The concept of a seized assets management model, taking into account Draft Law № 12374-d

The current model of managing seized assets through ARMA does not ensure effective acceptance, transfer, and management of thousands of assets. This results in issues related to transparency, efficiency, and economic viability. To address these challenges and align with the requirements of the Ukraine Facility, a new model has been proposed to optimize processes and reduce corruption risks.

1. A clear list of assets to be transferred to ARMA is defined in order to eliminate legislative inconsistencies and ensure legitimate objectives for interference with property rights.

2. A transparent procedure for asset identification by ARMA is introduced to prevent any abuse.

3. It is essential to establish clear timelines for the acceptance and transfer of assets, as well as proper procedures for asset preservation within ARMA until management decisions are made.

4. The core principle of the model is to classify assets by type (simple, complex, composite), rather than by the entity responsible for their management.

5. ARMA independently handles the sale of simple assets without intermediaries, minimizing costs and maximizing economic efficiency.

6. An automated system is to be established for impartial selection of asset managers.

7. The asset management plan becomes the key tool for assessing the professionalism of the manager during selection, operational activities, and as grounds for termination in cases of mismanagement — under the supervision of ARMA and the Public Oversight Council.

8. Professional management of complex and composite assets is carried out by professionally selected managers, subject to a detailed control process. In the most complex cases, composite assets are managed by asset management companies.

9. The possibility of reselecting the same manager should be limited. Additionally, restrictions on monetary remuneration to managers must be established.

10. Asset managers must report publicly on their activities. In case of a breach of management conditions, the manager is held accountable by the Complaints Review Commission on Managers’ Actions.

11. Only when it is not possible to transfer the asset to a professional manager, the owner may retain custody — with the exception of assets used in criminal activity and subject to a guarantee payment (with clearly defined grounds for application, calculation procedure, termination conditions, etc.).

12. The selection of ARMA staff must be carried out with direct involvement of ARMA itself, not only by the public.

13. ARMA is funded through the general and special funds of the state budget. The special fund is additionally replenished from a percentage of asset management revenue and other sources defined by law. This fund covers valuation services, asset security, and asset management payments.

1.1. Determination of the value of the asset

The current threshold for transferring assets to ARMA is 200 PM (≈$15,000), while the draft law proposes 500 PM (≈$37,000). The prosecutor's office lacks the resources to evaluate assets at the stage of seizure and is not obliged to do so. Since the draft law does not propose increasing funding for the prosecutor's office or introducing legislative changes in this area, it would be advisable to impose an obligation on prosecutors to use financial documents (such as company balance sheets, contracts, and bank statements) for preliminary asset valuation. All such documents should be specified in a joint order by ARMA and the PGO. If these documents suggest that the asset's value will exceed the established threshold, the prosecutor should request ARMA to identify the asset. This obligation should be mandatory in order to eliminate the existing discretion.

1.2. Clear division of powers

Law enforcement agencies (including the prosecutor's office) are tasked with bringing criminal proceedings to a verdict and subsequently confiscating assets. Accordingly, they should play a decisive role from the moment of arrest until the asset is transferred to ARMA. After that, their role should diminish.

1.3. Eliminate the conflict between the CPC and the ARMA Law regarding the subject matter of transfer

Currently, there is a conflict between the CPC and the relevant ARMA law. The former allows only physical evidence to be transferred to ARMA, while the latter permits the transfer of all seized assets. This discrepancy leads to excessive discretion for the prosecutor's office and overloads ARMA with all seized assets, regardless of their connection to a criminal offense.

However, international practice⁽¹⁾ dictates that the state may interfere with property only if it is linked to criminal activity. We propose to regulate in both the CPC and the ARMA Law a clear list of assets and their legal status in criminal proceedings that may be transferred to ARMA. It would be advisable to define the assets that can be transferred to ARMA, including:

• material evidence that does not contain traces of a criminal offense⁽²⁾;
• assets that may be subject to special confiscation;
• assets that can be used to compensate for the damage caused by a criminal offense⁽³⁾;
• assets that may be recovered by a court decision for the benefit of the state as a result of their being recognized as unjustified.

(1) The UNCAC obliges states to apply confiscation only to assets that are of a criminal nature, i.e., the proceeds of crime, as well as property used to commit these crimes. 

