The Verkhovna Rada of Ukraine adopted Draft Law No. 7194 ‘On Amendments to Certain Laws of Ukraine on Improving the Effectiveness of Sanctions Related to Assets of Individuals’.
The MPs took into account the proposals of the President of Ukraine, thus overriding the President's veto of the draft law.
TheInstitute of Legislative Ideas conducted a thorough analysis of the draft law No. 7194, aimed at identifying risks that may become the basis for future appeals in courts, including the ECHR, and controversial issues that may reduce the effectiveness of the process of asset confiscation, as well as providing recommendations for their elimination.
The analysis of this confiscation model was first published in an article by Tetyana Khutor for Ekonomichna Pravda:
There are still many people who support the murder of Ukrainians with their decisions and money. One of the effective tools to deprive Russia of its economic base and compensate for the consequences of the hostilities would be sanctions.
Of course, the idea of taking away the property of all those who support the war is heartwarming, but there is one caveat. Unlike the assets of the Russian Federation as a state, the confiscation of Russian private assets poses a greater legal problem.
It will not be possible to legally confiscate property from everyone who is ‘rich and Russian’. That is why it is important to choose the right legal grounds and mechanisms to use this tool effectively.
During the war, the Verkhovna Rada passed two mutually exclusive laws on sanctions, but the president did not sign either of them. The reason was that the risk of returning confiscated assets to their owners was greater than the potential benefits.
Presumably, this is why Volodymyr Zelenskyy vetoed the main law. Eventually, on 12 May, MPs supported Zelenskyy's proposals and finally decided from whom and how Ukraine would confiscate property.
Who will be affected by the document, who will confiscate the assets of those who support the war against Ukraine in word and deed, and what risks may those who implement it face?
The essence of the idea
The adopted law introduces a new type of sanction: the confiscation of assets owned by individuals or legal entities, as well as assets that they can directly or indirectly dispose of, to the state.
In short, confiscation. It means the complete deprivation of rights to property, rather than the restriction of the right to dispose of it, as provided for by classical sanctions instruments. Such a harsh measure will be applied only during the period of martial law and will apply only to those persons who have previously been subject to sanctions in the form of asset freezes.
The confiscated assets are expected to be used to strengthen Ukraine's defence capabilities and rebuild the country.
The advantage of using the new sanctions tool is the ability to confiscate not only property on the territory of Ukraine but also outside of it. This will significantly increase the volume of assets, although it will require significant international cooperation.
This model can be called a comprehensive confiscation because of the wide range of entities to which it can apply.
The National Agency for the Prevention of Corruption (NAPC) has already identified 11,141 individuals and 2,976 legal entities involved in the war. As the resources of government agencies are limited, there will be targeted ‘shots’ at particularly large players.
Who will have their property taken away from them
First, assets will be taken from individuals and legal entities. We are talking about Russians, Belarusians and passport holders of other countries.
Ukrainians will not be subject to the confiscation mechanism, except in cases where Ukrainian citizens are involved in terrorist activities or if Ukrainian companies are owned by sanctioned entities, even partially.
Secondly, confiscation will only apply to those persons in respect of whom the decision to block assets was made after the law came into force.
This means that the notional Medvedchuk and 2,936 other individuals and 586 legal entities will not be subject to such confiscation, as they were sanctioned earlier.
Thirdly, the confiscation will apply only to those persons whose actions have significantly threatened the national security, sovereignty or territorial integrity of Ukraine, as well as significantly contributed to such actions. These include the following categories.
The Russian political leadership and state apparatus. These are those who made the decision to start the war, who were involved in it at different stages and in different forms - organisationally, logistically, financially.
Military and ‘other’ occupiers. That is, those who personally participated in or assisted in the armed aggression: the military, organisers of occupation administrations and other self-proclaimed bodies, organisers of elections and referendums.
‘Belarusians’. These are those who have expressed their intention and readiness to use their army to facilitate armed aggression, have provided the Russian Federation with territories, civilian or military infrastructure for the deployment of its army and supplies, and have allowed the Russian army to cross their border into Ukraine.
Confiscation will also apply to persons indirectly involved in the war.
Big business. These are companies that have paid more than UAH 40 million (RUB 170 million) in taxes to the Russian state budget over the past year. For individuals, the amount must exceed UAH 3 million (RUB 12.8 million).
Any international business that has operated in Russia and paid taxes there during the year falls under this definition. However, the implementation of this approach may face problems.
The main problem is legal and is formulated as follows: a person could not have known in advance that the taxes he or she paid would be used to finance aggression.
It is clear that this was intended to cover Russian oligarchs. Over time, the question will arise as to why some oligarchs were caught up while others were not, and the government should be prepared to answer this. It is better to make this process transparent right away.
