners of the Premier Palace hotels. 

Thus, the number of parties to the case and the assets that are the subject of the lawsuit significantly complicates and delays the trial. Moreover, sometimes they can abuse their procedural rights just to delay the process even more.  

This situation poses the question of providing an opportunity for honest Ukrainian enterprises to defend themselves against accusations of Russian influence and Ukraine’s urgent need to confiscate Russian assets for the purpose of reconstruction.

Entities entrusted asset management

Since last December, the government has identified managers for 679 confiscated objects previously owned by 18 sanctioned individuals.

In 13 cases, the State Property Fund became the sole management body. The government also determined the way to enforce court decisions on confiscation: for the most part, their subsequent privatization or lease. Thus, the authority to finally decide the fate of these assets was left with the SPFU.

The Cabinet of Ministers obliged the SPFU to sell certain assets without any alternative.

For example, the share of the Ocean Plaza shopping mall in Kyiv, which belonged to the Russian oligarch Arkady Rotenberg. In early October, the SPFU initiated the sale of 66.65% of the authorized capital of the company owned by the mall before the government through large-scale privatization with a starting price of UAH 1.32 bln. But the decision to privatize the asset has not yet been adopted.

The situation with the former assets of Viktor Yanukovych is also interesting. They were “divided” between three bodies: the SPFU, the Ministry of Culture and Information Policy of Ukraine, and the Ministry of Justice.

20 real estate objects and vehicles were transferred to the Fund for privatization, lease, or to meet the needs of the state. The shortcoming of this decision is the absence of criteria for such a distribution or a certain list of objects that the agency must sell or retain. Therefore, there is a potential risk that part of the liquid assets may remain in the ownership of the state and not be sold.

The State Property Fund became the manager of two well-known residences of the ex-president, Mezhyhirya and Sukholuchchia. But this is only temporary until they are granted the status of a park as a monument of landscape art of national importance. With regard to Mezhyhirya, the parliament even adopted a relevant law: the monument should fall under the control of the Ministry of Environmental Protection and Natural Resources of Ukraine.

The Ministry of Culture, in turn, received as many as 537 historical, cultural, and material values from the collection of Yanukovych for further sale, use, or preservation in state ownership. The total value of these assets is estimated at EUR 18.7 mln, but according to the legislation, cultural and art objects are not subject to privatization or lease. Moreover, these assets continue to be seized in criminal proceedings, and the agency has not taken any action since April 2023 to actually obtain them for management.

The government instructed the Ministry of Justice to collect more than UAH 34 mln from the fugitive president. According to the State Treasury Service of Ukraine, these funds were credited to the national budget and channeled to liquidate the consequences of the armed aggression.

In addition, measures for the recovery of property into the state’s income were entrusted to the Ministry of Justice together with the SPFU in three more cases.

In only one case, the management of confiscated assets was not even partially entrusted to the State Property Fund. The share (1.44%) of PJSC Settlement Center for Servicing Contracts on Financial Markets as a participant in the capital market was transferred to the National Bank of Ukraine for the implementation of “best practices of corporate governance.”

(Non-)transfer of assets for management

Until September 22, 2023, the manager of sanctioned assets was determined by the Cabinet of Ministers.

However, the law did not clearly define the period during which this was to take place. As a result, one of the negative trends in the asset transfer procedure was the delay by the government in adopting appropriate decisions.

The first cases of the transfer of confiscated assets took three months, which could be interpreted as a lack of precedent in this practice. But in the future, regular delays in adopting appropriate decisions continued, despite the fact that the State Property Fund was determined to be the asset manager for the most part.

On average, the procedure for determining the authorized body for managing assets collected into the state income took a little more than two months. Only in one case did the assets manage to be transferred “promptly”: the manager for property and corporate rights which had belonged to the Russian oligarch Mikhail Shelkov was determined three weeks after the court decision entered into force.

Since September 22, 2023, the functions of managing confiscated assets have been entrusted to the SPFU, removing the “intermediary” represented by the government from the procedure for their transfer. Despite this, some Russian assets are still “lingering.”

If no body can effectively manage the property of collaborator Martyanova, which is located in the temporarily occupied territory, until the restoration of constitutional order, then Deripaska’s former assets in the controlled territory have not been transferred to the SPFU in more than five months. Although, according to Oleksandr Fedoryshyn, the former acting head of the SPFU, the institution expressed its readiness to take Deripaska’s assets into management. As far as shares in the First Investment Bank of the Russian oligarch Giner are concerned, the process of finding a manager has lasted for more than nine months.

In total, more than 200 confiscated real estate objects, vehicles, and corporate rights of companies belonging to eight sanctioned persons and companies have not been transferred to the State Property Fund.

The probable reason is that some of these objects are already managed by the ARMA since law enforcement officers seized them within the framework of criminal cases even before the confiscation. In particular, this is what happened to the assets of the sanctioned Oleg Deripaska (Mykolaiv Alumina Refinery LLC), Evgeny Giner (shares in First Investment Bank LLC), and Artemy Lebedev (apartments in the center of Kyiv).

Despite this, the law clearly provided for the obligation of the Cabinet of Ministers to determine the entity as well as the procedure and method of enforcement of each court decision on confiscation. Therefore, if the government plans to continue keeping these assets under the management of the ARMA, it is necessary to amend the law accordingly.

Procedural obstacles and further delays

Another factor that affected the efficient management of confiscated assets were measures to secure confiscation claims and attempts to cancel them.

Such measures are taken to prevent the potential alienation of property by the defendant during the consideration of the case in court.

But problems began to arise after the confiscation and transfer of the first assets to the management of the State Property Fund. The agency faced the fact that these measures continued to operate, which made it impossible to re-register these assets to their manager.

In the case of Yevtushenkov’s former assets, the SPFU tried to cancel the measures to secure the claim on its own but was refused because it was not a party to the case. Subsequently, the High Anti-Corruption Court did lift the ban on registration actions, but on its own initiative.

