Confiscation of Russian assets in Ukraine. What was (not) done in 2023

Russia's full-scale invasion of Ukraine continues to cause colossal losses. According to official data alone, more than 10,000 civilians were killed in almost two years of war, and millions of people were forced to emigrate from the country. Material losses for the first year as of February 2023, according to the World Bank, were estimated at 411 billion dollars. However, Russia continues to attack Ukraine, causing more and more destruction. According to the head of the European Investment Bank, Werner Hoyer, Ukraine may need up to a trillion euros in foreign aid to compensate for the damage caused by the Russian invasion.

While the international political arena is still debating the possibility of recovering profits from $300 billion of Russian state funds, Ukraine, as a victim of aggression, has become the first state where mechanisms for recovery of assets of the Russian Federation and accomplices of aggression are working. We have already told what was achieved in this direction during the first year of the war. And now let's summarize what was done in 2023.

 

Russian state assets. A question on pause or unreasonable delay

There are no funds of the Central Bank of the Russian Federation (CBR) located on the territory of Ukraine, but there are objects that belong to the Russian Federation or its state companies. On March 3, 2022, people’s deputies adopted a corresponding law for their confiscation. In May 2022, following the decision of by the National Security and Defense Council of Ukraine (NSDC), two Russian banks – Sberbank and VEB.RF ("International Reserve Bank" and Prominvestbank) were confiscated, and the collected funds were directed to the Fund for the Liquidation of the Consequences of Armed Aggression. Currently, more than UAH 25 billion has already been directed to the Fund from this confiscation. 

On August 5, 2022, the government approved the presidential decree on the transfer to Ukraine of 903 commercial objects belonging to the government of the Russian Federation and Russian state companies. In particular, the lists of Russian assets that were planned to be seized included companies in the fields of energy, engineering, logistics, etc., railway wagons, cars, oil tankers, construction equipment, and others.

However, this list of objects was never submitted for review and voting by the National Security and Defense Council of Ukraine (NSDC), i.e. it was still not possible to seize this property.

After more than a year of delays, on October 6, 2023, the Cabinet of Ministers of Ukraine approved for the second time the draft of the presidential decree on implementation of the decision of the National Security and Defense Council of Ukraine (NSDC) on the forced seizure of property belonging to the Russian government and Russian state companies. According to this version of the project, it was proposed to remove more than 800 objects of movable property, including wagons, cars, machinery, aircraft engines and seven MiG-25s of the Russian Armed Forces in non-working condition, which can be used for spare parts for Ukrainian combat aircraft.

After that, on December 4, 2023, People's Deputy of the Verkhovna Rada of Ukraine, Yaroslav Zhelezniak, announced that at a government meeting, a decision on the forcible seizure of 50 objects of property rights of the Russian Federation and its residents would be considered. It mainly concerned minority stakes in a number of Ukrainian enterprises owned by residents of the Russian Federation. Dozens of companies whose production facilities and property are located in the occupied territories of Donetsk and Luhansk regions and in Crimea were included in the new list. At the same time, PJSC "Kriukiv Railway Car Manufacturing Plant" and LLC "Brokard-Ukrayina" were removed from the list. However, even the new abbreviated list has not yet been submitted to the National Security and Defense Council of Ukraine (NSDC) meeting for consideration.

Public organizations have repeatedly appealed to the need to seize all Russian property on the territory of Ukraine, but this has not yet been done.

Thus, in 2023, the issue of confiscation of the assets of the aggressor state in Ukraine, although it moved from a dead point, but the Ukrainians did not see a corresponding solution. In addition, the Fund did not receive new income from such asset recovery either.

So it looks like Ukraine is not using all the opportunities provided by the status of a victim of aggression. Moreover, it may have a negative impact on the confiscation of Russian assets abroad. After all, it is Ukraine that must show its international partners an example, demanding simultaneous steps to confiscate the assets of the aggressor state.

Private assets of accomplices of aggression. The process gained momentum

With regard to private assets in Ukraine, the mechanism of sanctioned confiscation is almost in effect. In 2022, after the introduction of the relevant legislation, the Ministry of Justice of Ukraine, with the help of other state bodies and the public, began to identify and file lawsuits for the recovery of assets belonging to accomplices of aggression, both Russians and traitors and collaborators. Thus, in 2022, the High Anti-Corruption Court of Ukraine (HACC) confiscated the assets of Russian oligarchs, propagandist rectors, members of the State Duma, and fugitive President Yanukovych.

As of the end of 2023, the High Anti-Corruption Court of Ukraine (HACC) has already passed 32 decisions on the confiscation of assets of Russian collaborators.

In particular, for 2023, the following were confiscated:

• businesses that support Russia's armed aggression against Ukraine by paying taxes to the budget of the Russian Federation, investing in securities and manufacturing;
• assets of Russian oligarchs;
• assets of people's deputies of the State Duma of the Russian Federation who voted for resolution No. 58243-8 "On the appeal of the State Duma of the Federal Assembly of the Russian Federation to the President of the Russian Federation V.V. Putin on the need to recognize the Donetsk People's Republic and the Luhansk People's Republic";
• assets of propagandist Artemy Lebedev;
• assets of the Ministry of Defense of the Republic of Belarus;
• assets of collaborators.

