In 2022, the Prosecutor General and the Head of the Security Service of Ukraine were dismissed, to whom there were many questions due to the collaborationism of their subordinates. In 2023, the legislators found the performance of the Bureau of Economic Security unsatisfactory, the director resigned, and it was decided to reboot the institution (starting with a clean slate). Next, the National Anti-Corruption Bureau (NABU) exposed large-scale corruption in the State Property Fund and the Supreme Court, and those involved were dismissed. However, only in the case of the Agency for Search and Asset Management (ARMA), there is talk of reorganisation by transferring part of the functions to another executive body, which is rather a change in form than an improvement in substance, as well as strengthening control over its operation.Why this happens, what "bugs" in the Agency's work come to the fore, and what can be done to fix them, barrister Andriy Potiomkin explains for Mind.
In February 2023, the President's Office and people's deputies resumed talks regarding the transfer of ARMA's asset management functions to the State Property Foundation. A corresponding bill has been prepared in the Verkhovna Rada, and the Foundation has started consultations on this matter.
On April 13, the Office of the President received a letter from the ambassadors of the European Union, Matti Maasikas, and the United States, Brigitte Brink, with an offer to carry out an audit of ARMA's performace before making a final decision.
Heeding the advice, the authorities stopped the reorganisation of ARMA, and the EU Anti-Corruption Initiative in Ukraine (EUACI), and the USAID began to organise the implementation of activities related to the audit.
Independence was one of the key principles of the establishment and operation of ARMA, similarly to other anti-corruption bodies (NACP, NABU, SAPO), to ensure which, as well as the institutional capacity of anti-corruption infrastructure bodies, the law provides for a special procedure for selecting managers (appointing a manager from among the best candidates, selected through a transparent, competitive procedure by a specially formed competitive commission) and a guarantee of non-interference in their activities by any other authorities.
Instead, the Chairman of the State Property Fund is appointed and dismissed by the Verkhovna Rada at the request of the President (Clause 12, Part 1, Article 85 of the Constitution of Ukraine).
Efforts in the direction of asset tracing did not lead to real cases of returning to Ukraine funds obtained by criminal means by former high-ranking officials of Ukraine, ensuring the inevitability of confiscation of income from their criminal activities;
Clause 7, Part 1 of the Article 9 of the Law is not fulfilled, the function regarding participation in ensuring the representation of the rights and interests of Ukraine in foreign jurisdictional bodies in cases related to the return to Ukraine of assets obtained from corruption and other criminal offenses;
The powers to prepare drafts of international agreements on the distribution and return of assets to Ukraine, provided for in the Clause 3, Part 1, Article 10 of the Law, are not exercised, as a result of which not a single hryvnia was transferred to the State Budget in fulfillment of Art. 24 of the Law;
No civil law agreements have been concluded, with the approval of the Ministry of Justice, with legal entities and individuals in regard to representing Ukraine's interests in foreign jurisdictions in cases related to the return of assets obtained from corruption and other criminal offenses to Ukraine, which is provided for in Clause 4, Part 1, Article 10 of the Law and Clause 27 of the Regulation on ARMA, approved by Cabinet Resolution No. 613 of 11.11.2018;
ARMA's potential for identifying and searching for assets of persons involved in the crime of aggression, war and other international crimes against the Ukrainian state and its citizens has not been realized. The initiative in the pursuit of russian assets was stolen by NACP, despite all the obvious advantages of ARMA's powers;
Since 2017, there has never been any independent external evaluation of ARMA's performance, which, according to the Law, must be carried out every year by an external monitoring commission of three persons appointed by the President, the Verkhovna Rada and the Cabinet of Ministers;
The first edition of the Law (2015), which took into account the recommendations expressed by international experts, allowed ARMA to sell assets without the owner`s consent just on the basis of the ruling of the investigating judge (court). In 2016, the Law was amended, ARMA received discretionary powers to independently decide whether to transfer assets for sale or management under a contract. In 2021, following numerous corruption scandals related to the sale of assets, the aforementioned discretionary powers were removed from the Law and the requirement for the sale of assets was returned only on the ground of a court ruling;
The original text of the Law (2015) allowed to manage assets with minimal damage to economic operation, by leaving them in the use of the owners, with ARMA monitoring compliance with the prohibitions established by the ruling of the investigating judge (court) on the seizure of assets. In 2016, the mentioned provisions were excluded from the text of the Law;
