On 24 May 2022 the Law of Ukraine “On Amendments to Certain Laws of Ukraine on Improving the Effectiveness of Sanctions Related to the Assets of Certain Persons” No. 2257-IX dated 12 May 2022 entered into force (“Law”).
The Law expands the list of assets that may be frozen. Prior to the adoption of the Law, only property owned by a sanctioned person was subject to an asset freeze. Now the Law expands freezes to those assets, in relation to which a sanctioned person may directly or indirectly perform actions identical to the right to dispose.
Moreover, the Law authorises the central executive body that ensures the implementation of state policy in the field of recovery of assets of persons under sanctions (“Authorised Body”) to identify and trace assets to be frozen. Currently, Ukrainian legislation does not specify which public authority will be vested with the functions of the Authorised Body. Most likely, the Cabinet of Ministers of Ukraine will designate one of the existing public authorities in due course. From the information published by the President of Ukraine, we understand that the Ministry of Justice of Ukraine is likely to be designated as the Authorised Body.
While exercising its functions, the Authorised Body will have the right to involve state and local authorities and to address them with binding requests. The Law also enshrines security guarantees for whistle-blowers who reported assets to be frozen or seized.
In addition, the Law adds a new sanction, namely seizure of assets for the benefit of the state (“Asset Seizure”). This sanction is defined as “an exceptional measure called by the severity of the situation and the necessity to achieve the objectives” of the Law of Ukraine “On Sanctions”. The Asset Seizure may be initiated only during martial law and under the following conditions:
- an asset freeze is imposed on an individual or legal entity after the Law entered into force; and
- the person’s actions have created a significant threat to the national security, sovereignty, or territorial integrity of Ukraine, or he/she/it has significantly contributed to the commission of such actions by other persons (including through financing).
The Law details the second condition in a non-exhaustive list of grounds which includes more than 20 subparagraphs. In addition to the obvious grounds related to direct national security considerations (e.g., participation in the armed aggression against Ukraine, establishment of occupying authorities, illegal referendums), the Law provides broader grounds related to economic activity. Among others, these include:
- payments (except custom duties) to the state budget of the aggressor state, if their total amount for the last year exceeds UAH40 million for a legal entity and UAH3 million for an individual;
- gratuitous aid to the aggressor state or persons falling under the grounds for the Asset Seizure in the amount exceeding UAH750 thousand per year; and
- purchase of government bonds of the aggressor state if the total amount is not less than UAH3 million per year.
The Asset Seizure is enacted through the following procedure. The Authorised Body applies for the Asset Seizure to the Supreme Anti-Corruption Court (“SAC”). The SAC considers the application in a court hearing and adopts a decision. The SAC’s decision may be appealed to the Appellate Chamber of the SAC within 5 days. If the decision is appealed, the judge of the Appellate Chamber of the SAC shall review the case and issue the final decision.
The final decision of the court is then sent to the Cabinet of Ministers of Ukraine who determines the procedure for its enforcement. Among other things, assets may be transferred to the Asset Recovery and Management Agency, the State Property Fund of Ukraine, other public authorities, or state-owned enterprises.
This LEGAL ALERT is issued to inform AVELLUM clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The information above does not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.