As a result, the process of obtaining the oligarch’s assets into the management of the Fund was delayed for almost nine months; the agency simply could not re-register the assets and prepare them for sale for six months.

Despite the bans in force, the State Property Fund, instead of promptly initiating the cancellation of measures to secure the claim before the Ministry of Justice, continued to issue instructions to its regional offices to re-register assets. And only after the refusal or suspension of registration actions did the Fund appeal to the Ministry of Justice with a letter regarding the lifting of the ban.

For example, as for the former assets of State Duma member Boris Paikin, which were transferred to the SPFU in March 2023, the Fund instructed its regional office to take measures to register ownership only on June 16.

This and other cases also indicate a delay in resolving the issue of the cancellation of measures to secure claims, both on the part of the State Property Fund and the Ministry of Justice. As for the assets of Anatoly Torkunov, the rector of the Moscow State Institute of International Relations and Putin’s proxy in elections, transferred by the government in February 2023, the SPFU, after an unsuccessful attempt to re-register them in March, only appealed to the Ministry of Justice on May 8 to initiate the abolition of security measures. It, in turn, filed a motion to the court only three weeks later.

The High Anti-Corruption Court put an end to this issue, changing its practice on securing claims for confiscation of sanctioned assets. At first, the HACC began to refuse to secure such claims, given that the confiscation of assets is preceded by their mandatory blocking, which itself provides for the prohibition of disposal and alienation. Subsequently, this position was supported by the Appeals Chamber.

However, the analysis of court decisions indicates that the ban on registration actions has not yet been lifted with respect to some confiscated assets. We are talking about assets that belonged to members of the State Duma of the Russian Federation: Roman Liabikhov, Konstantin Bakharev, Alexei Cherniak, and the already mentioned Anatoly Torkunov (not all measures to secure the claim were lifted for his property).

Results and prospects

An assessment of the practice of transferring confiscated sanctioned assets and their subsequent management shows that this process has not been effective.

In addition to objective obstacles, there are other significant abuses. In particular, they concern the delay or adoption of unreasonable managerial and procedural decisions by key actors involved in the process of recovering sanctioned assets and the enforcement of relevant decisions. 

As a result, more than a year after the adoption of the first decision on the recovery of assets into the state income, in addition to the confiscated funds, only one object is at the stage of sale (which ended unsuccessfully). Some of these objects are still at the stage of re-registration, and for others, in violation of the requirements of the law, a manager has not been determined.

The Parliament tried to remedy the situation when it limited the powers of the Cabinet of Ministers to determine the manager for confiscated assets since September 22, instead fully assigning these functions to the State Property Fund.

But at the same time, the legislator created a number of new problems related, in particular, to the transfer and assignment to the State Property Fund of functions for the management of alien assets. Therefore, without further improvement of the legislative regulation, the management of sanctioned assets is unlikely to become more effective in the future.

This publication was prepared by Transparency International Ukraine with the financial support of Sweden.

How the understanding of sanctions changed in almost two years of the full-scale war 

Russia remains the most sanctioned country in the world. It is not only about prohibitions and restrictions on the Russian Federation as a state, for example, restrictions on trade or diplomatic relations with the aggressor, but also about personal sanctions against individuals and legal entities that support the Russian war against Ukraine. In particular, for almost two years we have been reading news about the seizure of property of sanctioned individuals, the ban on their entry into the territory of the Western world, the blocking of financial transactions, etc.  

As a rule, sanctions are primarily political measures, not legal ones, and they are designed to change the behavior of sanctioned persons. Therefore, after such changes, all restrictions should be lifted; for example, frozen assets will be returned to their owners. In addition, states or blocs of states, such as the EU, have appropriate laws governing the imposition of sanctions on a person as well as providing an opportunity to appeal such measures.  

For example, this week, the Court of Justice of the European Union lifted sanctions against Viktor Yanukovych and his son based on the results of the appeal. The reason was that at the time of their inclusion in the EU sanctions list in 2021, there was still no confirmation that the trial of the fugitive president for treason was politically impartial. However, this decision of the EU court is not critical because the EU applied sanctions to Yanukovych again in 2022, and these prohibitions remain in force. 

There are also cases where the EU court decided to exclude the Russians from the sanctions lists due to the rupture of their relations with Putin’s military machine. For example, in November this year, sanctions were lifted regarding Oleksandr Pumpianskyi. The reason for the imposition of sanctions was that he was on the board of the Pipe Metallurgical Company belonging to his father and cooperating with Russian state-owned enterprises Rosneft, Gazprom, and Russian Railways. However, after the twice-extended period of the application of sanctions, Pumpianskyi Jr. left the boards of the Pipe Metallurgical Company, Sinara Group, and Sinara Bank. 

From the very beginning, both Europe and the United States, when applying sanctions, focused on such approaches so that through sanctions, Russian enterprises and oligarchs, after losing access to their savings and due to a decrease in profits, changed their behavior, influenced the leadership of Russia and personally Putin, and stopped the war. But even though they discussed the possibility of transferring frozen Russian property to Ukraine, this was not the main goal of the sanctions policy of our international partners. 

It seems that now the situation is somewhat changing, in particular because of the understanding that the behavior of the sanctioned Russians cannot be corrected. Therefore, in recent months, we have often heard news about the consideration of new ways to confiscate the assets that have already been sanctioned. In particular, this was actively discussed in Europe, and recently, there was information about significant changes in this issue in the United States as well.

Lack of synchronization in restrictions and bans

To date, in Ukraine, according to the decision of the National Security and Defense Council, enacted by a presidential decree, personal sanctions have been applied to almost 9,000 individuals and more than 5,600 companies connected to Russia.  

After the full-scale invasion, sanctions in Ukraine did go beyond their political dimension and became a mechanism for confiscating Russian property.  

Thus, initially, a specific person is sanctioned under the decision of the National Security and Defense Council in the form of blocking their assets located on the territory of Ukraine. After that, the Ministry of Justice, if there is sufficient evidence, may apply to the High Anti-Corruption Court with a statement of claim for the recovery of the property of such a person. Currently, we have 29 such HACC decisions, and work on the confiscation of Russian property in Ukraine continues. 