(2) To this end, rules should be developed to strengthen ... tools for confiscation of instruments and means of committing a crime and property derived from the criminal activities of criminal organizations (clause 7 of EU Directive 2024/1260). 
(https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32024L1260)

(3) In the context of criminal proceedings, property may also be seized for the purpose of its possible further restitution or to ensure compensation for damage caused by a criminal offense (clause 25 of EU Directive 2024/1260).
(https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32024L1260)

2.1. Obligation of ARMA’s Conclusion

Once the prosecutor has gathered all available documents related to the asset, they must approach ARMA for asset identification. The conclusion from ARMA must be a mandatory attachment to the prosecutor's request for the asset to be transferred to ARMA. The agency must identify all assets for which requests are made and provide reasoned conclusions.

2.2. Consequences of the Absence or Negative Conclusion from ARMA

The prosecutor cannot approach the court regarding the transfer of the asset without a positive conclusion from ARMA following the asset identification. If ARMA reasonably concludes that it is impossible to preserve the economic value of the asset (i.e., effective management), the asset remains under arrest by law enforcement agencies until the criminal proceedings are completed or the arrest is lifted. In this case, the prosecutor's appeal to the court is unnecessary, as ARMA will not be able to effectively manage the asset.

2.3. Mechanism for Preparing ARMA’s Conclusion

The above-described mechanism increases the chances of effective management while granting ARMA discretionary powers. To minimize corruption risks, it is necessary to establish a methodology for determining the possibility of effective management. This will reduce the risk of subjective or biased decisions by the agency. It is also important to prevent expenditures from the state budget for additional funding of seized assets. Therefore, we propose including the assessment of the need for additional asset funding in the methodology for asset identification.

2.4. Asset Valuation and Sources of Financing

Valuation is a key stage on which all subsequent actions depend. Therefore, if more than six months have passed since the last valuation of the asset or if no valuation has been carried out at all, ARMA should conduct one during the asset identification process. At the same time, as practice shows, a critical issue is the financing of this process. Currently, the future asset manager covers the cost of the valuation. Under the new model, many assets will not be transferred for management due to the impossibility of effective management. Therefore, it should be clearly stipulated that the valuation is financed from ARMA’s special fund, with subsequent compensation from the income generated from asset management. This highlights the need for guaranteed replenishment of this fund from various sources.

2.5. Preventing prolongation of the process

The ARMA cannot ignore requests from the prosecutor's office or delay the issuance of an opinion for reasons beyond its control. It is advisable to provide for liability for failure to issue an opinion, including disciplinary liability.
 

3.1. Unhindered Access to the Asset by ARMA

ARMA should have guaranteed access to the asset both at the time of its identification and until the signing of the handover certificate. This will ensure consistency in the custody of the asset and prevent artificial delays in its transfer. It is necessary to regulate this process in a joint order that will define clear procedures for interaction between law enforcement agencies and ARMA.

3.2. Establish clear deadlines for signing the Assets transfer act

The prosecutor's office may fail to sign the asset transfer act, which results in ARMA being denied access to the facility, a lack of organization in the management process, and loss of state budget revenues. The deadline for signing the transfer act should be clearly defined in the provisions of the draft law.

3.3. Transparency in the Engagement of Security Organizations

Since security services are crucial for asset preservation, security costs are necessary for many facilities. Therefore, contractors for such services should be engaged under transparent terms. This can be achieved by:
Involving organizations through the Prozorro system by entering into asset protection agreements, with subsequent payment for the services actually provided.
Using state platforms such as SETAM, the State Service of Ukraine for storage and management of assets.
 

For the effective performance of ARMA's functions, it is important not only to change the organization of its work but also to change the approach to the direct process of asset management and focus on the types of assets⁽⁴⁾ that can be transferred to ARMA.

Currently, the ARMA Law does not define the classification of assets but merely lists that cash, precious metals, movable and immovable property, corporate, and other rights may be transferred to ARMA. We propose introducing a single classification at the legislative level depending on the type of object, which will help simplify the approach to understanding the further management of a particular asset.

4.1 Classification Criteria

We propose consolidating the classification of assets based on the complexity of their management, which will greatly simplify the understanding of the direct management procedure.It is logical to define simple, complex, and composite assets at the level of the ARMA Law. The division is based on the complexity of the asset itself.
The specific characteristics of different types of assets and the detailed procedure for their management should be defined in bylaws.