Special requirements for the electronic auction organisers, allowing ARMA not to sell assets through Prozorro.Sale. The procedure of accepting ARMA from prosecutors of assets under acts of acceptance and transfer, which allows to leave assets without an owner for a long time with impunity and not to bear responsibility for damage, destruction or other illegal actions with assets. The list of assets subject to sale, which was in effect from 2017 to 2021 and effectively allowed ARMA to sell everything in a row. These apparently destructive mechanisms of work were not introduced by ARMA regulation’s, but by the Cabinet of Ministers, which obviously has to share responsibility (at least political) for the negative consequences of the relevant decisions and actions of ARMA;
Every head of ARMA (2016-2023) had no independence and was loyal to the government. Prior to his appointment as the Chairman of ARMA, Mr. Yanchuk was the Deputy Minister of Justice for European Integration (2014-2016) from the ruling political party, whose leader headed the Government at that time. The second and third heads of ARMA Mr. Sygydyn and Mr. Zhoravovych were appointed by the Cabinet of Ministers without tendering in 2019 and 2021, respectively. Prior to that, Mr. Sygydyn (2015-2019) served as the head of the State Registration Office of the Main Territorial Department of Justice in Kyiv, and Mr. Zhoravovych (2019-2021) was the head of the ARMA’s North-Eastern Interregional Territorial Administration (Kharkiv);
ARMA’s territorial offices have been in their infancy for years, with limited functionality, unable to independently, at the expense of their own resources, carry out activities related to the search, assessment, accounting and management of assets; they only carry out isolated assignments of the Chairman of ARMA and his deputies on related issues instead. Along with this, the transfer of the mentioned powers to local units and the abolition of central office’s monopoly can be predicted to be the biggest anti-corruption step;
The registry of seized assets, designed to remove the terra incognita from the question of which assets are seized in the state, as well as to quickly show asset management measures carried out by ARMA, was being created for over six years and was put into operation only in 2023. However, ARMA's decision still limits the public access to the data of this registry;
The function of carrying out an asset valuation at the request of an investigator, detective, prosecutor, court (investigating judge) is not executed, provided for in Clause 3, Part 1 of the Article 9 of the Law, allowing the value of assets to be determined with the direct participation of pre-trial investigation bodies, the prosecutor's office and the court at the stage before their transfer to ARMA management. Such an assessment allows fixing the lower limit of the asset value in the decision of the investigating judge (court), which carries much lower corruption risks compared to the independent asset valuation by ARMA in accordance with Clause 4, Part 1 of Art. 9 of the Law, when they have already been transferred to management;
The provisions of Part 5, Art. 21 of the Law on public auctions, following the example of the best world experience, in particular Christie's and Sotheby's auction houses, as well as the Dutch auction, the US eBay’s online auctions, have not been implemented;
Farfetched classification of assets as physical evidence by pre-trial investigation bodies, the prosecutor's office and the court, with the aim of their further transfer to the ARMA administration. This is due to gaps in the Criminal Procedure Code of Ukraine, which establishes only the procedure for transferring the assets of arrested persons to the ARMA administration for the purpose of preserving physical evidence (Article 100), and does not provide for similar procedures regarding the assets of those arrested with the purpose of ensuring special confiscation, confiscation of property as a form of punishment. and compensation for damage caused as a result of a criminal offense;
Heads of prosecutor's offices do not fulfill their obligation to check the condition and conditions of preservation of ARMA assets, their safety;
No accounting of assets is carried out, that is provided for in Clause 4, Part 1, Art. 9 of the Law, which was repeatedly emphasised by the Accounting Chamber in its audit reports;
Non-public, non-transparent, shadow competitive selections of asset managers are held, which is repeatedly emphasised by the public and journalists and was highlighted in 2023 at meetings of the Verkhovna Rada's Temporary Investigative Commission on Economic Security. For six years, ARMA has avoided using the Prozorro electronic procurement system for the selection of asset managers, as well as conducting live broadcasts over the Internet of their selection process (with video archiving);
Non-competitive and inefficient sale of assets is carried out through "gray" organisers of electronic biddings, at prices that are many times lower than their market value, and with the possible provision of advantages to individual participants of electronic auctions (victory for the latter). Over years of its operation, ARMA evades selling assets, using Prozorro.Sale biddings;
There is no clear legal regulation of the corporate rights management, therefore, there are almost no cases of successful asset management in the form of a stake in the authorized (pooled) capital or shares, equity units over the six years of ARMA's operation;
ARMA was established as a source of revenue for the State Budget through the effective asset management. An example for it was the French Agency for the Management of Arrested and Confiscated Assets (AGRASC), which paid 4.5 million euros to the budget, transferred 5.9 million euros to the anti-drug fund, returned 1.2 million euros to state creditors, compensated the victims of crimes 23 million euros in 2011-2014. At the same time, AGRASC fully maintained its work at the expense of revenues from asset management – 3.6 million euros. Instead, ARMA spent 10 times more money from the State Budget than it earned in 2018-2022.