If we talk about Ukraine’s international partners, they have imposed sanctions on more than 12,000 Russians and Russian companies. In particular, the leaders of such a policy today are the United States, the EU, the United Kingdom, Canada, Switzerland, Australia, and Japan. Except for Canada, where such a mechanism was developed, it is impossible to confiscate property through the sanctions mechanism in these countries. But it can be seized; that is, the owner can be deprived of the opportunity to dispose of their assets.  

We see that in terms of the number of Russians and Russian companies that are sanctioned, Ukraine is several thousand individuals ahead of its Western partners; that is, the difference is quite small. However, we decided not only to compare the number of sanctions, but also to check whether they were synchronized in their content. 

As mentioned earlier, based on the sanctions applied, Ukraine confiscated assets in 29 cases. Confiscation of assets, as opposed to their blocking or freezing, is a legally more complex process that requires thorough preparation, the collection of evidence, and consideration of the case in court. Thus, the High Anti-Corruption Court, satisfying the claim, records in its decision the fact of support of Russia’s military aggression by the sanctioned person.  

But did these decisions of the HACC with the facts of pro-Russian activities of individuals have any influence on international allies during the formation of their sanctions lists?  

After analyzing all 29 cases of confiscation in Ukraine, we found that in the countries of the Western world, sanctions were not applied to seven Russians. Among them are: 

1. Yevgeny Giner, a Russian businessman, president of the CSKA football club. He probably has assets in Slovakia because he has been doing business there with his partners for many years.
2. Mikhail Shelkov, the former head of the investment division of the state-owned company Rostec, which controlled military contractors in Russia. He and his partners also own a controlling stake in VSMPO-AVISMA, the world’s largest titanium producer for the aerospace industry.
3. Oleg Polukhin, the rector of the Belgorod State National Research University.
4. Anatoly Torkunov, the rector of the Moscow State Institute of International Relations of the Ministry of Foreign Affairs of the Russian Federation.
5. Artemy Lebedev, a Russian blogger, designer, and businessman. The offices of his studio (Art. Lebedev Studio) are located in London and New York.
6. Andrey Molchanov, a Russian oligarch who owns a controlling stake in LSR Group, one of the largest construction companies in Russia.

There are also cases where only one ally state imposed sanctions against pro-Russian henchmen. For example, only Canada applied sanctions against the deputy chairwoman of the so-called “public chamber of the Donetsk People’s Republic” Kateryna Martyanova and the Russian airline Volga-Dnepr.  

Interestingly, the Russian oligarch Vladimir Yevtushenkov was included in the sanctions lists of the UK, New Zealand, and Australia, but is not sanctioned in the EU and the United States. This is although the U.S. was investigating Yevtushenkov back in 2018 because his company Sistema implemented projects in Crimea.  

We can assume that Western partners ignored the above-mentioned Russians because they did not have significant assets on the territory of these states. However, this is most likely due to the complex ownership structure of their assets. That is, it is very difficult to identify the ultimate beneficiary of such an asset.  

It is unlikely that Russian oligarchs, like Shelkov and Giner, do not own any property in the West indirectly. However, given all the time since the beginning of the full-scale invasion, it is likely that the Russians managed to withdraw their assets from the jurisdiction of Ukraine’s allies or transfer them to nominal owners. 

However, even in this case, it still makes sense to impose sanctions. After all, if a person is included in the sanctions list, for example, in the EU, then all financial institutions of the bloc and other financial service providers are prohibited from conducting financial transactions with the sanctioned person, if this can directly or indirectly generate their income or provide access to assets. In addition, the sanction in the form of a ban on entry into the territory of a state or, especially, a bloc of states, as in the case of the EU, also significantly limits the mobility of a person.  

Thus, it is the synchronized imposition of sanctions against Putin’s accomplices that will have the greatest effect and can really significantly complicate their lives, even if they manage to withdraw their assets from the jurisdiction of Ukraine’s allies.

Who did not get on the sanctions lists of Ukraine? 

Ukraine has not imposed sanctions on some important Kremlin accomplices, either. This is even though restrictions have already been imposed in the West, and in Ukraine, these people have long been well known.  

Who has not been sanctioned by Ukraine? 

Andriy Kliuyev, a former head of the Administration of fugitive President Yanukovych, in particular responsible for the bloody dispersal of the Maidan and support for the separatists. He has been under U.S. sanctions since 2015.

Andriy Portnov, a former deputy head of the Administration of the fugitive President Yanukovych. The U.S. imposed sanctions on him in 2021, indicating that Portnov had established extensive ties with Ukraine’s judicial and law enforcement apparatus through bribery.

Volodymyr Sivkovych, a former deputy head of the National Security and Defense Council of Ukraine during the Azarov government, an associate of traitor Viktor Medvedchuk. He has been under sanctions in the United States, the United Kingdom, Australia, and New Zealand since 2022. 

The situation with sanctions in the form of blocking the assets of oligarchs Dmytro Firtash and Pavlo Fuks is also interesting; they were introduced in Ukraine in 2021 before the update of legislation allowing confiscation. Thus, until the NSDC “blocks” the assets of pro-Russian oligarchs, we will not witness the confiscation. 

The absence of the traitors’ names on the sanctions lists of the National Security and Defense Council for almost two years of the full-scale invasion of Russia is unacceptable. Especially given that before February 24, 2022, the public had many questions to these people. Ukraine should be a leader in the process of bringing Putin’s henchmen to justice. Moreover, we have a legislative opportunity to confiscate their assets based on sanctions.

Will the 12th sanctions package change the situation? 

More than 60 individuals and more than 80 companies were included in the sanctions list adopted on December 18. 

