Changes in legislation regarding confiscation of property owned by Russian Federation and its residents
29/09/2022
Legal Alert
Prepared by:
The government of Ukraine is attempting to secure national interests after the Russian full-scale invasion on the territory of Ukraine on 24th of February 2022.
One of such initiatives is confiscation of the property owned by the aggressor state and its residents. Recently the Ukrainian parliament adopted a legislative pack of laws that provides conditions to confiscate Russian property on the territory of Ukraine.
On 3rd March 2022 the Ukrainian parliament voted the Law of Ukraine On the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on confiscation»).
On 1st April 2022 the Ukrainian parliament voted a bill on clarifying the provisions of the Law on confiscation and adopted the Law of Ukraine On amendments to the Law of Ukraine on the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on changes»). As of 1st October 2022, the bill is not in force (the President have not signed it yet). On 3rd March 2022 the Criminal code of Ukraine was supplemented by a new Article 436-2 - «a justification, recognition as legitimate, denial of the armed aggression by the Russian Federation against Ukraine, glorification of its participants» (entered into force on 16th of March 2022).
Moreover, on 12th May 2022 the parliament adopted the Law of Ukraine On the amendments of some legislative acts of Ukraine regarding an increase of the effectiveness of sanctions related to the assets of individuals (the «Law on sanctions»).
One of such initiatives is confiscation of the property owned by the aggressor state and its residents. Recently the Ukrainian parliament adopted a legislative pack of laws that provides conditions to confiscate Russian property on the territory of Ukraine.
On 3rd March 2022 the Ukrainian parliament voted the Law of Ukraine On the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on confiscation»).
On 1st April 2022 the Ukrainian parliament voted a bill on clarifying the provisions of the Law on confiscation and adopted the Law of Ukraine On amendments to the Law of Ukraine on the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on changes»). As of 1st October 2022, the bill is not in force (the President have not signed it yet). On 3rd March 2022 the Criminal code of Ukraine was supplemented by a new Article 436-2 - «a justification, recognition as legitimate, denial of the armed aggression by the Russian Federation against Ukraine, glorification of its participants» (entered into force on 16th of March 2022).
Moreover, on 12th May 2022 the parliament adopted the Law of Ukraine On the amendments of some legislative acts of Ukraine regarding an increase of the effectiveness of sanctions related to the assets of individuals (the «Law on sanctions»).
Associate
Yana Mykhailiuk
Junior Associate
The government of Ukraine is attempting to secure national interests after the Russian full-scale invasion on the territory of Ukraine on 24th of February 2022.
One of such initiatives is confiscation of the property owned by the aggressor state and its residents. Recently the Ukrainian parliament adopted a legislative pack of laws that provides conditions to confiscate Russian property on the territory of Ukraine.
On 3rd March 2022 the Ukrainian parliament voted the Law of Ukraine On the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on confiscation»).
On 1st April 2022 the Ukrainian parliament voted a bill on clarifying the provisions of the Law on confiscation and adopted the Law of Ukraine On amendments to the Law of Ukraine on the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on changes»). As of 1st October 2022, the bill is not in force (the President have not signed it yet). On 3rd March 2022 the Criminal code of Ukraine was supplemented by a new Article 436-2 - «a justification, recognition as legitimate, denial of the armed aggression by the Russian Federation against Ukraine, glorification of its participants» (entered into force on 16th of March 2022).
Moreover, on 12th May 2022 the parliament adopted the Law of Ukraine On the amendments of some legislative acts of Ukraine regarding an increase of the effectiveness of sanctions related to the assets of individuals (the «Law on sanctions»).
One of such initiatives is confiscation of the property owned by the aggressor state and its residents. Recently the Ukrainian parliament adopted a legislative pack of laws that provides conditions to confiscate Russian property on the territory of Ukraine.
On 3rd March 2022 the Ukrainian parliament voted the Law of Ukraine On the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on confiscation»).
On 1st April 2022 the Ukrainian parliament voted a bill on clarifying the provisions of the Law on confiscation and adopted the Law of Ukraine On amendments to the Law of Ukraine on the basic principles in Ukraine of property confiscation owned by the Russian Federation and its residents (the «Law on changes»). As of 1st October 2022, the bill is not in force (the President have not signed it yet). On 3rd March 2022 the Criminal code of Ukraine was supplemented by a new Article 436-2 - «a justification, recognition as legitimate, denial of the armed aggression by the Russian Federation against Ukraine, glorification of its participants» (entered into force on 16th of March 2022).
Moreover, on 12th May 2022 the parliament adopted the Law of Ukraine On the amendments of some legislative acts of Ukraine regarding an increase of the effectiveness of sanctions related to the assets of individuals (the «Law on sanctions»).
The purpose of this article is to explain new developments in the legislation of Ukraine regarding the property confiscation in Ukraine.
Law on confiscation
The Law was adopted only a week after the beginning of a Russian full-scale invasion in Ukraine.
Whose property?
Residents of the Russian Federation are legal entities (their subsidiaries) that carry out their activities on the territory of Ukraine in accordance with the legislation of Ukraine:
- any legal entities in which the Russian Federation is a founder, participant, shareholder, beneficiary;
- a beneficiary, participant or shareholder who actually owns any business share connecting with the Russian Federation;
- legal entities that actually have any business share related to the Russian Federation.
