New Special Confiscation: Despite the Guarantees, Property Rights Are Threatened

New Special Confiscation: Despite the Guarantees, Property Rights Are Threatened

YURIY PETRENKO, Partner, Attorney, Head of International Arbitration and Litigation Practice

Expanded grounds for use of special confiscation and ambiguity of the scope of powers of the National Agency of Ukraine for identifying, tracing and management of assets may prevent due property rights protection. The debate is likely to end either at the Constitutional Court of Ukraine or at the European Court of Human Rights.

The package of anti-corruption laws includes the laws “On amendments to the Criminal Code of Ukraine concerning improvements in the field of special confiscation in order to eliminate corruption risks of its usage”, “On Amendments to the Criminal Procedure Code of Ukraine on specific seizure of assets in order to eliminate its usage for corruption purpose” and the Law “On the National Agency of Ukraine for identifying, tracing and management of assets derived from corruption and other crimes”.

Despite the declared transparency and fight against corruption, these legislative changes may have the opposite effect. First of all, they may concern the assets of persons having indirect relation to those who are suspected, accused or convicted of corruption-related crimes.

For example, the previous version of part 4 of Art. 96-2 of the Criminal Code clearly established the connection between a third party and an offense: “if the person who received the property knew or should have known that such property was obtained as a result of commitment of the crime”. Now, the interests of persons having no relation to the crimes involving special confiscation provided for by the Art.96-1 of the Criminal Code may be affected.

According to the updated version of the rule, it provides for two grounds when the property is subject to arrest: if a third party obtained property free of charge from the suspect, accused or convicted or purchased such property at a price significantly below market; or  knew or should have known that the purpose of the transfer of property is to avoid confiscation.

Although the new version contains a provision whereunder a special confiscation cannot be applied to the property of a good faith purchaser, however, the fact of acquisition of property free of charge or acquisition of the undervalued one should not be viewed as an evidence of the purchaser’s bad faith. In addition, even if the person knew that the previous owner of the property acquired it by illegal means, it is very difficult to prove in practice, especially if the property was purchased at the market price.

In any case, while drafting, for example, the contract of sale of real estate, the parties should pay more attention to the issue of assessing the value of such estate and determining the contract price. However, everything may not seem to be so simple now.

Thus, the National Agency of Ukraine for identifying, tracing and management of assets derived from corruption and other crimes is endowed with fairly broad powers by the new law. In particular, subject to Art. 10 of the Law, it can submit claims for recognition of agreements to be null and void, obtain any kind of information (including information involving bank secrecy), make requests for information outside the context of specific criminal proceedings even without having to explain the reasons for that. At the same time, the agency cannot make an independent assessment of the assets. For this purpose, it will involve third-party companies intended to optimize the management. There are no specific criteria and principles of assessment of seized assets, as well as of the selection of entities to do it. This casts a shadow of a doubt on the objectivity and transparency in the implementation of assessment procedures in practice.

Article 1 of Protocol 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms of 20 March 1952 provides that every natural or legal person is entitled to the peaceful enjoyment of his possessions. In Marckx v. Belgium case, the ECHR pointed out that this article is aimed at protecting every person from deprivation of his possessions. In the context of changes into Ukrainian legislation, it should be emphasized that the right to respect the property includes the concept of its preservation. For example, if the National Agency puts funds to an account of the bank that will be liquidated, then, in case of withdrawal of arrest, a person will be able to receive only an amount not exceeding 200 thousand hryvnias. In this case, it is impossible to speak of fair protection of property rights. In Sporrong and Lönnroth v. Sweden case, the Court held that the State while arresting the property should take into consideration fair balance between the public interests and the rights of individuals.

The EU Directive on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union of 3 April 2014 was used as a guide for drafting the law on special confiscation. However, the Ukrainian version does not seem to be completely identical to it. It requires new amendments to set more clear guidelines in determining the new powers of public authorities.

Significant gaps in legislation will definitely entail many high-profile trials in Ukraine. The end of the debate as to the scope of the use of special confiscation may be put by the Constitutional Court of Ukraine, because the Constitution still envisages the right to private property as inviolable. In addition, the prospect of claims against Ukraine to the European Court of Human Rights for abusive seizure and confiscation of the property is also quite certain.