In particular, Ilya Medvedev, the son of Dmitry Medvedev, who is responsible for creating digital services in the illegally occupied Ukrainian regions, was included in the lists. Among other things, he coordinated the I Am a Russian project, aimed at providing Russian public services to residents of these regions, including the provision of a simplified procedure for obtaining Russian citizenship, social services.  

The military leadership of Russia was also included in the lists: Viktor Afzalov, the Commander-in-Chief of the Aerospace Forces; Alexei Shaposhnikov, the head of the Moscow City Duma; and the entire composition of the central election commission of Russia. In addition, sanctions were imposed on companies and individuals closely associated with the military-defense complex of Russia: Yuri Chikhanchin, Director of the Military-Industrial Commission of Russia; Boris Obnosov, General Director of the Russian missile-building company JSC Tactical Missiles Corporation (KTRV); JSC Spetsmash; Perm Gunpowder Plant; Uraltransmash, etc. 

The updated list also mentions Russian propagandists and collaborators working in the Russian-occupied territories of Crimea, as well as Zaporizhzhia and Kherson oblasts (Alyona Trokay), and companies that provide broadcasting of the propaganda agenda (the Spas TV channel). 

The EU has included a significant number of sanctioned persons in Ukraine, in particular the above-mentioned Russian businessmen and rectors, in the updated list of important Russian henchmen. However, Afzalov and Shaposhnikov are not under Ukrainian sanctions, which would be an appropriate thing to correct.  

It is also interesting that almost half a year has passed since the adoption of the previous package of sanctions, so we are witnessing a tendency for the reduction of sanctions activity among Ukraine’s partners.

So how will the assets be managed?

In respect of each asset collected into the state income, the State Property Fund will make decisions on its further management or sale. Determining the fate of the asset will be preceded by an analysis of information about it, in particular regarding:

• material and technical base and human resources,
• status of payments to the budget and counterparties,
• demand for the asset,
• comparison of the economic effect of management or its sale.

In addition, the objects transferred to the Fund will be subject to valuation and inventory. When the asset is absent at the specified location, the agency will initiate an appeal to law enforcement agencies to search for it.  

If the SPFU decides to leave the asset in state ownership, it will be managed in one of the following ways:

• reservation of confiscated corporate rights (shares of companies, shares in their authorized capital) in the management of the Fund;
• transfer of assets for lease;
• transfer of assets for management to other public authorities and agencies.
• transfer of assets to state-owned enterprises managed by the SPFU.

It is important that, along with the ability to transfer assets to other public authorities and agencies, the government has also settled the procedure by which the Fund will dispose of assets, the management of which is not characteristic for it and sometimes inappropriate. We are talking, in particular, about government bonds and cultural values. 

The Procedure also determines the fate of confiscated funds; they will be transferred to the fund for the liquidation of the consequences of armed aggression. Funds from the sale of recovered assets will also be channeled to it, which will take place in accordance with existing privatization procedures or land auctions.

Particular attention in the Procedure is paid to the issues of accounting and publication of information on assets transferred to the State Property Fund, as well as monitoring the effectiveness of their management. 

Thus, the SPFU will keep records not only of assets under its management or subject to sale, but also of court decisions on their recovery. In addition, the Fund will be obliged to publish information about the assets transferred to it for management on its website on a monthly basis and to submit a quarterly report to the Cabinet and the Ministry of Economy on the enforcement of these court decisions.

The Interdepartmental Working Group on the Implementation of the State Sanctions Policy, established under the Cabinet of Ministers, will monitor the effectiveness of the SPFU’s management of confiscated assets. Based on the results of such monitoring, the working group will analyze the state of asset management and provide recommendations to the government.

Shortcomings of the Procedure

One of the main shortcomings of the adopted Procedure concerns the recording of the link between the sale of confiscated assets and their belonging to residents of states committing armed aggression against Ukraine.

Firstly, it is worth mentioning the inconsistency of the subject of regulation of this by-law with the provision of the Law on Sanctions, which establishes the possibility of selling assets belonging to residents of the aggressor states, whereas the Procedure provides for such a possibility if the assets belonged to them before the moment of recovery.

Using this wording, the government probably envisaged amending the law and eliminating inconsistencies regarding the possibility of state-recovered assets being owned by residents of the aggressor countries. But even in this case, the use of the term “resident” still carries risks for the further sale of sanctioned assets.

The term “resident” in the Law on Sanctions is used in the meaning provided by another Law of Ukraine — On the Basic Principles of Forcible Seizure of Objects of Property Rights of the Russian Federation and its Residents. It defines residents solely as legal entities carrying out their activities in accordance with the legislation of Ukraine on its territory, whose founder (participant, shareholder) or beneficiary is directly or indirectly Russia.

Thus, the use of the term “resident” significantly limits the range of entities whose confiscated assets can be sold. In particular:

• companies that are not related to Russia in terms of the ownership structure, but contributed to the creation of a threat to the national security, sovereignty, or territorial integrity of Ukraine;
• any natural persons in respect of whom sanctions are applied in the form of the recovery of assets into the state’s income. 

Another shortcoming is the lack of provisions that would properly regulate the issue of preserving the asset in the state administration or transferring it for further sale.

Such a decision should be adopted considering a number of criteria: the availability of demand for the asset, debt, material and technical base and human resources, comparison of the economic effect of management or sale. However, the Procedure does not establish any indicators for these criteria and does not determine how a certain criterion will affect the decision to preserve or transfer the asset for sale. 

Recently, the Fund reported on the approval of an internal regulation containing criteria for the triage of assets, that is, dividing them into categories that are subject to sale, preservation in the management of the agency, or liquidation through the procedure of termination or bankruptcy. At the same time, the Procedure does not mention the application of this provision to confiscated assets. 

Therefore, in the end, in making decisions on preserving assets in management or transferring them for sale, a significant role will be played not by transparent mechanisms enshrined in the legislation, but by the subjective decisions of officials. This also carries corruption risks for the sphere of management of confiscated assets.   

Neither does the Procedure provide for requirements for the accounting of confiscated assets; the form of its management will be established by the State Property Fund itself. The body has previously launched a register in test mode, which allows viewing the state of affairs with all confiscated assets managed by the Fund. 

