6,800 russians and 53 oligarchs: How the Security and Defence Council and the Justice Ministry confiscate russian assets during the war
And who gets into the sight of the Ukrainian government faster than others?
The Ukrainian government is attempting to block all russian assets on Ukrainian territory to prevent the kremlin from using them to finance the war. However, russian president vladimir putin warned the oligarchs in advance about possible sanctions. As a result, many russian assets have changed owners to formally avoid responsibility. Mind, in collaboration with the StateWatch thinktank, has been investigating how successfully Ukraine identifies and confiscates this hidden property despite russian tricks.
Read also: Purging the "russian trail" and juggling beneficiaries. How Ukrainian companies change their owners amidst the war
How are the lists for analysis formed? To locate russian assets and effectively recover them for the benefit of the state, the Ministry of Justice has established the specialised Department of Sanctions Policy. This is where decisions of the NSDC (National Security and Defence Council of Ukraine) regarding the application of personal sanctions are received. Department specialists represent the state's interests during court proceedings for the recovery of assets to the state budget. It is also where international mechanisms for compensation for damages inflicted on Ukraine during the war are developed.
As of May 2023, the NSDC issued 27 decisions that include the names of about 6,800 individuals subject to asset blocking. In processing this list, the Ministry of Justice has identified approximately 250 russian assets within Ukraine, including 53 oligarchs.
When a sanction involving asset blocking and a prohibition on the transfer of russian capital outside Ukraine is imposed according to the decision of the NSDC, the business ceases to generate income for the owners. Therefore, everything produced and earned by companies owned by russians remains within Ukrainian territory.
StateWatch has developed an online tool for analysing the confiscation of aggressor assets. In the Manager column of the company graph, one can see what happens to the asset after it has been confiscated or arrested. For example, the confiscated asset of russian oligarch Andrey Molchanov, Aerok LLC, was transferred by the National Agency of Ukraine for Finding, Tracing, and Management of Assets to the management of the Ukrainian corporation Kharkiv Building Materials.
"I urge everyone who has relevant information or knows about circumstances that may indicate the actions of a sanctioned individual or their connections to a particular asset to inform the Ministry of Justice. This information does not go unnoticed. It is verified, recorded, and communicated in return," says Inna Bogatykh, Director of the Sanctions Policy Department in the Ministry of Justice.
According to Glib Kanevsky, Head of the StateWatch NGO, the work of the Ministry of Justice needs to be strengthened to the maximum extent because all russian assets can be recovered under the “On Sanctions” law but only during a martial law. "After it is cancelled, this procedure will be unavailable. If all major russian capital assets in Ukraine are not recovered, they will continue to operate and attempt to influence our political agenda," he says.
Article 5-1, the Law of Ukraine "On Sanctions":
Grounds, conditions, and procedures for the seizure of assets of individuals or legal entities for state revenue. Sanctions can only be applied to individuals and legal entities who, through their actions, pose a significant threat to the national security, sovereignty, or territorial integrity of Ukraine, or have substantially contributed (including through financing) to such actions by other parties. This sanction can only be applied during the period of the legal regime of martial law and provided that the corresponding individual or legal entity has already been subject to a sanction in the form of asset freezing, as determined by this law.
Analysts from the YouControl online system have identified over 25,000 legal entities with connections to the russian federation and the republic of belarus. This information is forwarded to law enforcement agencies.
"The main results are when the beneficiary – a participant of a legal entity – is a citizen of the russian federation or belarus or has connections with financial-industrial groups of russia. Or if the name of the company contains the name of an aggressor country," explains the founder and CEO of YouControl, Sergiy Milman. "Additionally, the system has information about connections with unfriendly countries that vote against Ukraine at the United Nations General Assembly, such as China, North Korea, Syria, Nicaragua, and Cuba. Foreign governments are already confiscating russian assets on their territory. Therefore, it will be necessary to track not only assets seized in Ukraine but also in other countries."
How do specialists identify business connections with the aggressor country? The Ministry of Justice has already developed a methodology for searching russian assets and has learned how to gather evidence that the court will consider significant for confiscating the property of sponsors of military aggression.
"If we are talking about large businesses and significant assets, the connections of a remote person with the asset are not traced in official sources," explains Inna Bogatykh. "That is, these connections are indirect, they need to be unravelled, described, and proven in court. That is why judicial control is crucial for the state to be certain that it is acting correctly by seizing assets of a remote person for the state's benefit."
Glib Kanevsky says, the confiscation of russian assets is necessary to completely eradicate russian business influence in Ukraine: "It is a strategic issue to ensure that the russian business has no influence on political processes, information policy, or cultural policy of the state, as well as other areas of life that, in our opinion, have been permeated by kremlin's influence through various russian oligarchs and businessmen in Ukraine."
Assets of russian oligarch Oleg Deripaska on Ukrainian territory. The sum of corporate rights of the company in Ukraine is estimated at 3.67 billion UAH by StateWatch analysts.
