Asset Recovery and Management Agency: Ukrainian Implementation

Denys Nienov, attorney at law

Source: The Ukrainian Journal of Business Law

Within the framework of implementation of the EU Action Plan on Visa Liberalization with Ukraine and performance of other international obligations undertaken by Ukraine, the National Agency of Ukraine for Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes was established (Asset Recovery and Management Agency, or ARMA) in December 2015. In terms of its structure, scope of functions and legal status, it has no equivalents in the system of Ukrainian public authorities.

The main purpose of ARMA is to ensure the inevitability of negative consequences for commission of criminal offenses, primarily corruption, through the deprivation of offenders of the economic benefits derived from their misconduct.

To this end, ARMA performs the following functions:

– detection and tracing of property that may be seized in a criminal proceeding, both on the territory of Ukraine and abroad; the aforementioned measures are carried out at the inquiry of the investigator, detective, pre-trial investigation bodies, prosecutor’s office and courts, as well as at the request of the relevant bodies of foreign states in order to seize such assets;

– international cooperation and representation of Ukraine in foreign jurisdictions regarding the detection and tracing of as¬sets derived from crime;

– management of assets seized in the criminal proceeding by: a) transfer of assets into management under an asset management agreement; b) disposal, namely, the sale of assets in question with the subsequent transfer of cash on the accounts with state banks until the end of criminal proceeding;

– development and maintenance of a Unified State Register of Assets Seized in a Criminal Proceeding;

– provision of explanations and consultations on issues of its competence and preparation of proposals pertaining to state policy on detection, tracing and management of assets.

It’s important to emphasize that ARMA acts on the basis of inquiries filed by the law—enforcement agencies of Ukraine, requests from the competent authorities of other states on the basis of cooperation and via court decisions only, but never at its own initiative. At the same time, one of the preconditions for the Agency for exercising its powers is the existence of a criminal proceeding, which significantly narrows its scope of activity compared to similar authorities in the majority of other states.

Besides, in countries like Italy, the United Kingdom, Finland, France, Lithuania and the Netherlands, property may be seized within the framework of a civil proceeding without a court verdict against a person. In particular, the owner of assets may be sued in a civil proceeding where the latter has to prove the legal origin of his/her/its property, otherwise it will be seized in favor of the State.

The civil seizure of assets exists in a largely reduced form in Ukraine: it can only be applied to persons/entities authorized to perform functions of the State or local self-government, and only after their verdict on conviction comes into force and only for certain types of crimes. Namely, corruption or legalization (laundering) of the proceeds of crime.

In the United Kingdom there are also mechanisms to recover assets, in particular:
– imprisonment for failure to pay any amount determined by a court;
– judicial decision to disclose all assets, regardless of the country of their location, against the risk of being held in contempt of court.

ARMA actually started its work in October 2017.

As regards the statistical indicators of the Agency’s work, at the present time its official website contains information only about 2017 as well as general information on the ARMA’s activities in 2018.

In 2017, the Agency transferred 75 units of arrested assets into management and processed 69 requests filed by law-enforcement agencies of Ukraine.

As of the beginning of December 2018, the number of seized assets transferred into management increased and came to more than 700 units. These are operating enterprises, commercial and residential real estate, vehicles, corporate rights, grain, clothing, household appliances, etc. It is worth noting that it was in 2018 saw the transfer of enterprises and corporate rights into ARMA’s management. Furthermore, the Agency reviewed 1,064 appeals from law-enforcement agencies of Ukraine.

The establishment of the National Agency resulted in several consequences, including for business representatives, which provide them with the new tools to protect their interests in cases where they appear as victims of crime.

In the event that a company experiences losses from criminal actions on the part of partners, counteragents, top management or other persons, it is extremely important for the business owner to take speedy meas¬ures to find and seize assets belonging to the offender, at the expense of which it will be possible to get compensation for damages caused. To this end, ARMA provides effective tools to quickly access the various databases at the disposal of Ukraine, partner countries for the exchange of information and international organizations on the discovery and return of the proceeds of crime. This enables the speedier receipt of information, avoiding the need for a lengthy bureaucratic procedure for international cooperation in criminal proceedings or civil cases, which requires mediation between the Prosecutor-General’s Office of Ukraine and the Ministry of Justice of Ukraine.

For the purpose of the above, the victim should initiate the criminal proceeding and the inquiry of the pre-trial investigation body or the prosecutor to ARMA in order to detect and find the property of the person concerned for the purpose of its subsequent seizure. As a rule, such inquiries are pro-cessed within three business days.

In 2018, within the framework of cross-border exchange of information, ARMA established cooperation with 33 countries, including the United States, Great Britain, Cyprus, Latvia, Switzerland, Austria, Germany, France, Republic of Panama, United Arab Emirates, Slovakia, Czech Republic and others.