The Law on changes defines individuals whose property can be confiscated:
- citizens of the Russian Federation, citizens of other countries who have the closest connection with the Russian Federation, in particular have a place of residence or main business activities in the Russian Federation;
- individuals and legal entities (regardless of citizenship, place of residence, location who publicly deny or support the armed aggression of the Russian Federation against Ukraine, approval of temporary occupation of parts of Ukraine, and continue their economic activities on the territory of the Russian Federation during the period of martial law in Ukraine.
Exception: the confiscation does not apply to persons who protect (have protected) the interests of Ukraine during the period of war, state of emergency or armed conflict.
Which property?
Property which can be confiscated:
- movable and immovable property;
- securities;
- funds, bank deposits, assets;
- corporate rights;
- other property that belongs directly or through affiliate entities to the Russian Federation or its citizens (residents).
According to the Law of Ukraine On financial services and state regulation of financial services markets - affiliate is a legal entity which has significant holding in a financial institution's authorised (joint-stock) capital. Therefore, a person who directly and indirectly, independently, or jointly with other persons owns 10% or more of the authorized (composite) capital.
Thus, any property which located, registered on the territory of Ukraine, and belongs directly or through affiliate entities to residents of the Russian Federation is subject of confiscation.
Thus, any property which located, registered on the territory of Ukraine, and belongs directly or through affiliate entities to residents of the Russian Federation is subject of confiscation.
Confiscation procedure
Steps of confiscation:
- The Cabinet of Ministers of Ukraine (the «Cabinet») forms a project about confiscation which contains a list of property of the Russian Federation and its residents that can be confiscated, identification of such objects (location, registration, etc.) owned by the Russian Federation and its residents, names of persons whose property can be confiscated.
- The Cabinet submits the project to the National Security and Defence Council of Ukraine (the «NSDC») which makes the relevant decision about a confiscation.
- The President of Ukraine signs a decree putting into effect the decision of NSDC.
- The decree should be approved and adopted by the parliament within 6 months after the end or cancellation of martial law in Ukraine.
Confiscated property is transferred to a state ownership represented by the Cabinet from the date of putting into effect the decree of NSDC.
For example, on 11th May 2022 a decree of NSDC entered into force and 2 banks were arrested where beneficiaries are residents of the Russian Federation:
For example, on 11th May 2022 a decree of NSDC entered into force and 2 banks were arrested where beneficiaries are residents of the Russian Federation:
- International Reserve Bank.
- Prominvestbank.
Criminal liability
Article 436-2 of the Criminal Code of Ukraine
Article 436-2 of the Criminal Code of Ukraine
According to this Article, persons who provide or will provide assistance to the aggressor country will be criminally liable for:
- justifying and recognizing as legitimate the armed aggression of the Russian Federation against Ukraine;
- denial of the armed aggression of the Russian Federation against Ukraine;
- glorification of participants, representatives armed aggression, including preparation and expansion of materials.
Hence, the object of offense - peace, human security, national security, international law and order, the subject - a citizen of Ukraine, a citizen of a foreign state and a stateless person.
The Law on sanctions
The Law applies to businesses and persons who shared Russian views and business interests of the aggressor's country in Ukraine.
Grounds for the application of the Law on sanctions are:
Grounds for the application of the Law on sanctions are:
- the actions of individuals and legal entities, foreign states, and other entities which by their actions created or contributed to the threat to national security, sovereignty, or territorial integrity of Ukraine (passed a decision about the armed aggression against Ukraine, took part in such decisions, made proposals in the decision making, took part in the armed aggression against Ukraine, provided financial or logistical support of the armed aggression).
The Ministry of Justice of Ukraine (the «MJU») is responsible for assets search and applying to court.
The court responsible for the assets' forfeiture is The High Anti-Corruption Court (the «HACC») which makes a decision in cases regarding the application of sanctions.
The sanction's procedure:
The court responsible for the assets' forfeiture is The High Anti-Corruption Court (the «HACC») which makes a decision in cases regarding the application of sanctions.
The sanction's procedure:
- The MJU applies to HACC with a statement about using a sanction to the relevant person (considered within 10 days from the date of receipt).
- The HACC makes one of the decisions: to apply a sanction to the person or not. The decision enters into legal force within 5 days from the moment of production of the full text (a copy is sent to the applicant to the "under-sanctioned" person no later than the next day after the decision).
The first decision of such procedure was applied to a Russian businessman in Ukraine. The HACC defined that the Russian businessman is beneficiary of a legal entity that manufactures unmanned aerial vehicles (UAV) for the Russian army and financed armed aggression against Ukraine.
Conclusion
The Ukrainian state has full access to all registers, all tax information on the territory of Ukraine, thus it is not difficult to prove the connection that a specific business is Russian and that sanctions should be applied to it.
However, the wording of all these new legislative changes requires further revision. The current version should be applied very carefully by the authorities as there are risks of rights' violation.
However, the wording of all these new legislative changes requires further revision. The current version should be applied very carefully by the authorities as there are risks of rights' violation.
The Ukrainian state has full access to all registers, all tax information on the territory of Ukraine, thus it is not difficult to prove the connection that a specific business is Russian and that sanctions should be applied to it.
However, the wording of all these new legislative changes requires further revision. The current version should be applied very carefully by the authorities as there are risks of rights' violation.
However, the wording of all these new legislative changes requires further revision. The current version should be applied very carefully by the authorities as there are risks of rights' violation.
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