How StateWatch identifies connections between Ukrainian companies and russian beneficiaries:
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The ultimate beneficiary of the Ukrainian company is a citizen of the russian federation or a russian company.
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Evidence from law enforcement agencies and the judiciary in criminal proceedings regarding the presence of connections between the Ukrainian company and the russian beneficiary.
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Descriptions of connections between the Ukrainian company and the russian beneficiary in journalistic investigations..
How does the confiscation of russian assets take place? StateWatch and YouControl have created a register of russian oligarchs. In it, analysts have gathered information about 53 russian oligarchs from the 2021 Forbes list who are subject to Ukrainian sanctions and are beneficiaries of businesses in Ukraine. All these individuals own 112 companies with a total authorized capital of 6 billion UAH.
Asset confiscation within the framework of the Law "On Sanctions" was initiated by Ukraine in September 2022. The High Anti-Corruption Court has already seized the assets of 12 companies from this list to the state budget. The corporate rights of 21 assets have been arrested within various criminal proceedings.
"Among the well-known surnames in the Oligarch Register, there are several dozens of lesser-known individuals. But even they have a wide network of businesses in Ukraine: hotels, shopping centres, trading networks, oil extraction companies that can influence the politics of entire regions in Ukraine," explains analyst Roman Steblivsky. "These companies should be seized first because they belong to the wealthiest people in russia."
How does business affiliated with russia attempt to circumvent sanctions in Ukraine? A few days before the start of a full-scale war, russian oligarchs transferred their assets to fictitious individuals, according to the National Agency on Corruption Prevention. As an example, the National Agency on Corruption Prevention (NACP) names russian oligarch Oleg Deripaska, who transferred his ownership to Austrian businessman Siegfried Wolf.
"Before the start of the large-scale war, putin gathered all the russian oligarchs to discuss the action plan to support the russian economy in case of increased restrictions. According to information from foreign media, after this conversation, the majority of russian oligarchs managed to transfer their companies and assets to their close associates to avoid future sanctions," said NACP.
Therefore, the Ministry of Justice tries to confiscate not only the assets directly owned by russians but also those for which there is sufficient verified information regarding their indirect affiliation with russia. Currently, Ukrainian courts are examining the available evidence of these fictitious deals. They primarily review cases regarding the blocking and confiscation of russian assets. Typically, the court dispute involves proving that the asset belongs to the sanctioned individual.
"It's absurd when they try to convince us that a person who buys a 75% stake in a titanium plant for 3750 euros two days before the full-scale invasion is a Ukrainian investor, and we are wrongly depriving them of their property rights," comments Inna Bohatykh.
The issue of evidence is discussed directly in the judicial process, she says. Therefore, a practice of resistance is being formed to sanctions by russians.
"For every operating business, for every valuable asset, there are representatives of opponents," explains the Ministry of Justice. "They try to prove that this asset does not belong to a person on the sanctions list. Usually, the sanctioned companies have been disguised for decades. Connections need to be proven in court. It is the most difficult and intellectually demanding work."
What specific assets are being recovered? As an example, one can consider the court process regarding the blocked assets of the RUSAL company belonging to the russian oligarch Oleg Deripaska. This case has gained significant attention because Deripaska is close to the russian president and controls russian enterprises involved in the production of military equipment, thus contributing to armed aggression against Ukraine.
During the court proceedings on the recovery of assets to the State Budget of Ukraine, representatives of Oleg Deripaska did not express their position. Instead, representatives of Ukrainian companies, whose property the Ministry of Justice sought to confiscate, spoke in their interests. They claimed that they had no connection to Deripaska, and therefore, the ownership of these companies cannot be transferred to the state.
For instance, lawyer V. Vlashchenko stated that "Mykolaiv Alumina Plant LLC did not take any actions that posed a significant threat to the national security, sovereignty, or territorial integrity of Ukraine." According to him, the production was halted until March 31, 2022, and no raw materials were transported to the territory of the russian federation since then. Similar explanations were given on behalf of Guardon Ukraine LLC.
Similarly, the representative of Zaporizhaliumintorg aluminium trading LLC objected to the recovery of the corporate rights of the company in favour of the state. According to him, 100% of the corporate rights belong to Bouganvillia Consulting Ltd, registered in the British Virgin Islands, which has no connection to russian business.
Representatives of Ukrainian enterprises also expressed their outrage, stating that the documents provided by law enforcement agencies do not specify the sources of origin of the data and supporting documents. Therefore, these pieces of evidence cannot be considered as reliable and should not be taken into account.
However, the High Anti-Corruption Court of Ukraine (HACC) ultimately decided to recover these assets for the benefit of the state. After analysing the ownership structure of the companies, the court concluded that they indirectly belong to the russian company RUSAL through a chain of legal entities.
The court summarised that the sanction of recovery of assets for the benefit of the state is applied even in cases where an individual or legal entity can directly or indirectly dispose of them.
A similar situation arose during the court proceedings regarding the blocking of assets belonging to another russian oligarch, Mikhail Shelkov. However, this time, HACC was more lenient towards the defendant.