However, we have already observed the discrepancy between the SPFU information on the transfer of assets by the government and the register data. Moreover, after the update in early November, some information about the re-registration of assets in the occupied territory was removed from the site, which complicated further public monitoring and recording of possible abuses in the process of transferring these assets to state ownership. Therefore, it is necessary to enshrine the requirements for the relevance and completeness of information when keeping records of confiscated assets at the regulatory level.

The actual exclusion of a part of assets that have been or may be transferred to other management entities from accounting and monitoring is also of concern. 

Since the end of September, the government has identified managers for more than 670 confiscated objects. However, the SPFU transferred only a fifth of these assets. Other managers include the National Bank of Ukraine, the Ministry of Justice, and the Ministry of Culture and Information Policy. The latter received 537 historical, cultural, and material values of Yanukovych for management, estimated at EUR 18.7 mln. 

In view of this, it is important not to lose sight of the significant number of confiscated assets that will be managed by other government agencies or business entities.

A separate remark concerns the already-mentioned monitoring of the effectiveness of managing confiscated assets. The relevant functions were entrusted to the Interagency Working Group on the Implementation of the State Sanctions Policy – a temporary advisory body under the government. The status of this working group, as well as the absence of provisions regulating the procedure and terms of monitoring, gives grounds for doubts about its consistency and objectivity. 

Already at the initial stage of management of sanctioned assets, we noticed abuse in delaying or adopting unreasonable management decisions by key entities. This confirms the feasibility of the idea to introduce monitoring to improve the management of former Russian assets. But the mechanism of its organization and holding needs to be significantly improved, in particular, by designating a permanent and competent body in the field of state assets’ management as the monitoring entity.

“Conventional” and political: in what crimes is confiscation of property abroad possible?

When prosecuting persons in respect of whom it will be necessary to send requests abroad, it should be considered that they are to be prosecuted for crimes recognized by the world community as “conventional.” These include terrorist financing, corruption, drug trafficking, etc.

After all, there may be problems with a certain category of criminal offenses if they are classified as political crimes. For example, the European Convention on the International Validity of Criminal Judgments states that the enforcement of a sentence may be refused when the requested State considers that the crime for which the sentence was passed is of a political nature or is purely military.

In general, the concept of refusal because of political crimes is widely developed and discussed. Its essence lies in the fact that states, as a general rule, do not help each other in prosecuting a political crime. Political crimes usually include treason, espionage, and calls for rebellion.

Currently, Ukraine is a party to 6 multilateral conventions fundamental in this context:

• European Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, 1990;
• Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, 2005;
• UN Convention against Corruption, 2003;
• Criminal Law Convention on Corruption, 1999;
• United Nations Convention against Transnational Organized Crime, 2000;
• United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988.

If there is a choice, law enforcement agencies should charge with “conventional” crimes. All States that are parties to such conventions have obligations both to criminalize these acts and to help combat them.

A positive example is the recent incrimination of the Russian oligarch Mikhail Shelkov with the legalization (laundering) of income. While the first suspicion notice concerned the financing of actions committed with the aim of forcibly changing or overthrowing the constitutional order (Art. 110-2, part 3 of the Criminal Code of Ukraine). Such an addition to the qualification of the crime will allow the effective enforcement of punishment abroad.

In addition, attention should be paid to the requirement of “double criminalization.” As a general rule, punishment can be enforced in another state when the same actions are punishable under its legislation. In 2004, this became the basis for the refusal to enforce the verdict of the Slavutych City Court of Kyiv Oblast on the confiscation of funds of a person convicted of illegally opening a foreign currency account outside Ukraine (former Article 208 of the Criminal Code of Ukraine) because it was not a crime in the state addressed.

Therefore, the most likely way to obtain a positive result of the confiscation abroad is to bring the perpetrators to justice for the above-mentioned conventional crimes.

Conviction in absentia may interfere with asset confiscation

In case a person is hiding from the court, the legislator provided the possibility of conducting special judicial proceedings against them (in absentia) in the Criminal Procedural Code of Ukraine, that is, effectively considering the case in court in the absence of the accused. This should allow the effective enforcement of property punishments, as well as worsening the lives of fugitive criminals.

Such a novelty was introduced after the events of 2014, when the Rada amended the CPC of Ukraine in response to the fact that a significant part of potential suspects and accused began hiding in the temporarily uncontrolled territories of Ukraine and in Russia. Currently, in absentia is a common practice in criminal proceedings, but it has noticeable and invisible drawbacks.

For example, the HACC is currently considering the “gas case” of Oleksandr Onyshchenko. In January 2020, the court granted permission to consider this proceeding in the absence of the accused. In December 2021, judges seized the German equestrian facility Gut Einhaus within special confiscation. If Onyshchenko is found guilty of the actions he is charged with, which we will learn in December, then in order to enforce the verdict in terms of special confiscation, it will be necessary to consider German legislation on the conditions for the legality of a conviction in absentia. After all, the enforcement of the sentence should not contradict the principles of the legal system of the state that is asked to enforce the sentence.

In addition, the European Convention on the International Validity of Criminal Judgments stipulates that in order to enforce a sentence deliverd in the absence of the accused, it is necessary that the convicted person be personally informed of such a court decision. That is, sentences delivered in absentia will not be enforced by any foreign jurisdiction unless the convicted person is informed of it personally.

According to Art. 323 of the Criminal Procedural Code of Ukraine, the accused is informed about the trial by sending a summons to the last known place of their residence, published in the mass media of the national sphere of distribution (Government Courier) and on the official website of the court. Whether these measures are enough is a debatable issue.

For example, during the MH-17 case in The Hague, informing about the trial was conducted through the Russian authorities. It was also done through unofficial channels, for example, through the ruscist network VKontakte; letters in messengers; phone calls, after a voice examination was conducted. The judges also assessed whether the accused had published any information from which it could be established that they were aware of the trial.