In December 2023, the Ministry of Justice of Ukraine submitted two lawsuits to the High Anti-Corruption Court of Ukraine (HACC) for the application of a sanction in the form of confiscation of assets to state revenue. The first – on December 25 to" Royal Pay" LLC, from which the ministry requested to withdraw securities and cash for a total amount of over UAH 1.8 billion to the budget of Ukraine. Last year, the last lawsuit was filed on December 28 against JSC "Iliushyn Finance Co." 

In addition to them, several more lawsuits of the Ministry of Justice of Ukraine regarding the application of the sanction of recovery are currently being considered by the High Anti-Corruption Court of Ukraine (HACC).

According to Inna Bohatyh, head of the sanctions policy department of the Ministry of Justice of Ukraine, the ministry plans to continue this activity in 2024.

In general, in 2023, a positive trend was maintained regarding the processes of recovery of assets of accomplices of aggression in Ukraine, mostly due to the considerable efforts of the Ministry of Justice of Ukraine and the High Anti-Corruption Court of Ukraine (HACC). In addition, the trend of recovery of assets is also possible due to the support of other entities that helped to identify them. However, the institutional capacity of the ministry is still not very large, primarily due to the number of qualified lawyers. Perhaps for this reason, society currently does not see lawsuits against all the "big fish", which take more time to prepare. The assets of a number of odious persons, such as the Russian oligarch Fridman, remain unseized, as the public has already stressed. In particular, regarding Fridman in October 2023, there was information that the Ministry of Justice of Ukraine was preparing a lawsuit, but it was never filed.

We hope that in 2024 there will be more decisions on recovery, and the confiscated assets will work for Ukraine.

 

Further fate of confiscated property. Did it bring in revenue?

After the decision of the High Anti-Corruption Court of Ukraine (HACC) on confiscation, the seized assets are transferred to the management of the State Property Fund of Ukraine. In September 2023, the State Property Fund of Ukraine announced the creation of a register of seized sanctioned assets of Russians and collaborators, which were transferred to the Fund's management. Currently, it contains information on 179 sanctioned assets and 20 sub-sanctioned groups and individuals.

Even earlier, in July 2023, the State Property Fund of Ukraine announced the sale of the first Russian company. It became the agricultural company "Investahro", which was confiscated from the Russian billionaire Mikhail Shelkov. However, the first auction did not take place due to the lack of potential investors. Under such conditions, the Prozorro.Sale system, through which auctions are held, automatically reduced the starting price by 50% – from UAH 55 million to UAH 27.5 million. But shortly after the announcement of repeated auctions, the State Property Fund of Ukraine canceled the auction by its order. Thus, two attempts to sell the company failed. Currently, there is no information about the announcement of the next auction.

In October last year, the State Property Fund of Ukraine announced the sale of another company confiscated from the same Mikhail Shelkov – this time the company was called "Tay-Minerals". The starting price is approximately UAH 5 million, but the date of the auction is still unknown.

So today, the confiscated property of private individuals does not bring money that can work for the benefit of Ukraine.

However, the mentioned problem is seen at the state level and officials are trying to solve it. In particular, in September 2023, the law entered into force, according to which the decision of the High Anti-Corruption Court of Ukraine (HACC) to apply a sanction in the form of asset recovery is immediately sent to the State Property Fund of Ukraine to determine the order and method of its implementation. So, it was possible to remove the bureaucratic formalities regarding the determination of the entity to which the recovered assets are transferred. Previously, this process took more than a month. And in November last year, the resolution of the Cabinet of Ministers of Ukraine No. 1233 "Some issues of management of assets charged to state income" was adopted. The resolution defines the procedure and methods of managing assets, in respect of which there is a decision of the High Anti-Corruption Court of Ukraine (HACC) on recovery.

These steps are aimed at simplifying and standardizing the procedure of the State Property Fund of Ukraine's management of seized assets in order to accelerate the flow of funds to the state budget of Ukraine. 

Another problematic moment remains the coordination between the State Property Fund of Ukraine and the Assets Recovery and Management Agency regarding the management of sanctioned assets depending on their status. Thus, this structure is responsible for the management of those sanctioned assets that are seized within the framework of criminal proceedings.

The problem is that when these assets are charged to state income and must be transferred to the State Property Fund of Ukraine for sale, it is necessary to first remove the arrest from them, terminate the contract with the manager (if it was concluded) and only then decide the further fate of the assets. Problematic aspects of coordination between the Assets Recovery and Management Agency and the State Property Fund of Ukraine regarding seized assets should be resolved as soon as possible. To this end, draft law No. 10069 has already been registered in the parliament. Despite the existing shortcomings, we expect it to be submitted to the specialized committee for decision-making and further refinement.

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The year 2023 showed that while Ukrainian soldiers are repulsing the enemy at the front, the enemy's assets remain unused. And while the Ministry of Justice of Ukraine and the High Anti-Corruption Court of Ukraine (HACC) are gradually helping to rid the Ukrainian economy of the influence of the assets of war accomplices, Russian state property remains unseized, despite the loud statements of the highest government officials.

It is important for Ukraine to be the headliner of such processes and show other countries an example of how to legally and promptly provide compensation for damage at the expense of the aggressor's assets.

Read this article in Ukrainian and russian.