4.2. Simple Assets

Simple assets are those assets that can only be managed through sale. This should be carried out directly by ARMA through electronic auctions and include assets that:

• Are subject only to sale;
• The cost of transferring them into management exceeds 30% of their value at the time of transfer to ARMA’s management;
• Are perishable;
• Rapidly lose their value.

An exception may be assets that are of high economic attractiveness for business and of strategic importance.
Examples of the division of simple movable property assets include vehicles:

• A car should be transferred for sale, but
• A freight car needs to be transferred for management to ensure more efficient use of the asset.

4.3. Complex Assets

Complex assets are assets that:

• Are economically attractive to businesses;
• Require a specific management plan to be developed;
• Management does not involve overly complicated procedures;
• Are transferred for management to a special entity – a professional manager.

It is reasonable to classify the following in this category:

• Vehicles that are not included in ordinary assets;
• Special equipment (machine tools, machines, etc.);
• Real estate (residential and commercial real estate) whose management does not require complex legal, technical, and financial procedures.

This type of asset requires the development of a management plan and, accordingly, the transfer to a special entity – a professional manager.

4.4. Composite Assets

Composite assets should include assets that consist of several interconnected elements or require complex management. Composite assets are those that:

• Are economically attractive to businesses;
• Are of strategic importance;
• Consist of several interconnected elements or require complex management;
• Require a specific management plan with a large number of procedures;
• Are transferred for management to a special entity – a professional manager with relevant specialization;
• Management requires highly complex procedures.

We propose including the following in this category:

• Real estate (residential and commercial real estate) whose management requires complex legal, technical, and financial procedures;
• Integrated property complexes (large industrial facilities), which should be transferred simultaneously with corporate rights⁽⁵⁾;
• Infrastructure facilities (energy, transportation, etc.);
• Asset packages consisting of various elements (e.g., an enterprise that includes real estate, transportation, corporate rights, and financial liabilities);
• Securities that require active management in financial markets;
• Corporate rights⁽⁶⁾;
• Claims and other property rights.

(4) The practice of classifying assets that may be subject to seizure and confiscation is common in international law. For example, the United Nations Convention against Corruption (UNCAC), the FATF Recommendations, the Council of Europe Convention on the Recovery of Criminal Assets (CETS 198), and EU Directive 2024/1260 all state that assets can be financial, tangible, corporate, or mixed.

(5) The peculiarity of transferring a integrated property complex together with corporate rights is due to the fact that the manager must have a real opportunity to manage the asset. The proposed model involves the participation of a self-employed person who, unlike legal entities, does not have the ability to take the asset on his or her own balance sheet.

(6) The draft law justifies the definition of restrictions on the possibility of managing corporate rights, along with a general list of rights and obligations of the manager.

Simple assets are managed by ARMA (in the form of sale), while complex and composite assets are managed by professional managers.
The function of managing assets that have been seized as part of a criminal investigation and preserving their economic value lies with the state and should primarily be ensured by ARMA. However, the volume and nature of assets transferred for management cannot be supported by the agency alone. Therefore, transferring assets to private management is a necessary and forced step in most countries around the world. Practice has shown that the transfer of a business is accompanied by excessive risks related to dishonest actions and connections with the actual owner of the asset. These risks can be minimized through professional management under regulated ARMA control.

5.1. Involvement of Professional Managers

According to the provisions of Chapter 70 of the Civil Code of Ukraine, a manager can be an entrepreneurial entity (Article 1033).
For an independent professional entity to manage property, it must be registered as a business entity. Otherwise, it will not be able to take the assets on its balance sheet (since it does not own them) and manage them. This raises the question of how funds (income) from management will be handled.

Since bankruptcy trustees, private executors, and several other entities are self-employed persons engaged in independent professional activities, it is impossible to ensure their compliance with the requirements of Chapter 70 of the Civil Code of Ukraine.
Business entities can be either individual entrepreneurs or legal entities.
We propose to select managers specifically from business entities that have relevant experience and can confirm actual activity in a specific field.