Searching for property abroad: mission (un)important?

Before collecting evidence that would confirm the possibility of applying special confiscation, it is necessary to search for the relevant property. In particular, for this purpose, the Asset Recovery and Management Agency was created; it is to search for assets that can be seized and confiscated at the request of the investigating authorities. This information becomes the basis for sending requests for seizure of property under the procedure of international legal assistance.

However, we can notice that the number of requests sent by the ARMA to foreign jurisdictions within the framework of cross-border information exchange remains low, especially if we consider the number of requests law enforcement officers send to the ARMA.

The ARMA cooperates with a number of international movements and organizations whose work is aimed at coordinating the exchange of information between different states on the movement and location of criminal assets, including global and regional networks for asset recovery StAR, CARIN, BAMIN, Interpol.

In total, for the period of 2017-2022, only 851 requests for asset tracing were sent to foreign competent authorities (almost two-thirds of them in 2022), while domestic law enforcement officers sent 12,861 requests to the Agency.

That is, the international search for assets increased after the full-scale invasion, but the volume of requests to foreign states for the described period is much less than the requests of Ukrainian law enforcement officers to search for property in Ukraine.

In part, such a significant difference between international and national tracing and asset recovery can be explained by the features of the current legal regulation. The interaction between the ARMA and law enforcement officers on how the asset tracing process is carried out is regulated by a special procedure. It stipulates that in order for the ARMA to begin searching for the assets of the defendant abroad, the investigator or prosecutor must provide evidence that this person has some kind of connection with a particular country. This effectively diminishes the search potential of the ARMA when it comes to assets located abroad. The investigator or prosecutor may not always have information about the connection of the person involved in the proceedings with a particular jurisdiction, while ARMA specialists have the knowledge and resources to carry out such a search.

At the same time, the search for assets abroad is only the first element in the process of their recovery. Subsequently, it is necessary to seize this property so that the defendant in the proceedings could not get rid of it. Although this is a common practice of law enforcement agencies, it does not indicate that these assets will eventually be confiscated. All because of the duration of hearing cases by Ukrainian courts.

There were cases when, before the end of the trial in Ukraine, seizures imposed abroad were lifted due to the fact that they were not extended on time, or the maximum term of encumbrance of such property expired.

In general, the seizure of property is an interference with the right of ownership, so its restriction should be justified, and the delay in the trial is a problem of the state, from which, according to international standards, an individual should not suffer. Moreover, some states, unlike Ukraine, determine the limited duration of seizure. Therefore, there were cases when it no longer made sense to send the decision on confiscation for enforcement abroad because the property was not seized, so it could be lost or collected by another jurisdiction.

Thus, in 2016, Latvia collected USD 50 mln belonging to Yanukovych’s entourage, and it was withdrawn to this country. The Latvian side then initiated criminal proceedings on these facts and first seized the amount, and then confiscated it into the income of its own budget. By the way, Latvian legislation allows this to be done even before the completion of the investigation. The then Prosecutor General of Latvia, in a comment to journalists, said that the Ukrainian side had not requested its recovery. Moreover, according to him, Ukrainian law enforcement officers were very passive in cooperation and did not provide relevant answers or completely ignored the requests of the Latvian side for legal assistance in this case.

Subsequently, Prosecutor General Yurii Lutsenko complained about the Latvian authorities that they had not waited for a decision in Ukraine. However, his comment and the whole situation only confirm that national legislation and authorities are incapable of properly implementing international cooperation when it comes to the recovery of criminal assets. One of the key reasons for this is the length of criminal proceedings.

Interestingly, indicators of the duration of criminal proceedings can be found only in the statistics of the High Anti-Corruption Court. According to these data, as of June 30, 2023, the average duration of hearing a criminal case by the HACC for all 4 years is 288.6 days per case. This statistics is common both for the consideration of materials by investigating judges and for the consideration of criminal proceedings on the merits. That is, the average duration of consideration of criminal proceedings on the merits (those that should end with a verdict) is even longer.

This is another systemic problem of criminal justice in the list of those that we have repeatedly talked about. It also prevents the recovery of assets from abroad.

The istuation is aggravated by the fact that national criminal procedural legislation does not clearly specify who is responsible for foreign asset seizure control, especially in those jurisdictions where property seizure is imposed for a fixed period. For example, in Slovenia, the seizure and confiscation of property is limited to a maximum duration of three months in pre-trial proceedings and six months in court proceedings. These measures may be extended, but not for longer than one or two years, respectively.

Joint investigative teams — a practice that must be strengthened

An international tool in the form of joint investigative teams can help synchronize asset confiscation efforts. In Ukraine, it is regulated by Art. 571 of the Criminal Procedural Code of Ukraine, which stipulates that such groups can be created to conduct a pre-trial investigation of crimes committed on the territories of several states, or if the interests of these states are violated.

Such investigative groups are formed by the Prosecutor General’s Office at the request of the investigative body of pre-trial investigation of Ukraine, the prosecutor, and the competent authorities of foreign states.

The NABU has successfully applied this tool in several cases. For example, in the investigation of corruption in Ukravtodor, as well as the scheme of embezzling the funds of the state enterprise Printing Plant Ukraine.

According to the investigation, in the Ukravtodor case, the ex-head of the agency committed incriminated crimes in Ukraine, and the unlawful benefit was transferred to the territory of the Republic of Poland. In the case of the Polygraph Combine, the NABU reported that the evidence received from Estonia allowed establishing all the details of the scheme of the crime and money laundering. As part of a joint investigation, Estonian law enforcement officers prosecuted four people for laundering funds stolen from the company.

Thus, both cases concerned an international element — either the place of the alleged crime was on the territory of another state, or foreign companies were used to facilitate the commission of the crime. Therefore, the use of the mechanism of joint investigative groups made it possible to quickly collect and legalize the evidence obtained in these cases, as well as not to waste time on long-term mechanisms of international legal assistance.