Philanthropists and donors who have made donations to state authorities or the Russian military, legal entities and individuals under sanctions. These will include those who have transferred more than UAH 750,000 (RUB 3.2 million) for the above purposes.
Buyers of Russian government bonds. The amount that will be used to calculate indirect support for the war against Ukraine is UAH 3 million (RUB 12.8 million) per year.
This criterion is particularly problematic because it will require manual management. Since Russia was considered a reliable debtor before the war, foreign creditors bought federal loan bonds without any risks.
Propagandists. We are talking about all state-owned TV channels and telegram channels that publicly:
✔ encourage, justify, or deny the fact of armed aggression against Ukraine, occupation, discrimination on the basis of Ukrainian citizenship, or acts that, in accordance with international law and/or Ukrainian law, have signs of war crimes or crimes against humanity
✔ glorify the persons who carried out armed aggression against Ukraine, the army, mercenaries of the Russian Federation and representatives of the occupation administration;
✔ support the Russian Federation's policy of non-recognition of the right of the Ukrainian people to self-identification and self-determination, distortion of the idea of the identity of the Ukrainian people and their desire for independence, which is implemented through the spread of false ideologues based on the false and manipulative identification of Ukrainian patriotism with Nazism or other hateful ideologies;
✔ incite hatred towards the Ukrainian people, their culture, language and national identity.
This is a good idea that could deter ‘dirty tongues’ from speaking out in defence of the war in Ukraine. After the law is passed, it will become much more difficult for supporters of the Russian World to express their position, especially on camera.
At the same time, the breadth of the wording may hinder the acceptance of these rules by foreign countries. Germany's awarding of a former Russian propagandist with a prize rather than confiscation of her property confirms this.
Who will confiscate and how
Initially, it was planned that the High Anti-Corruption Court would make the decision on confiscation upon the NACP's application.
A problem arose: The NACP had to choose at its own discretion among all the sanctioned individuals and companies those whose actions pose a ‘significant’ threat. This category was allowed to confiscate property rather than block it.
There was also a logical question about the status of these two bodies, since their competence does not include sanctions policy. The problem was the lack of expertise, especially given that we were talking about cases worth billions.
After vetoing the law, the president proposed that the body that files the claim should be an unspecified body (‘the central executive body that ensures the implementation of state policy in the field of recovery of assets of persons subject to sanctions’).
The government will subsequently decide who will deal with these issues. Most likely, it will be the Ministry of Justice. Although in 2020 it was proposed to transfer such functions to the Ministry of Finance. Such vagueness does not contribute to the legal certainty of the law.
The High Anti-Corruption Court will make decisions quickly: it should take no more than ten days from the moment a claim is filed. The appeal period is five days.
Failure to appear by the persons whose assets are to be confiscated will not prevent the lawsuit from being considered. The Ministry of Justice will enforce the decision on confiscation.
What are the drawbacks?
Will the proposed mechanism be effective? Possibly. Will it cause problems? Unfortunately, yes.
The first version of the law, which was vetoed by the President, posed a real risk of appealing confiscation decisions to the European Court of Human Rights.
The reason for this was that the document did not ensure the basic principles of state interference in the peaceful enjoyment of property and the procedural rights of the defendant. This point was corrected during the revision.
At the same time, the law did not eliminate other risks that could play against Ukraine in international courts.
1. The law does not set a specific purpose for such an ‘exceptional’ sanction, but refers to the general purpose of applying sanctions in general. A person is deprived of all or part of his property without the right to return it and compensation for losses.
2. The further fate of the confiscated assets remains uncertain. This shortcoming could be compensated for by a wording with clear directions to which the confiscated assets will be directed.
Another option - transferring the funds to a special fund of the state budget - would guarantee that the funds will be used for the intended purpose.
3. The grounds for confiscation are defined in one article of the law as ‘substantial threat’ and in another as ‘substantial damage’.
It seems that both are bad, but the difference is that the damage is expressed in certain consequences, which must be calculated and proved, and then a connection between the person's actions and the consequences must be sought. There is a risk that it will be difficult to prove that a person has caused specific harm when appealing a decision.
4. Ukrainian individuals and legal entities can and do fall under the category of persons engaged in terrorist activities.
However, no specific criteria for determining terrorist threats are proposed. This may call into question the ‘proportionality’ of confiscation rather than asset freezing.
In times of war, the use of sanctions in the form of asset confiscation is a necessary and positive step.
Sanctions are a powerful tool in the fight against the aggressor, and this tool should work for Ukraine, not weaken it with imperfect legal norms and risks.
For foreign states to hand over property to Ukraine for confiscation, the procedure both on paper and in practice must be of high quality, both in terms of argumentation and legal process.
Source: Ekonomichna Pravda