5.2. Management of Complex Assets

The management of complex assets will be carried out by individual entrepreneurs and legal entities that have confirmed experience in managing assets identified by ARMA (for example, a real estate agency with experience in renting office space).

5.3. Management of Composite Assets

The management of composite assets should be carried out exclusively by legal entities that not only have professional experience in the relevant field but also have been previously licensed (accredited, certified) by government authorities. Examples include licensed brokers, financial companies, trusts, and trust management companies.
 

6.1. Synchronization of the System with the Register of Seized Assets

The automated system should ensure continuous data exchange with the Register, where comprehensive and up-to-date information about specific assets will be formed. At the same time, depending on the technical capabilities of the register, it is also worth considering various models for integrating the automated system as part of the Register or creating an entirely new system (e.g., E-Asset) that would include both the Register and the automated system with asset manager dashboards.

6.2. Selection of Asset Manager by the Automated System

Individuals wishing to manage an asset register in the automated system and have a personal profile. This profile includes general information about the manager, their management experience, specialization, etc. When ARMA has prepared an asset for transfer for management, all managers with the relevant specialization are informed. After that, they express their interest in managing this particular asset. The automated system then selects the manager who will manage the asset.
 

We support the proposal of the draft law, which provides for the development of an asset management plan. However, the management plan should not be a formal document that does not affect anything, but the main practical and legal document that is the basis for the selection of the manager, the implementation of management and its termination.

7.1. Model asset management plan

We propose that ARMA develop model asset management plans for different types of assets. The model plan should serve as a basis for the development of an asset-specific management plan. The asset-specific management plan should comply with the general requirements of the law and contain a detailed algorithm of actions for effective management.

7.2. The plan of the manager

Once the system automatically selects a manager, it is obliged to submit a specific asset management plan. The plan is evaluated by ARMA, and if the plan developed by the manager is not of high quality, the contract with such a manager is not concluded. In other words, the management plan developed by the asset manager for a particular asset is a tool for assessing its professionalism and an opportunity for ARMA to monitor the actual effectiveness of asset management. 

7.3. Procedure for approving management plans

Complex asset - approved by the head of the relevant ARMA structural unit responsible for managing this type of asset. 
Composite asset - approved by a commission consisting of representatives of ARMA and the Public Control Council under ARMA.

7.4. Prevention of misuse

The asset management plan is further implemented in the asset management agreement. In order to ensure flexibility in management in order to respond quickly to changes and prevent damage to the asset, it should be possible to amend the approved management plan. To prevent abuse of such amendments, the manager shall approve the changes to the plan in writing. The procedure for approving changes should be similar to the procedure for approving the plan.
 

Such assets are managed in two ways, which are defined in the asset management plan. 

8.1. Implementation of internal control without interfering with the company's operating activities.

The purpose of such control is to prevent the possibility of concealment, damage, deterioration, destruction, transformation, alienation and, at the same time, to minimise interference with the company's operations.
In case of detection of any actions by the management and the asset owner aimed at reducing the economic value of the asset, the professional manager should take measures to stop such actions (appeal to law enforcement agencies, ARMA) and initiate a change in the management plan, which provides for active management by the manager and ARMA. 

8.2. Active management

In case of ineffectiveness of all previous actions, as an exceptional tool to preserve the economic value of the asset, we propose to change the manager by appointing a new manager to actively manage the company. Such managers should be asset management companies. This eliminates the potential negative impact of unfair competition and creates the possibility of more effective management, as such companies will take over the asset and eliminate elements of harmful influence on the asset. Such actions are possible both in the case of active obstruction of the legitimate actions of ARMA and the asset manager (e.g., denial of access to the asset, failure to provide financial information) and in the case of passive concealment of true information about the asset, failure to fulfil obligations to facilitate the work of the asset manager.
 

According to the proposed amendments to the Law, the procedure for selecting a manager may be re-started only once in case of failure to conclude the agreement (refusal or non-signing). However, there is a possibility that even a repeated selection procedure through an automated system will not bring the desired result⁽⁷⁾. We believe that it would be appropriate to allow the manager selection procedure to be conducted several times. 

9.1. Limitations and restrictions on the process

It is proposed to conduct three attempts to identify a professional receiver. The selection of the receiver should be limited in time, as ARMA's management efficiency and resources are limited. This will help to avoid abuse of the process to select the right manager. For example, if the management plan is not approved or the contract with the manager is not signed, new attempts to select a manager are made.