The lawyers requested the dismissal of the plaintiff's claims for seizing 100% of the share capital and all assets of Investagro LLC, Ti Minerals LLC, and Demurinsky Mining and Processing Plant LLC for the benefit of the state. In support of this position, the representatives of the companies stated that neither party disputed the fact that an offshore company named Limpieza Limited is the owner of these companies. However, they argued to the court that the ownership structure of Limpieza Limited changed in February 2022, and Mikhail Shelkov allegedly ceased to be the ultimate beneficial owner of the aforementioned enterprises.
In justifying their position, the lawyers insisted that the company did not provide funds for financing the military actions of the russian federation, and their products were not shipped to the territory of russia.
"Demurinsky Mining and Processing Plant LLC allocated 1 million UAH for the needs of the army and provides voluntary humanitarian aid, logistical services, and other assistance to military units. Thus, Demurinsky Mining and Processing Plant LLC clearly shows pro-Ukrainian views and contributes to Ukraine's path to victory," emphasised representatives of the companies.
Despite the war since 2014, in the years leading up to the invasion, the products of the Demurinsky Mining and Processing Plant were exported to russia, where they were likely used in the production of weapons.
Analysing the materials of the case, the court noted that it did not find evidence of Shelkov's continued actual ownership of the company Limpieza Limited. Additionally, the information contained in the letter from the Foreign Intelligence Service of Ukraine and the Office of the Prosecutor General is general in nature and is not corroborated by other materials in the case. The court also emphasized that the Ministry of Justice did not prove that the premises and land plots it wants to recover for the benefit of the state actually belong to Demurinsky Mining and Processing Plant LLC.
Therefore, HACC decided not to recover all the assets as requested by the plaintiff.
All the property was confiscated only in the Appeals Chamber of HACC. Explaining their decision, the judges stated that the titanium-containing products of the Demurinsky Mining and Processing Plant could be used in military aggression against Ukraine.
"The possible consequences of applying sanctions were foreseeable for the respondent, as evidenced by the actions to transfer ownership rights of 75% of shares in the statutory capital of Limpieza Limited from the Corporation Avisma to another person," the ruling of the Appeals Chamber of the Higher Anti-Corruption Court states. "Currently, it is difficult to determine a social interest more important than ending russia's military aggression against Ukraine, restoring Ukraine's territorial integrity, achieving peace throughout its territory, and averting the negative consequences caused by russia. The recovery of assets, in conjunction with other measures, will contribute to achieving this social interest."
How to recover more russian assets? The Ministry of Justice believes that in order to effectively block russian assets, a public state register of sanctions needs to be created. According to Inna Bogatykh, this register should include a list of all sanctioned individuals with a full set of identification data, from date of birth to information about their companies and ownership.
"The function of this register is for a sanctioned person to receive some kind of marking as an individual to whom sanctions apply. So that every registrar, notary, or bank that has access to this public register, when conducting operations and entering identification data, sees a certain mark indicating that the person is under sanctions and requires special attention. At the very least, to verify what sanctions have been applied and, if there is a sanction for asset freezing, to refuse any operations (disposal of assets)," the Ministry of Justice states.
The corresponding Draft Law No. 8392 on the creation of such a register is already under consideration in parliament and is being prepared for the second reading.
Another legislative initiative, draft law No. 9235, will allow the Ministry of Justice to disclose banking secrecy in order to obtain information about the presence of funds in the accounts of sanctioned individuals. Currently, only a court can grant access to such data, and a lot of time is lost awaiting a decision.
"By attempting to confiscate a russian individual's assets, we only know that there are funds in their account. However, the exact amount is unknown," says Inna Bogatykh. "But in the claims, we need to clearly specify the amount to be recovered. So, we have to return to court multiple times to seize assets from the same person, if the court allows disclosing the amount of funds in their accounts. This simply slows down and prolongs the process. If we could obtain information in advance, we wouldn't need to take this additional step."
In addition to this, the Ministry of Justice is already discussing the need for a law that imposes criminal liability for circumventing sanctions. "We have a mess in this regard. There should be a clearly established mechanism: if you somehow assist a sanctioned individual in transferring assets, then you should be held accountable within the framework of the law. And accordingly, criminal liability should also apply to the sanctioned person themselves, who attempts actions to transfer their assets," argues Inna Bogatykh.
StateWatch analysts believe that the regulatory framework should establish a prioritised list of individuals from whom the asset recovery process should start. They argue that resources will never be enough to handle the immediate recovery process for thousands of individuals on the sanctions lists of the National Security and Defence Council during a state of war.
"At the Cabinet of Ministers level, a concept, guidelines based on indicators, should be developed to prioritise filing claims for the recovery of assets from sanctioned individuals who, for example, have certain types of enterprises: strategic ones, related to the military-industrial complex, space industry, or banking sector. Meanwhile, individuals who possess only immovable property can wait," explains Glib Kanevsky. "There needs to be an economic assessment regarding any priorities. Is it an active enterprise or a bankrupt one located in a dilapidated building? In that sense, it is logical that such a company should be recovered in the last place."
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