Investigation Finds Ukraine’s Confiscation Of Russian Assets Stymied By Bureaucracy

KYIV — The tally after one year: two banks and four tycoons.

Prime Minister Denys Shmyhal has cited Ukraine’s “own example” of confiscating sovereign and private Russian assets within its borders to urge Kyiv’s allies to do the same and contribute to a war recovery effort estimated to cost over $700 billion. But Ukraine’s experience seizing these assets has proven problematic and slow-moving, a probe by Schemes, the investigative unit of RFE/RL’s Ukrainian Service, found.

Out of a list of 905 Russian state assets, only two — Prominvestbank and the International Reserve Bank — have been transferred to the National Investment Fund of Ukraine’s control since the campaign of confiscations began in May 2022, three months after Moscow launched its large-scale invasion of the country.

And, despite presidential decrees authorizing sanctions against a number of Russian oligarchs, only four — Oleg Deripaska, Yevgeny Giner, Mikhail Shelkov, and Vladimir Yevtushenko — have actually lost their Ukrainian assets.

Meanwhile, businesses that the government charges belong to other Russian oligarchs — among them, Kyiv’s largest shopping-entertainment complexes, a retail bank, and a mineral water manufacturer — still operate in Ukraine, albeit with restrictions.

Schemes’ reporting suggests three areas where obstacles routinely complicate or impede Kyiv’s domestic efforts to convert thousands of Russian-owned assets into compensation for the destruction caused by the invasion that began on February 24, 2022.

A week after that, on March 3, 2022, Ukraine adopted the fundamental law that governs its confiscations of Russian property on Ukrainian-controlled territory.

Kyiv uses a three-pronged approach, and each requires the approval of at least five government bodies.

For the shortest approach, forcible seizures of state-owned Russian assets — dubbed “nationalizations” — the Cabinet of Ministers proposes targets to the National Security and Defense Council (RNBO) for approval.

The RNBO then submits the targets to President Volodymyr Zelenskiy to decree their takeover. That decree goes to the Verkhovna Rada, the Ukrainian legislature, for approval. The National Investment Fund of Ukraine then takes the assets. The government pays no compensation for any confiscations.

Ukraine used this mechanism last May for what are, to date, its only confiscations of Russian state-owned assets: the takeovers of Prominvestbank (officially, the Joint Commercial Industrial-Investment Bank), which is owned by the state development finance organization VEB.RF, and that of the International Reserve Bank, owned by Sberbank, the Russian government-run savings bank.

Earlier this month, Shmyhal stated that 17 billion hryvnyas ($460 million) confiscated from these two banks were “already available in the budget” and would be used for “reconstruction.”

But the confiscations of Russian state-owned assets have gone no further.

Early last August, the Cabinet of Ministers approved the confiscation of the remaining 903 Russian state-owned assets in Ukraine and submitted the document for the RNBO’s approval.

The RNBO requested that the Economy Ministry revise the document, but the document has not yet progressed to the next stage, RNBO and Cabinet of Ministers spokespeople told Schemes.

Citing her “busy schedule,” Economy Minister Yulia Svyrydenko, who coordinates Ukraine’s Interagency Working Group on war-related sanctions, declined Schemes’ request for an interview about the confiscation process.

Meanwhile, without an RNBO-approved list, no further confiscations of Russian sovereign assets can occur.

It could be millions of hectares of real estate, shares in technology companies and a mine, or a Belarusian tractor and fleet of luxury cars and SUVs.

In August, Zelenskiy told Telegram users that there were “36,000 items” in Ukraine that were owned by residents of “the terrorist state” — a reference to Russia — and that Kyiv could “seize” as compensation for the war.

Getting a government case to the High Anti-Corruption Court to do so, however, is far from straightforward, Schemes found.

Government lawsuits to seize Russian assets based on criminal or civil charges — supporting Russia’s armed forces or tax evasion, for instance — must first clear five hurdles.

Deliberations begin with the Interagency Working Group (IWG) on the Imposition of State Sanctions, a body made up of “key ministries and departments,” headed by Economy Minister Svyrydenko.

One IWG member, Oleksandr Novikov, the director of Ukraine’s National Agency on Corruption Prevention, believes the momentum for court-authorized seizures of Russian assets begins to lag from the start.

The IWG restricts sanctions lists to 200 people a week, Novikov said. Though the Economy Ministry denied such a rule exists, Schemes obtained the regulation from sources within an anti-corruption law enforcement agency.

Yet the international group of experts that advises on Ukrainian sanctions has proposed sanctions on “about 90,000” people for allegedly facilitating the Russian war effort, Novikov said.

“If we work effectively every week,” he said, the government will be able to apply them all “only in 2050.”

Once the IRW’s list of individuals to sanction is complete, and the Security Service of Ukraine (SBU) and the National Security and Defense Council endorse it, the president issues a decree for the sanctions.

Novikov sees a slowdown here, too.

Though the RNBO voted on sanctions in November 2022 against 1,000 individuals whom it believes represent senior echelons of the Russian government and participated in the annexation of Ukrainian territory, Zelenskiy, as of late February, had not issued decrees authorizing these sanctions.

In November, the National Security and Defense Council voted to list more than 1,000 people, representatives of the highest authorities of the Russian Federation, for sanctions, and voted on a package of people who participated in the annexation of a fourth of Ukraine’s territory. These decisions have yet to be put into effect.

