Inefficient Management of Seized Property and Corruption Risks: Problems of ARMA in Ukraine

The Asset Recovery and Management Agency (ARMA) was established in Ukraine to ensure the effective management of seized property in criminal proceedings. In theory, it should help preserve the value of seized property, but in practice, the Agency's activities are often criticized for inefficiency and corruption risks, UNN writes.

ARMA is to manage seized and confiscated  assets of dubious or illegal origin. The idea is that the Agency retains the economic value of the asset until the final court decision on it. However, analyzing recent high-profile cases of ARMA, it seems that the Agency has become a hostage in the hands of inept managers.

Despite the fact that a year ago ARMA had a new head, and the new head Olena Duma promised to make a number of changes, the Agency's 2023 report still shows that the key areas of the agency's activities - tracing and management of seized assets - still show no progress. 

Over the past year, there have been repeated complaints about the ineffective management of assets after they were transferred to ARMA. For example, there have been cases where seized companies were on the verge of ceasing operations due to a lack of proper management.

One of the most recent striking examples of failed management of seized property is the case of Morshynska. The ARMA is trying to transfer the company's assets, which were seized because of its connection to the sanctioned Russian oligarch Mikhail Fridman, to its direct competitor, Carpathian Mineral WatersLLC. IDS Ukraine's shareholders, who own more than 50% of Morshynska and are not under sanctions, believe that the producer of Karpatska Dzherelna is not interested in preserving and increasing this asset. "The only goal may be to misappropriate, weaken or destroy the assets of a competitor," the company said.

Another example of a poor choice of property manager is the case of Glusco gas stations confiscated from fugitive pro-Russian oligarch Viktor Medvedchuk. ARMA, in particular, had to initiate before the government the cancellation of orders and termination of contracts with PJSC Ukrnafta and re-election of the manager. According to the Agency, the company deliberately refused to sign the acceptance certificate for the filling station, even though it had been selected to manage the assets. Thus, during the time when the gas stations were not operating, the budget of Ukraine was losing UAH 5 million a month. Later, the ARMA and Ukrnafta did find a compromise and got out of the situation.

Experts attribute the inefficiency of selecting managers of seized assets to the lack of a document that would regulate the procedure for their selection. This, in turn, creates opportunities for manipulation and uncontrolled abuse.

In addition, international experts have repeatedly emphasized the need to significantly improve the legislative framework for ARMA's activities to eliminate any corruption risks.

"In fact, the corruption risks are in the fact that there is a very limited amount of information in the public domain about what is happening to a particular asset. We have a state register of seized assets, which is not fully filled, and not all the information in it is correct. And so we have corruption risks - that it could be just a subjective approach to choosing a manager. And it is clear that ARMA selects the managers and if ARMA officials want to get some kind of benefit, illegal, they can do it," said Pavlo Demchuk, legal advisor at Transparency International Ukraine , in an exclusive commentary to UNN .

The fact that ARMA does not disclose the amount of remuneration of its managers suggests the possibility of corruption risks. This gives grounds to believe that the Agency may be operating a corruption scheme to siphon off funds that could become state budget revenues.

More generally, the ARMA has the potential to become an important tool in the fight against corruption and in ensuring the return of illegally acquired property to the state.

However, in order to increase transparency, efficiency and accountability in the management of seized assets, comprehensive reforms are needed, as international experts emphasize.

In order to restore trust in this important institution, it is necessary to ensure transparency of ARMA's work and to strengthen control over the management of seized assets.

As Pavlo Demchuk emphasized, it is also imperative that an effective search for professional managers with the appropriate experience and qualifications to work with seized assets is carried out.

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In early June, the Shevchenkivskyi District Court of Kyiv granted the Prosecutor General's Office's motion and allowed the transfer of the Gulliver complex to the ARMA. However, representatives of Gulliver claimthat this decision grossly violates procedural and substantive law and actually means a business takeover with the assistance of law enforcement and security agencies.

It is not yet known how this situation will develop further, as representatives of the company that owns the complex are arguing in court that this decision is groundless and illegal.