The concept and main provisions of the draft law were presented at the event
Among other things, these are the following changes:
Assets are to be sold through electronic auctions in the Electronic Trading System (ETS).
The funds received from the sale of assets are immediately used to purchase military government bonds.
The seized property is sold through electronic auctions (public bidding) in the Electronic Trade System.
The IPI generally supports the intention to improve the procedures for the management and sale of seized assets. At the same time, some proposals and provisions of the draft law should be finalized in the course of preparation for the second reading, in particular:
Reconsider the proposal to supplement the Law of Ukraine ‘On Sanctions’ with an alternative sanction to confiscation in the form of forced sale of assets (by applying OR). The absence of any criteria between the choice of one of the two types of sanctions - confiscation or forced sale - gives excessive powers to the Ministry of Justice and the HACC.
Improve the mechanism for the sale of real estate without the owner's consent before the relevant court decision, as this effectively cancels an important guarantee of non-infringement of the rights of persons against whom a final court decision has not been made.
To finalize the possibility of transferring assets from ARMA to other business entities by decision of the Cabinet of Ministers.
The public discussion of the draft law was also attended by MPs, representatives of the Ministry of Justice of Ukraine, the Ministry of Economy of Ukraine, the Ministry of Finance of Ukraine, ARMA, and Transparency International Ukraine.
Read more in our opinion:
Opinion on the Draft Law 8311
On Amendments to Certain Legislative Acts to Improve Sanctions Policy and Improve the Efficiency of Management of State and Communal Property and Seized Assets
Summary
The draft law proposes to amend certain legislative acts of Ukraine regarding the management and sale of assets.
Analysis of the proposed amendments
The main legislative changes are as follows:
- The Law of Ukraine ‘On Sanctions’ is proposed to provide for a new sanction:
‘1-1) Recovery to the state revenue or forced sale of assets...’.
- The Law on ARMA stipulates that ARMA receives assets in respect of which a court decision has been made to impose a sanction under paragraph 1-1 of part one of Article 4 of the Law of Ukraine ‘On Sanctions’ in the form of forced sale of assets. It is the agency that is authorized to sell them.
- The assets are transferred into management based on the results of a tender by the procedure established by the Cabinet of Ministers of Ukraine.
- Assets are sold through electronic auctions in the Electronic Trading System (ETS). The ARMA Law sets out the auction procedure.
- The funds received from the sale of assets (clause 1-1 of part one of Article 4) are immediately used to purchase military government bonds.
- A month is given to publish data from the Unified State Register of Assets Seized in Criminal Proceedings.
- Seized property is sold through electronic auctions (public bidding) in the electronic trading system. In other words, property seized within the framework of enforcement proceedings is sold in the ETS. The procedure for sale is set out in the Law of Ukraine ‘On Enforcement Proceedings’.
- If the subject of the mortgage is a land plot or the right to use it, the sale of such mortgaged property is carried out exclusively at land auctions held by the Land Code of Ukraine, subject to the provisions of this Law and the Law of Ukraine ‘On Enforcement Proceedings’. The procedure is set out in the Law of Ukraine ‘On Mortgage’.
Comments
1. Forced sale of assets is not a type of sanction within the meaning of the Law of Ukraine ‘On Sanctions’, and the decision on forced sale should not be made by a court.
The idea of supplementing Article 4(1)(1) of the Law of Ukraine ‘On Sanctions’ with a new type of sanction ‘Recovery of assets for the state revenue or forced sale of assets...’ does not seem quite successful.
Firstly, the logic of the formal reflection of the types of sanctions in the Law, where each paragraph contains one sanction, is violated. Instead, it is proposed to provide for two types of sanctions in one paragraph at once.
Secondly, the Law and other acts referring to this clause only provide for the possibility of alternative application of both sanctions - either ‘recovery of assets to the state’ or ‘forced sale of assets’. In addition, the new version of Article 5 of the Law and Article 283-1 of the Code of Administrative Procedure stipulates that the Ministry of Justice shall file a claim with the HACC requesting the application of only one of these sanctions.
We believe that it is impossible to apply the forced sale of assets without their prior recovery to the state revenue since there is no decision on the transfer of ownership of these assets.
