Criminal Law White-Collar Crimes

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Detection is active

By pursuing good goals, like fighting corruption and bringing national legislation into line with the requirements of the European Union, Ukraine has implemented a whole range of measures to introduce the institute of management of property acquired through criminal means. This process was marked by the establishment of a special body — ARMA (Asset Recovery and Management Agency) and the beginning of its vigorous activities. But with an eye on our Ukrainian reality, risks occurred even for bona fide property owners, whose rights and legitimate interests, as a matter of fact became, in most cases, unprotected


Such bodies as the National Agency of Ukraine for Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes (ARMA) have been established in more than 100 jurisdictions around the world and in all EU countries. The European Union Directive No. 2014/42/EU, dated April 03, 2014, became the base for their establishment. This Directive provides for taking measures for the efficient management of seized assets, as well as the establishment of special institutions responsible for the management of such assets. The purpose of asset tracing institutes in EU countries and other jurisdictions is to search for and provide law-enforcement agencies with information on the existence of property that can be seized, both within the jurisdiction of the relevant institute and in foreign jurisdictions.


Regulatory insight

The provisions of Articles 19, 20, and 21 of the Law of Ukraine "On the National Agency of Ukraine for Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes" (the Law) establish the legal mechanisms for managing assets seized in criminal proceedings (monetary funds, banking metals, movable property and real estate, securities, property and other rights), the amount or value of which is equal to or exceeds by 200 times the minimum wage established as of January 1 of the relevant year, including through their sale or transfer under management.

Transfer of property under the management of legal entities and individual entrepreneurs is carried out according to the results of bankruptcy proceedings in the manner prescribed by the legislation on state (public) procurement. These assets are transferred to management by ARMA on the basis of the ruling of an investigating judge, court or with the consent of the owner of assets via the relevant public prosecutor's application.

The legal basis for transfer of seized property under management by ARMA is also provided for by the provisions of parts 6, 7 of Article 100 of the Criminal Procedure Code  of Ukraine. That is, the Law and the provisions of the Criminal Procedure Code of Ukraine introduced such a legal institute as seized assets management, which enables the National Agency at the stage of criminal proceedings to manage (sell/dispose of) the seized assets owned or used by the person whose guilt has not been yet proven according to the procedure established by the law.

In other words, if you conduct business, are the owners of assets with a value of over 200 minimum wages and your business activities are under intense scrutiny by  law-enforcement agencies, one fine day you can expect an unpleasant surprise — everything you worked to earn can be transferred under management of a third party. At the same time, thousands of questions to the investigator/detective/prosecutor will receive one answer: "The property was transferred on the basis of a judge's ruling and, therefore, all actions are lawful".

The further it goes, the messier it gets. Not only that you were not a participant of court proceedings, where the fate of your property was at stake (the court is not obliged to inform the asset owner on consideration of motion for seizure of assets and their transfer under management), you, according to the procedural law, still have no opportunity to appeal against the very transfer of property in favor of a third party (you can only appeal against the seizure of assets).

And the culmination of the story: there are no guarantees that your property will not be assessed (without your participation too) and alienated in favor of third parties at a certain conditional price, which may turn out to be much lower than its market price.


Real cases

ARMA has been working actively in the past two years, ensuring the implementation of state policy in identifying and searching for assets that may be seized in criminal proceedings and managing assets that are seized or confiscated in criminal proceedings. The first attempts of pre-trial investigation bodies and courts of the asset management institute were really "interesting" and "extraordinary". For example, it is possible to find rulings of investigative judges in the Unified State Register of Court Decisions according to which administrative buildings (business centers) were transferred to the National Police of Ukraine (although it is completely incomprehensible how the National Police should ensure the proper functioning of the commercial building as a business asset).

One of the first and most high-profile cases in the performance of the Law concerned the GULLIVER retail and office center in Kyiv when, according to the ruling by  the Pechersk District Court of Kyiv dated July 14, 2017, three floors of non-residential premises with a total area of 4,460 m2 were seized, and by the ruling of the same court dated September 28 last year the above-mentioned property was transferred under management by ARMA. UNISON GROUP LLC was the owner of the said property. It is interesting that in addition to non-residential premises, dozens of elite apartments, office premises, parking spaces, cars, buildings and land plots, owned by UNISON GROUP LLC, were also transferred to ARMA. Subsequently, on November 17, 2017, the seized property was transferred by ARMA to the administrator on the basis of competitive bidding.

Recently, by the ruling of the Dniprovskyi District Court of Kyiv (dated May 29, 2018), the Parkovyi Convention and Exhibition Center located in the center of Kyiv and popularly known as the "landing site of ex-president Yanukovych", was also transferred to be managed by ARMA. The purpose of transferring this property into management, as indicated in the court ruling, is the organization of security, safe custody, carrying out of minor repairs, maintenance and upkeep, and operational administration. On October 11 2018, following the results of the meeting of the ARMA Tender Committee, public utility company Center for the Organization of Traffic, which specializes in maintaining ground transport, was selected the manager of the "landing site".

Odesa International Airport is one of the largest facilities to have been transferred into ARMA's management. It consists of passenger terminal complexes, non-residential buildings and structures, manufacturing units, residential property, and owns 75 % of the corporate rights of Odesa Airport Development LLC to this property. But the history of this facility is unique: for example, it follows from the contents of the relevant ruling by Solomenskyi District Court of Kyiv that the main motive by which the court was guided when delivering its ruling, was the need to protect the interests of the property owner. At the same time, as it became known from the media, the ruling by the Solomenskyi District Court of Kyiv, dated November 1, 2018, partially satisfied the request of the attorney of the representative of the property owner and canceled the court’s ruling on transferring the property into management by ARMA. The reason for canceling the ruling was the failure of the National Agency to fulfill the goal of transferring the property into management. That is, to preserve and increase the value of the airport’s property, since as a result of transfer of property into management by ARMA, significant damage to both the property and reputation of Odesa-Airport Development LLC and Odesa International Airport was caused.

As we can see, the courts actively use the mechanism for transferring property for management by ARMA. However, for property owners there are no real guarantees that the property’s value will be preserved and increased, as a result of which the rights and legitimate interests of property owners, in regard of whom there were no guilty verdicts, are not protected.