9.2. Preventing prolongation of the process

In the event that all attempts fail, it is proposed that the owner/occupier of the asset be given the opportunity to make a security deposit, as described in paragraph 11. If the selection is still unsuccessful, the asset should be transferred for sale.

9.3. Manager's liability insurance and property insurance.

The property transferred into management must be preserved. If the property is damaged through the fault of the manager, he must compensate for the damage. It is suggested that a liability insurance contract be used as a guarantee⁽⁸⁾. 

9.4. Remuneration for the manager's services

The model proposed by the draft law sets a rather low basic remuneration, while significantly increasing the percentage of net profit. This may lead to the fact that no one will want to manage the assets. That is why we offer:

• Management of complex assets - basic remuneration in the amount of 3 minimum wages. Additional remuneration in the amount of a percentage of management, but the total amount of the basic and additional remuneration may not exceed 7 minimum wages.
• management of composite assets - basic remuneration in the amount of 10 minimum wages. Additional remuneration in the amount of a percentage of management, but the aggregate amount of the basic and additional remuneration may not exceed 15 minimum wages.

(7)  ARMA's practice of conducting manager selection competitions on Prozorro shows that in the management of 36 assets, ARMA re-announced 12 competitions (33.3%) because the initial ones did not take place.

(8) This practice is not new to Ukrainian law, for example, the Law of Ukraine ‘On Notaries’ provides for liability insurance for private notaries.

10.1. Public reporting as an external control tool

Based on the results of its management, the asset manager reports to ARMA on a monthly basis on its activities. Since the system no longer provides for the publication of contracts on Prozzoro, the contract with the manager and the reporting on the results of such activities should be published in the Register and made public, except in cases where this may harm business activities or the effectiveness of further management. Such cases should be defined at the bylaw level. 

Since the selection of a professional receiver is automatic, and the receiver has a personal account in the system, we propose to ensure transparency of the receiver's work by generating reports and submitting them for publication in the system. The publication of reports should be automatic and contain access restrictions only to information protected by law.

10.2. ARMA's functions within asset management

It is advisable to establish appropriate structural units within ARMA to manage clearly defined types of assets.
These units would be staffed by civil servants who would perform key functions, including:

• control over the asset management process;
• review and analyse asset management plans proposed by asset managers and participate in their approval
• receiving and evaluating management reports;
• monitoring the effectiveness of asset management;
• initiating the issue of bringing the manager to liability or terminating the agreement with him/her.

In addition to the basic salary, it is advisable to consider a mechanism for additional remuneration of these specialists at the expense of a percentage of the income received from the assets under management and held in a special fund. This approach will help to increase the motivation of ARMA officials and ensure effective control over asset management.

10.3. Commission to review complaints against the actions of managers

We propose that asset managers should be held accountable by the Commission for Review of Complaints Against Asset Managers.
Composition of the Commission:

• three representatives of ARMA, including one Deputy Head of ARMA, who is the Head of the Commission;
• two representatives of the Public Control Council;
• one representative of the Ministry of Justice of Ukraine;
• one representative of the Prosecutor General's Office.

The Commission's powers include initiating the termination of the contract with the asset manager, restricting access to the automated system and blocking the possibility of participating in subsequent selections of asset managers for specific assets.
 

Draft Law No. 12374-d provides for the possibility of asset management by its owner or possessor, subject to the payment of a guarantee payment, as the first mechanism for asset management if the asset was not an instrument of a crime. This idea is generally reasonable, but its implementation requires clear detail.

11.1. Determining the grounds for transferring the asset to the owner

It is necessary to establish clear criteria under which the asset may remain in the owner's control. In particular, tools of the crime (e.g., production equipment for the manufacture of counterfeit goods), objects of the crime and proceeds of crime should not be transferred to the management of their owners.