Ukraine undertook to designate an institution that will act as an asset recovery office, in accordance with Clause 7 (i) of the "Governance and Transparency" section of the Memorandum of Understanding between Ukraine as a Borrower and the European Union as a Lender regarding Ukraine's receipt of macro-financial assistance from the European Union in the amount of up to 1 billion 800 million euros (Decision (EU) 2015/601 of the European Parliament and the Council of 15 April 2015 on providing macro-financial assistance to Ukraine), ratified by the Law of Ukraine dated 06/18/2015 No. 538-VIII,.
ARMA was created due to the need to implement the second phase of the Action Plan on EU liberalisation of the visa regime for Ukraine, according to the explanatory note to the Law.
In the Fifth EU Monitoring Report on the EU-Ukraine Action Plan On Visa Liberalisation, in Clause 2.3.1.3 of the "Prevention and Fight Against Corruption" section, Ukraine was instructed to create a National Agency for the Search of Illegal Assets.
In the Sixth EU Monitoring Report on the EU-Ukraine Action Plan On Visa Liberalisation, in Clause 2.3.1.3 of the "Prevention and Fight Against Corruption" section, Ukraine was instructed to ensure institutional capacity in terms of detection, search and management of illegal assets, adopt relevant legislation and ensure full functionality of the agency.
When establishing the ARMA, the Ukrainian government was guided by:
The Council Decision 2007/845/JHA of 6 December 2007 concerning cooperation between Asset Recovery Offices of the Member States in the field of tracing and detecting of proceeds from or other property related to crimes, which provides for the creation (identification from among existing) of bodies responsible for search, identification of assets that can be seized in criminal proceedings, as well as for the exchange of information on such assets between EU member states;
Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the EU, which provides for the need to take measures for the effective disposal of seized assets, as well as the creation of special institutions responsible for the management of such assets with in order to preserve them or preserve their value.
When establishing ARMA, the Ukrainian authorities took into account the XI and XII Recommendations of the Group of States against Corruption (GRECO) based on the results of the Joint 1st and 2nd rounds of assessment of Ukraine (March 20-23, 2012), in particular, the recommendations set out in Clause 28 – to adopt new rules of confiscation and arrest of proceeds obtained through crime, which will make it possible to apply these measures not only to direct, but also to indirect (converted) proceeds, to carry out equivalent confiscation and confiscation of the proceeds of a third party in accordance with the Criminal Law Convention on Corruption (Recommendation XI) and to adopt regulatory legal acts on the management of confiscated property, which can be flexibly applied in order to effectively preserve the value of such property.
Also, ARMA was created to fulfill the following requirements:
Article 31 of the UN Convention against Corruption, ratified by the Law of Ukraine of 18.10.2006 No. 251-V, which requires the participating states to adopt, in accordance with their national legislation, legislative and other measures that may be necessary for the administration by relevant authorities of frozen, arrested or confiscated property;
Article 6 of the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of Proceeds of Crime and the Financing of Terrorism, ratified by the Law of Ukraine dated 17.11.2010 No. 2698-VI, which provides that each Party shall take such legislative or other measures that may necessary to ensure proper management of frozen or seized property in accordance with Articles 4 and 5 of the Convention.
In 2018, the institutional formation of ARMA was strengthened by the FATF, which advised member states in its recommendations to create bodies that could promptly respond to requests from similar foreign bodies regarding the identification, freezing, seizure and confiscation of property obtained illegally (recommendation 38).
Also, the legal basis of ARMA's opearion is the Criminal Convention on Combating Corruption, ratified by the Law of Ukraine of 18.10.2006 No. 252-V, and the Convention on Laundering, Search, Seizure and Confiscation of Proceeds of Crime, ratified by the Law of Ukraine dated 17.12.1997 No. 738 /97-BP.
Following the example of the Specialised Anti-Corruption Prosecutor’s Office as a part of the Prosecutor General’ Office (with a special procedure for the selection and appointment of its head), the reorganisation of the ARMA is possible through the separate creation of the Asset Tracing Agency (ARA) and the Asset Management Agency (AMA) as an independent structural unit within the State Property Fund (as a department), subordinate to the Fund’s Deputy Chairman – the Head of the AMA. At the same time, the existing guarantees of independence (a special procedure for the selection and appointment of the head) and non-interference in the ARA and AMA’s operation by any other government agency should be preserved at the legislative level.