Within the framework of cross-border exchange of information, ARMA sent 81 inquiries to foreign law-enforcement agencies and international organizations pertaining to the detection and tracing of assets in criminal proceedings and responded to 15 inquiries from the competent authorities of countries that include Germany, Italy, France, Israel, Denmark, Lithuania, Belgium, and others.

The National Agency takes over man¬agement of assets in the following conditions (in the absence of consent to transfer from the owner):
1) existence of criminal proceedings;
2) minimum amount of assets exceeds UAH 834,600.00;
3) existence of a court decision on seizure of assets;
4) existence of a court decision on the transfer of assets into the management of ARMA with the relevant inquiry filed by the prosecutor to the Agency.

The management of monetary assets in cash and in a non-cash form in any currency, as well as of bank metals seized in a criminal proceeding, is carried out by the National Agency by placing them on the ARMA’s deposit accounts opened with state-owned banks, namely, the JSC Oschadbank and the JSB Ukrgasbank.

The management of monetary assets in cash and in a non-cash form in any currency, as well as of bank metals seized in a criminal proceeding, is carried out by the National Agency by placing them on the ARMA’s deposit accounts opened with state-owned banks, namely, the JSC Oschadbank and the JSB Ukrgasbank.

The management of other movable property, real estate, securities, property rights and other rights is carried out by ARMA via the sale of the assets in question or their transfer into management.

The assets taken into management by the National Agency are subject to an appraisal carried out by appraisers, determined by the results of a tender, and to the transfer into management of legal entities or individuals, determined by the results of the tender, by virtue of a special asset man-agement agreement. The manager (trustee) has no right to alienate the assets taken by such a manager into management.

As for the sale of the seized property, this may be done by virtue of a decision adopted by the investigating judge or a court, and the said assets shall meet one of the following criteria:
– property, including items or large batches of goods, the storage of which is impossible without unnecessary difficulties due to their bulkiness or for any other reasons;
– expenses for providing special conditions for the storage of property or its management are proportionate to its value;
– property which is rapidly falling in value;
– property in the form of perishable goods or products.

The indicative list of such property, approved by the Cabinet of Ministers of Ukraine, is quite extensive and in effect gives the investigating judge the right to decide on the transfer of property to ARMA for the sale of any seized property.

The aforementioned assets are transferred for sale without the owner’s consent on the basis of decision issued by the in¬vestigating judge or court, a copy of which is sent to the National Agency immediately after its issue with the relevant inquiry by the prosecutor.

At the same time, consideration by the investigating judge or court of an inquiry for the transfer of assets for their sale is carried out without the obligatory participation of their owner and, in fact, the latter may learn about such a decision after their actual sale, when it becomes quite difficult to restore the owner’s rights.

Moreover, the court decisions on the transfer of assets into the ARMA’s management cannot be appealed against, which deprives their owners of the important instrument to protect their rights and prevent possible abuse by law-enforcement agencies.

The sale of assets is carried out at electronic auctions.

The decision to transfer assets for the sale requires no additional approvals, except for the sale of assets exceeding UAH 41,730 000.00 in value, in which case the decision shall be agreed by the special interagency commission on the sale of assets created at the National Agency.

Therefore, any seized property, including property which is evidence in a criminal pro¬ceeding, may fall under ARMA’s jurisdiction. A distinctive feature of the property seizure as evidence in a case is that such a seizure may be imposed on the property of any person at the initial stage of the pre-trial investigation, even if the prospects of such investigation are uncertain, no person has been served with charges, and the criminal proceeding may be closed in the future due to the absence of the very fact of crime commission. This is especially true for white collar crimes, which require complex investigation, analysis of a large amount of documents and the conducting of extensive economic evaluations.

As a result, the legislation does not exclude the probability where, after the sale of property, it turns out that there was no crime at all, and there are only civil law relations between the parties, for which reason the criminal proceeding shall be closed.

Consequently, it is quite appropriate to establish certain restrictions on the application of procedures for the transfer of seized assets into management by the ARMA.

There are currently four main judicial mechanisms to protect the rights of an owner when appealing against the transfer of seized property into the Agency’s management:
1) revocation of seizure of property through a court of first instance or lodging an appeal against the ruling on seizure of property;
2) cancellation of the transfer of assets into management by ARMA through a court of first instance;
3) filing a claim for the revocation of the decision adopted by the ARMA;
4) filing a claim for invalidation of the results of the tender held to select the manager of the seized assets.

Therefore, ARMA is still undergoing formation and it is likely that its powers will expand in future in terms of introduction of civil seizure and other international practices typical for similar authorities in other states, especially in the European Union. The National Agency already provides the victims of crime with new opportunities for finding and seizing assets to recover damages. At the same time, the owners of seized property need additional procedural rights to prevent possible abuse in the application of procedures for the transfer of seized assets into ARMA’s management.