11.2. Regulation of the amount of guarantee payment

The Law should define the general conditions for the application of the security deposit and the criteria on the basis of which the court/investigating judge, in a particular case, sets the amount of the security deposit. For example, the security deposit shall include the cost of the property appraisal, storage costs already incurred by the National Agency and other related costs. Currently, the proposed amendments provide excessive discretion to the court in determining this amount, which may lead to legal uncertainty and abuse

11.3. Exceptional nature of this mechanism

The transfer of an asset to the owner should be an exceptional measure and not a common practice. The main purpose of managing seized assets is to limit the owner's influence in order to preserve their economic value and further compensate for losses. Therefore, this mechanism should be used only if it is impossible to transfer the asset to external management (inability to find a manager, owners under sanction, etc.). Otherwise, there is a risk that the owner will continue to benefit from the asset, and the state will only receive a guarantee payment that will have to be returned later.

11.4. Conditions for transferring an asset to the owner or possessor

The proposed draft law does not regulate all aspects of the guarantee payment by the owner or possessor and further preservation of the asset.
We propose to allow the asset to be transferred to the owner or possessor only if it is impossible to choose a professional manager, as one of the exceptional cases of management efficiency. The owner will be responsible for the storage of the asset.
We consider it inappropriate to conclude a contract with the owner, similar to the legal relationship with a manager acting on the basis of a contract.
We propose to provide for the following at the level of the law and bylaws:

• rights and obligations of the parties,
• the procedure for payment of funds to the state,
• a mechanism for reporting by the owner on the preservation of the asset.

11.5. Minimise ARMA's discretionary powers

The conditions for suspension of owner management, recovery of the guarantee payment and transfer of the asset to external management should be clearly regulated.  For example, they may include damage to the property by the owner.
 

The draft law provides for the selection of ARMA employees through an open competition. This competition will be conducted by commissions consisting of 5 members, of which at least two members must be nominated by meetings of public associations and at least one member must be nominated by the Public Control Council. We propose a different approach to the formation of these commissions and public representation in them.

12.1. Formation of the Selection Commissions for ARMA Employees

It is not clear whether the selection commissions will include representatives of the ARMA. It is possible that three members will be nominated by civil society organisations and two more by the Civil Oversight Council. In this case, the ARMA will not be involved in the selection of its own employees. In addition, the nomination of candidates by NGOs may significantly complicate the process of forming commissions. The general timeframe set out in the draft law is a minimum of 35 days, while the timeframe for announcing a meeting of NGOs is not specified at all.

Furthermore, there is a potential conflict of interest, as civic associations may also nominate their candidates to the Public Oversight Council, which could lead to a situation where the same organisations are represented in the POC and at the meetings of civic associations. This creates the possibility of a conflict of interest in the future.

Therefore, it is important that the selection of personnel for a body with a special status is carried out by its representatives, with the involvement of the public to ensure transparency of the process.

We propose to apply the following model of the competition commission

• three representatives of the ARMA (employees of the HR and legal departments);
• two representatives of the Public Oversight Council.

This model has already proved to be effective in the competitive selection of employees to the NACP.
 

The successful implementation of ARMA's tasks, including all of the above processes, is only possible with sufficient funding. ARMA is not a profit-making entity, but is funded from the State Budget of Ukraine. Therefore, it is crucial that the necessary funds are allocated in a timely manner to implement all its processes and tasks.

13.1 Special fund expenditures

We support the concept proposed by the draft law to finance ARMA's asset management expenses from a special fund:

• Increasing the salaries of ARMA employees

The proposed amendments to the Law provide for an increase in the salaries of ARMA staff. This is a positive step that will contribute to the development of human resources and the attraction of highly qualified specialists to the civil service, especially those who will oversee asset management.

• Additional remuneration for ARMA specialists who directly supervise asset management
• Involvement of external parties

The asset management procedure, both under the current legislation and the proposed amendments, involves cooperation with external parties, such as:

• security companies,
• professional managers,
• appraisers, etc.

For the effective work of these entities, it is important to ensure their interest in cooperating with ARMA by ensuring payment for their activities.

13.2. Regulation of costs

It is advisable to define the permissible uses of the special fund at the legislative level, and the direct procedure for their distribution should be regulated by a separate legal act (government resolution).

The managers should be paid at the expense of a percentage of the management. However, there should be an upper limit on the amount of the manager's remuneration, for example, 50 minimum wages. Such a model is similar to the remuneration of state bailiffs, which was limited by law due to systemic abuse by officials.

In summary, taking into account the above proposals, we support the need to improve the ARMA Law and to eliminate a number of gaps that in practice impede effective asset management.