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Andrii Borovyk: Why liquidating ARMA will not solve seized property issues

March 24, 2023 3:08 AM 6 min read
Andrii Borovyk
Andrii Borovyk
Executive Director of Transparency International Ukraine
Andrii Borovyk, the executive director of Transparency International Ukraine (Transparency International Ukraine)
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Editor's Note: The opinions expressed in the op-ed section are those of the authors and do not purport to reflect the views of the Kyiv Independent.

Almost every day for the past six months, we have seen headlines that the Security Service of Ukraine (SSU), the National Anti-Corruption Bureau of Ukraine (NABU), and other law enforcement agencies have exposed collaborators or corrupt officials.

The property of those caught is often seized and transferred to the state. The seized assets are sometimes striking – they have ranged from thousands of metric tonnes of iron ore that Russian oligarchs were unable to take out of Odesa ports, to land used to grow sunflowers and corn or shares of large companies.

Under current legislation, seized assets are transferred to and managed by Ukraine’s Asset Recovery and Management Agency (ARMA) until criminal proceedings are finalized and the fate of seized assets is determined.

But recent developments indicate some intention of changing the order of things.

The first sign was a statement by the Servant of the People faction leader Davyd Arakhamia on Feb. 22, in which he proposed to shut down ARMA and transfer its powers to the State Property Fund of Ukraine (SPFU).

At the time, the proposal took the public by surprise. But more reports appeared indicating that such a request stemmed from the Presidential Office due to ARMA’s apparent lack of efficiency.

But why liquidate ARMA?

It is obvious that such a simple solution will not lead to any positive results. Its destruction will not solve any issues, improvements or changes are unlikely to occur, and much bigger problems are looming on the horizon.

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What's wrong with ARMA?

Over the years, ARMA has turned into a suitcase without a handle – an institution that is extremely important, and certainly necessary, but with some constant shortcomings. Despite the increase in the number of these so-called “diseases” in both legislation and the agency’s management, amendments to ARMA were too often postponed and problems have accumulated.

Over the past few years, ARMA representatives, parliamentarians, and the public have repeatedly looked for ways to solve the agency’s problems. Some improvements to ARMA have been considered at the legislative level and others have been the topic of discussion at the Verkhovna Rada. Ukraine’s legislative branch of power, despite certain roadblocks, approached ARMA in the most logical way by identifying and trying to eliminate its weaknesses.

Only after such comprehensive work, after the introduction of changes that have been talked about for years, would it be possible to properly assess the institution’s effectiveness.

But a month ago, these attempts all came to a standstill because the Presidential Office decided otherwise. They decided to throw away the suitcase without even looking inside.

The reforms that required years of development by experts have turned in an unprecedented direction: either the proposed liquidation of ARMA or the deprivation of its property management function.

The most likely scenario is the transfer of its property management function to the SPFU, as it supposedly works with large assets. Its current head, Rustem Umerov is also well-regarded in the Presidential Office. Indeed, after his appointment, he proved his effectiveness, in particular by continuing the state’s course of privatization.

However, the transfer of ARMA’s seized property management role to the SPFU causes new problems.

1. 'Rollback' of EU regulation implementation

ARMA was not created just like that. Ukraine took the basis of the institution from examples of recovery and asset management agencies around the world. This, for its part, was very much approved by our European partners – and for a reason.

In the European Union, the confiscation of funds and proceeds in response to crimes has attracted special attention, which intensified after Russia’s full-scale invasion of Ukraine last year.

Directive 2014/42/EU even requires the establishment of a centralized asset management office, a group of such offices, or equivalent mechanisms to help ensure the effective management of frozen property with a view to its eventual confiscation. Ukraine has had such an institution since 2016, which demonstrates its high level of readiness to fulfill its obligations in managing seized property.

Liquidating ARMA can result in an inability to effectively search for assets of criminal origin and manage seized assets in accordance with European standards.
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2. Independence and professionalism

Despite the legislative imperfections of ARMA’s work, there are valuable advantages to the agency. Several legal provisions are designed to ensure the independence and professionalism of the agency’s head – this includes requirements on competence, the number of permitted terms in office, length of term, and a list of grounds for dismissal.

These provisions exist to prevent pressure by the authorities on ARMA’s leadership. There are no such requirements in this specialized law for the SPFU.

That is, if ARMA’s functions are transferred to the SPFU, the authorities will have a greater degree of influence on the management of the seized assets. This reality will apply not only to the government’s current composition or president but will remain after they change.

ARMA’s head bears direct responsibility for the agency’s transparency and the results of its work. This is especially ironic because, for over three years, the agency has operated without a full-fledged head. The government, despite its promises, has not managed to hold a competition to select a competent head for ARMA. It turns out no one is in fact responsible for the agency’s inefficiency.

The European Commission has also emphasized the need to ensure ARMA’s independence: “An Asset Recovery and Management Agency (ARMA) is in place, however, the Agency does not have a permanent Head since the end of 2019. Legislation related to the management of seized assets should be improved and a relevant national strategy on asset recovery adopted.”

3. The SPFU's operating capacities

The Accounting Chamber conducted an audit in December 2022 on the effectiveness of property management by the SPFU. The analysis’ conclusion stated that the agency’s system of management and control over the use and disposal of state property was ineffective, ultimately leading to some shortcomings. There are also risks of state property loss amounting to over Hr 56 billion ($1.5 billion).

As a result of the audit, the SPFU dismissed a series of dishonest employees. Should the SPFU adopt the management of seized property, monitor its effectiveness, and interact with criminal justice authorities, its staff – people without specialized skills in the field of seized property management – may simply not be able to withstand the burden.

To transfer such functions to a body that is not yet able to cope with its existing responsibilities is not a very good idea.

It is important to mention the following amid the transfer of property management powers from ARMA to the SPFU:

  • It is necessary to determine the outcome of the property already transferred to the ARMA.
  • It is necessary to develop an appropriate regulatory framework to determine the procedure for the implementation of the SPFU's powers.
  • The SPFU will also have to establish communication with the state's criminal justice authorities because it does not currently do so.

This is all in addition to the pre-existing challenges faced by ARMA. With the above points, we should not forget that the creation of ARMA was also one of the conditions for Ukraine to obtain a visa-free regime.

Undoubtedly, the authorities should think twice before putting an end to the work of ARMA, whose creation and functioning required so much effort and money both on Ukraine's part and at the international level. Perhaps, this "inconvenient" suitcase is a lot more necessary than those who want to get rid of it believe. One just needs to reattach the handle.

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