The Forfeiture of Assets as a New Type of Sanctions Was Introduced
Recently the Parliament of Ukraine has passed changes to the Law of Ukraine “On Sanctions” (the “Changes”), which became effective on 24 May 2022. The Changes introduce a new type of sanctions - the forfeiture of assets in favour of Ukraine. It enables Ukraine to expropriate assets of the sanctioned persons without any compensation.
Who can be affected by the Changes?
The forfeiture of assets in favour of Ukraine has an exceptional character and may be applied to the following sanctioned persons:
individuals or legal entities causing a substantial threat to the national security, sovereignty or territorial integrity of Ukraine (supporting and participating in the military aggression against Ukraine, deciding upon and carrying out illegal elections or referendums in the temporarily occupied territories, etc.);
individuals or legal entities who have significantly facilitated other persons (including by funding) in performing actions as per para. a) above (providing the aggressor state with the civil and military infrastructure, paying taxes, and fees to the state budget of the aggressor state, if the total amount of such payments (excluding customs payments) for the last four consecutive tax (reporting) quarters exceeds the equivalent of UAH 40 million for the legal entity and UAH 3 million for an individual, etc.);
the Russian residents within the meaning of the Law of Ukraine “On Basic Principles of Expropriation of Assets Belonging to the Russian Federation and its Residents in Ukraine” (e.g., legal entities (their branches, representative offices) carrying out activities on the territory of Ukraine, if their founder, shareholder or beneficiary is the Russian Federation or legal entities directly or indirectly owned by the Russian Federation).
What assets can be expropriated?
Under the Changes, the following assets may be forfeited:
assets directly belonging to the sanctioned person;
assets over which the sanctioned person may directly or indirectly (through other individuals or legal entities) perform actions identical to the right to dispose of them.
What is the procedure?
The forfeiture must be preceded by the assets freeze, which is a separate sanction. The Parliament of Ukraine, the President of Ukraine, the Cabinet of Ministers of Ukraine, the National Bank of Ukraine, or the Security Service of Ukraine prepares a proposal on assets freezing and submits it to the National Security and Defense Council (the “NSDC”). The latter freezes the assets, and the President of Ukraine enacts it.
The central governmental body ensuring the implementation of state policy in the sphere of the forfeiture of assets of the sanctioned persons in favour of the state (the “CB”) identifies and traces the assets of the sanctioned person specified in the relevant decisions of the NSDC. As of now, such a central governmental body is not defined.
The CB submits an application for forfeiture to the High Anti-Corruption Court (the “Anti-Corruption Court”). Once the Anti-Corruption Court receives the application, it has 10 days to decide whether to impose the forfeiture or not. The decision of the Anti-Corruption Court enters into force after five days from the date of its announcement (if no appeal was filed). The decision of the Anti-Corruption Court can be appealed to the Appeal Chamber of the Anti-Corruption Court.
The Cabinet of Ministers of Ukraine determines the subject, procedure and manner of the enforcement of the forfeiture decision. The Cabinet of Ministers can also transfer forfeited assets to the Asset Recovery and Management Agency, the State Property Fund, military administrations and/ or other state authorities or entities for temporary management.