The deputy head of Zelenskiy’s office, Andriy Smyrnov, who prepares decrees for the president’s signature, conceded presidential decrees may not have been issued for “a certain number” of decisions about confiscations, but said he needed additional time to establish the reasons. Technical “nuances” may have been the cause, he added.

Smyrnov has not elaborated further to Schemes.

Presidential decrees prime the next step in the process: a petition by the Justice Ministry to the High Anti-Corruption Court for the confiscation of Russian assets.

Since June 2022, the court has issued 13 rulings for the confiscation of Russian assets. As of mid-March 2023, however, only four of these cases affected Russian magnates — Deripaska, Giner, Shelkov, and Yevtushenkov. The government has released no official total value for the seized property, which ranges from technology firm shares and a mine to $270 million worth of real estate.

Zelenskiy has issued decrees to sanction thousands of Russia’s most prominent citizens, including individuals whose assets rank among the largest in Ukraine, for alleged connections to Russia’s 2022 invasion. These decrees empower Ukraine to file lawsuits to confiscate sanctioned Russians’ property.

Yet the Justice Ministry filed no additional lawsuits to claim the assets of Russian oligarchs until March 3, 2023.

Insufficient time and staff at the ministry to prepare court cases could be part of the reason, according to Tetyana Khutor, who chairs the nonprofit Institute of Legislative Ideas, an anti-corruption advocate that analyzes Ukraine’s confiscation procedures.

As of mid-February, only “about 20 people” worked in the ministry’s sanctions policy department, according to Deputy Justice Minister Iryna Mudra, who oversees the government’s lawsuits for civil forfeiture.

She told Schemes, however, that the ministry had started recruiting candidates to expand that staff.

The low tally of High Anti-Corruption Court rulings on Russian asset confiscation does not worry Mudra, however.

“I measure the indicator [of success] not by the number of lawsuits filed but by the quality of the lawsuits filed,” she said. “It’s important that the seized assets work for the economy of Ukraine, for the armed forces.”

Ensuring they do once their owners are sanctioned falls to the Asset Recovery and Management Agency (ARMA), which has the right to appoint a temporary manager to ensure an investigated business delivers income to state coffers.

Only after the High Anti-Corruption Court authorizes a confiscation can ARMA put that business up for auction or appoint a permanent government manager for it.

But in at least three cases still under investigation or awaiting a court decision, ARMA has not appointed any temporary managers at all.

Ocean Plaza, Ltd

The government contends that Arkady Rotenberg, a close friend of Russian President Vladimir Putin and the builder of the bridge linking Ukraine’s Russian-occupied Crimean Peninsula to Russia, transferred funds from this Kyiv shopping and entertainment complex, which he owns via offshore companies, to purchase shares in two Russian military contractors before the war.

The Justice Ministry filed a lawsuit for the confiscation of Ocean Plaza, Ltd. with the High Anti-Corruption Court on March 3, 2023.

Status: ARMA has had court-authorized access to Ocean Plaza’s corporate rights since August 2022. Acting ARMA Director Dmytro Zoravovych told Schemes in February 2023 that preparations were under way to find a temporary manager for Ocean Plaza, but no manager has been found to date.

Ocean Plaza’s minority shareholder, UDP, told Schemes that the company has not, as pledged, given most of its profits to the state budget since no official procedure exists for this.

Sense Bank (Alfa-Bank Ukraine)

One of Ukraine’s largest retail banks, Sense Bank, the former Alfa-Bank Ukraine, is linked to sanctioned Russian oligarchs Mikhail Fridman, Pyotr Aven, and Andrei Kosogov. Its corporate rights were transferred to ARMA in April 2022 as part of Ukraine’s criminal prosecution of the three men on suspicion of tax evasion, money laundering, and treason.

Status: ARMA’s Zoravovych told Schemes his agency had received the bank’s corporate rights and real estate — two buildings and a shed — as well as shares, but “there is a complicated procedure for finding a manager.”

Since the bank is not insolvent, Ukrainian law does not permit an outright nationalization. The bank, though, told Schemes that, if need be, its major shareholders would not object to transferring their shares to “the state or another shareholder.”

International Distribution Systems, Ltd.

International Distribution Systems (IDS) produces two of Ukraine’s best-known mineral water brands — Morshinska and Myrhorodska — and the iconic Georgian mineral water brand Borjomi. The government charges that Fridman and Kosogov attempted to transfer their majority ownership of the company via Alfa Group once they came under sanctions.

Status: Since November 2022, ARMA has held the company’s corporate rights, capital, trademarks, industrial designs, and utility models such as patents, according to Economic Security Bureau Director Vadym Melnyk. A public competition for the role of manager ended on February 23, 2023, but, as of the date of publication, the agency had not announced a manager.

The acting head of ARMA, Zoravovych, attributed the delays to the need to comply with agency formalities.

Hlib Kanevskiy, chairman of StateWatch, a nonprofit good-governance monitor, however, deems it “impossible to monitor what ARMA actually manages and who specifically, who physically manages this property here and now.”

The agency’s minimalist website lists desired qualifications for managers and announces tenders, but its list of the managers of frozen assets, not updated since the 2022 invasion, does not identify managers by name.


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