Thirdly, enforcement is not, by its very nature, a specific type of legal restriction, unlike the expropriation of an asset. Realization is a logical extension, a way of executing a decision to recover an asset for the benefit of the state. Therefore, it seems illogical to entrust the court with the function of actual management of assets. The court should carry out the expropriation, checking the legitimacy and proportionality of the state's interference with property rights, and the further fate of such a ‘recovered’ asset should be determined by the executive body.
We recommend not to introduce the above amendments to the Law of Ukraine ‘On Sanctions’ and to leave the authority to determine the subject, procedure, and method of execution of the court decision with the CMU, including the need for the forced sale of assets, by amending Article 5-1(3)(2) of the Law accordingly.
2. The ARMA Law does not provide a basis for the transfer of assets confiscated by HACCU to ARMA.
According to Article 5-1 (3) (2) of the Law of Ukraine ‘On Sanctions’, the Cabinet of Ministers of Ukraine is authorized to entrust the implementation of measures related to the temporary management of assets subject to recovery to the state as a sanction under Article 4 (1) (1) of this Law to the central executive body responsible for implementing the state policy in the field of detection, tracing, and management of assets derived from corruption and other crimes.
At the same time, the draft law proposes to transfer to the ARMA assets in respect of which a court decision has been made to impose a sanction under paragraph 1-1 of part one of Article 4 of the Law of Ukraine ‘On Sanctions’ in the form of forced sale of assets.
Under Article 19(1)(2) of the ARMA Law, ‘The said assets shall be taken into management based on a decision of the investigating judge, court or consent of the asset owner, copies of which shall be sent to the National Agency no later than the next business day after the decision is made (provided) with the relevant request of the prosecutor.
Instead, there is no such ground as a decision of the HACC. Taking into account the above remark, it is necessary to define in the ARMA Law the powers of the ARMA to manage the assets recovered to the state by the HACC decision. At the same time, it is necessary to supplement the grounds on which ARMA can take over such an asset - by decision of the HACC or by order of the CMU.
3. Real estate may be sold without the owner's consent until a court decision is issued.
According to part 4 of Article 21 of the ARMA Law, real property cannot be transferred for sale without the consent of the owner of such property until a court verdict of guilty, which has entered into force, or another court decision, which has entered into force and is the basis for the application of special confiscation by the Criminal Procedure Code of Ukraine, or a court decision, which has entered into force, recognizing the assets as unjustified and recovering them for the state.
Instead, the draft law excludes this provision and allows the sale of assets without the owner's consent until the relevant court decision. Such a legislative decision is risky and cancels an important guarantee of non-infringement of the rights of persons against whom a final court decision has not been made.
We recommend leaving the provision in its current wording.
4. Lack of differentiation in determining the amount of remuneration of the ETS operator.
The new part 5-1 of Article 21 of the ARMA Law proposes to determine that the remuneration of the electronic platform operator shall be 5 percent of the sale price of the lot. The functioning and development of the ETS shall be ensured by the ETS development fee, which is 30 percent of the remuneration of the electronic platform operator.
It should be noted that the lot price may be very high. In this case, for example, if a lot worth UAH 1 billion is sold, the electronic platform operator will receive a remuneration of UAH 50 million. Such remuneration seems to be too high.
To save public funds received from asset sales, the possibility of excessive remuneration for the electronic platform operator should be limited in some way, for example, by establishing a gradation of such remuneration depending on the lot price.
5. Inaccurate wording regarding the moment when the legal consequences of a court decision arise.
The draft law proposes to supplement clauses 2-2 of the Final and Transitional Provisions of the ARMA Law with a provision stipulating that assets in respect of which a decision has been made to apply a forced sale as a sanction under clause 1-1 of part one of Article 4 of the Law of Ukraine ‘On Sanctions’ shall be transferred to the National Agency within five business days from the date of adoption (entry into force) of the above court decision for sale without the owner's consent in accordance with Article 21 of this Law.
It should be noted that the date of the court decision and the date of its entry into force may not coincide. The legal consequences should arise from the day the court decision enters into force. We recommend correcting this shortcoming.
Conclusion
The Institute of Legislative Ideas supports the draft law, provided that all the comments provided are taken into account.
This conclusion was prepared by the Methodology for conducting anti-corruption expertise of draft laws by the analytical center ‘Institute of Legislative Ideas’.