Currently, the case of bribery of the ex-head of Ukravtodor is under consideration in court, so we can track the court’s approach to assessing the evidence collected in this way.

The legal regulation of joint investigative groups is already being improved to enable effective documentation of crimes of Russian terror. MPs have registered a draft law No. 7330, which to some extent details Art. 571 of the Crimianl Procedural Court of Ukraine on the grounds for the formation and functioning of joint investigative groups and the admissibility of the evidence collected. However, the experts of the advisory group of the Council of Europe provided a rather critical opinion on this draft law.

How much property was confiscated abroad as part of the enforcement of court sentences?

According to the Ministry of Justice, since the restoration of Ukraine’s independence and until October 2023, domestic courts have sent only 19 requests to enforce punishment in the form of confiscation of property abroad. Of these, 2 have been fulfilled, 13 have not been fulfilled, and 4 are pending.

Compared to the statistics of court decisions on confiscation of property in general, in the last 5 years alone, more than 6,500 verdicts were delivered, which provided for punishment in the form of confiscation of property. During this time, 8 of them were sent for enforcement by foreign competent authorities. That is, only 1 out of almost 1,000 verdicts concerns property located abroad.

Of course, it should be considered that not every convict owns property abroad. But, for example, in the 4-year practice of the HACC, there was not a single request to enforce a verdict abroad. Although the NABU reports that as of June 30, 2023, 1,501 requests for international legal aid were sent, and 1,033 of them were fulfilled. Some of these requests concerned the seizure of property.

For its part, the National Police of Ukraine reports that in 2020, the amount of the property seized abroad was UAH 757,307,843. In 2022 alone, the ARMA found UAH 145 mln abroad (in UAH equivalent as of December 31, 2022), as well as 422 real estate objects and 304 vehicles. In the future, this property should be seized and, ultimately, it could be confiscated.

This indicates that the property abroad, which is involved in criminal proceedings, does exist, but it has not been confiscated yet.

The systematic and static nature of the problem is also confirmed by the number of requests sent for confiscation of assets under verdicts. It can be seen from these data that such requests are almost evenly distributed over the years, and therefore, for 32 years, lttle attention has been paid to this problem, and no work has been done on its real solution. It should be noted that here we focus on information as of October 2023.

All this demonstrates the issues that exist in the field of asset recovery. Roughly, they can be divided into:

• regulatory. These issues include shortcomings in the regulation of the application of property confiscation, the process of sending requests to enforce this punishment abroad, as well as international treaties to which Ukraine is a party regarding the enforcement of sentences;
• organizational. These issues concern the practice of incriminating persons with crimes that cannot be effectively prosecuted abroad, the process of criminal prosecution in absentia, that is, in the absence of the accused, the shortcomings of asset tracing, and the use of mechanisms of joint investigative teams, as well as asset recovery agreements.

It is these issues, as well as causes and consequences of these issues, that we cover in our material.

Confiscation of all property is a relic of the Soviet era

The statistics indicates that requests to enforce confiscations of property abroad in the last 32 years have been sent extremely rarely. But even if such requests are directed more often, the probability of their successful enforcement will remain very low. After all, a significant part of the refusals to enforce the confiscation of property was justified by the fact that the criminal codes of other states very often do not provide for the compulsory alienation of assets in the form available in Ukraine. In addition, in general, international treaties are mainly focused on the enforcement of decisions on the confiscation of criminal assets, rather than all property.

The fact is that the fundamental conventions defining the rules for the international confiscation of assets refer to confiscation as a punishment and as a measure (special confiscation). At the same time, the CoE Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime determines that in any case the confiscated property must have signs of criminal origin. The same is found in the UN Convention against Corruption, the UN Convention against Transnational Organized Crime, and others.

Although the European Convention on the International Validity of Criminal Judgments provides for the possibility of enforcing confiscation sentences on the basis of a court verdict, it does not specify a mandatory requirement regarding the criminality of the nature of property. Nevertheless, this Convention has a safeguard that makes it impossible to confiscate the amount of assets that is not provided for such crimes by the legislation of the state in which such confiscation is requested.

Modern practice of most foreign countries (Lithuania, China, the Netherlands, and many others) suggests that property can be confiscated in criminal cases when it is of a criminal nature. That is, such assets were directly or indirectly related to the commission of a crime, and the investigation provided relevant evidence to confirm this.

The Ukrainian legal system declares that the confiscation of property occurs without any proof of its criminal origin, and the property of such origin is subject to special confiscation — a measure of a criminal law nature.

Therefore, in our case, the process is as follows:

• the investigating authorities, when searching for and initiating the seizure of property, do not prove its criminal nature;
• Ukrainian courts, when imposing confiscation as a punishment, do not evaluate the evidence to support this;
• foreign jurisdictions do not enforce this punishment because they need strong and court-confirmed evidence of the criminal nature of the property.

It should be noted that the draft criminal Code, which is now widely discussed in the professional community, eliminates this problem. It determines that only property or income from it that was in any way used to commit a criminal offense or income from such property can be confiscated.

A more attractive tool for use abroad is special confiscation. However, as the Ministry of Justice replied to our request, in the 10 years of the existence of special confiscation abroad, not a single request for its implementation was sent.

Special confiscation is understandable for foreign states, which is undoubtedly its advantage. The approach to confiscation of means of crime and the proceeds from its commission is the most acceptable among the world community and is enshrined at the legislative level in a number of foreign jurisdictions. However, the application of special confiscation is more complicated than the usual recovery of all property owned by a person into the national income because for this it is necessary to prove the connection between assets and a criminal offense.

In this context, attention can also be drawn to the progressive provision of Article 100, part 9, clause 6-1 of the Criminal Procedural Code of Ukraine, which, unfortunately, is not effectively used. This is a domestic analogue of extended confiscation, when the court has the opportunity to confiscate the property of a convict (or related persons) for committing a corruption crime, legalization (laundering) of proceeds from crime if it is not established in the court that such property was acquired legally. In other words, there is a presumption of unlawful acquisition of such property.

However, this provision contradicts the grounds for special confiscation defined in Articles 96-1 and 96-2 of the Criminal Code of Ukraine, which creates a conflict that does not allow its effective application.

What is wrong with sending requests to enforce property confiscations?

In general, to conduct confiscation abroad, the court must draw up an appropriate request, translate it into the language of the country to which they want to apply, and send it to the Ministry of Justice for verification of compliance with the requirements of the special Guide.

If the requirements specified in the Guide are not met, the Ministry of Justice may return the request to the court with recommendations for correction or with an explanation of why such a request cannot be fulfilled. Currently, the Ministry of Justice has not returned any request for confiscation of property under a verdict to the court for the entire period of Ukraine’s independence. This can be explained not by the high level of quality of requests, but by their small number.

However, there are cases when the courts are mistaken in the grounds for sending a request. For example, the Hlybotskyi District Court of Chernivtsi Oblast, by its verdict of January 30, 2012, convicted an Italian for carrying and finishing an attempt to smuggle a cold weapon — a knife. The court prepared a request to Italy to imprison the convict, and in this request referred to the European Convention on the International Validity of Criminal Court Judgements of 1970. However, Italy was not a party to it, so the request was not fulfilled.

When sending requests for international legal aid, it should also be taken into account that their consideration can take a long time — from months to years. This is a very serious obstacle that hinders the process of returning criminal assets to Ukraine.

Of the four requests that are currently being considered by foreign colleagues, one is being fulfilled for more than a year, another one for more than 6 years, and one — more than 15 years.

It is impossible to accelerate this process by changes in national legislation, but the Ukrainian authorities are able to create a legislative and organizational basis for monitoring the status of consideration and implementation of such requests. Now this direction has intensified due to the approval by the Ukrainian government of the Asset Recovery Strategy for 2023-2025. We hope that this will allow us to find out about new and still unidentified problems, as well as offer effective solutions to them.

In addition, draft law No.8038, concerning amendments to the Criminal Procedural Code of Ukraine and other legislative acts of Ukraine regarding international cooperation during criminal proceedings, was under consideration by the Parliament. But the specialized committee returned it for revision.

This document somewhat detailed the process of international enforcement of court decisions. For example, it established the terms within which court decisions should be sent abroad, if the verdict provided for confiscation or special confiscation. It also has separate provisions relating to the recognition and enforcement of decisions of foreign courts on the territory of Ukraine. For example, allowing national courts to decide on the transfer of confiscated property, its monetary equivalent, or part thereof to victims.

The said draft law generally regulates the process of considering a request for the distribution or return of confiscated property. For example, such provisions are especially relevant given that at the end of September, a court in Serbia sentenced former SSU General Naumov to a year in prison for money laundering. During the inspection of his car, money and diamonds were found, which, according to the police, originated from criminal activity. Therefore, it would be appropriate to have provisions in national legislation regulating the powers of criminal justice bodies in the process of asset recovery.

One of these tools is international agreements on the distribution and recovery of assets to Ukraine. For example, the law on the ARMA mentions that the Agency may participate in the preparation of drafts of such agreements.Moreover, Art. 568 of the Criminal Procedural Code of Ukraine states that the court may decide to confiscate property if it is provided for by international treaties of Ukraine regulating the distribution of confiscated property or its monetary equivalent. However, the current legislation does not contain information on what exactly such international treaties should regulate, as well as the grounds for their possible conclusion. This may explain why law enforcement officers do not apply this practice.

Despite this, it is worth noting the positive work of the Department of the Ministry of Justice, responsible for sending requests in the field of international enforcement of decisions. This department advises the courts on the preparation of requests, conducts special training for judges and court officials, and it also appealed to the Supreme Court on the generalization of the practice of international enforcement of sentences.

Qualitative and quantitative international agreements in the field of confiscation enforcement

Even if the request is drawn up in a quality manner, this does not guarantee the enforcement of the sentence due to the specifics of international agreements with some states. Despite the fact that Ukraine is an active player in the international arena, it still does not have well-established international relations with all states.

There are several reasons for this. Firstly, not all states are parties to the same conventions on the enforcement of confiscation abroad as Ukraine. Secondly, there are a number of states with which Ukraine has broken off relations or has not established them at all. Thirdly, Ukrainian bilateral agreements do not single out confiscation as a separate area of legal aid.

Currently, Ukraine is a party to more than 15 multilateral conventions that provide for mutual legal assistance within several international intergovernmental organizations, and has 26 bilateral treaties with different states on multilateral mutual legal assistance in criminal matters (with the exception of certain extradition and extradition treaties). This seems to be a significant figure, but, for example, Great Britain has as many as 42 similar bilateral agreements. And the more such transactions the better.

However, not only the high number of bilateral agreements can provide Ukraine with effective channels for international cooperation in asset recovery. The issue of their quality plays an equally important role, especially in the absence of special provisions in each of them or at least mentions of confiscation.

Here it is worth mentioning the problem of poor quality of developing bilateral international regulatory acts concluded by Ukraine. The lack of initiatives on our part to amend already concluded agreements to improve the efficiency of their use is another problem.

Technological and civilizational progress allows criminals to better withdraw and disguise assets abroad. Therefore, the establishment of new and improvement of old international bilateral mechanisms of international legal assistance will greatly simplify the enforcement of confiscations by foreign jurisdictions.

Persons involved in criminal proceedings deliberately use those states that do not monitor compliance with financial legislation and remain nihilists in international cooperation in a certain way. For example, the “grey list” of countries under enhanced FATF monitoring includes Albania, Croatia, the Philippines, Syria, the UAE, and Turkey. However, Ukraine has agreements on cooperation in criminal matters only with the UAE and Syria, although, obviously, one should not expect compliance with the agreements with the latter.

This is what criminals can take advantage of, who, in addition to their own hiding, bring assets there so that our state bodies cannot get to them. Therefore, drawing up and sending such requests by Ukrainian courts, even if available, will be ineffective from the very beginning.