JURIST Guest Columnist Anton Moiseienko, PhD Student at Criminal Justice Centre, Queen Mary University of London, discusses the problem of recovery of stolen state assets and describes what obstacles Ukraine may face in its pursuit of the governmental assets diverted by the Yanukovich regime …A year passed on November 21, 2014 since mass protests erupted in Kiev, Ukraine that ultimately led to the ouster of President Viktor Yanukovich. It is widely thought that one of the principal reasons behind the upheaval was unprecedented graft of Mr. Yanukovich and his entourage. In the aftermath of Ukraine’s revolution the new government pledged to recover assets allegedly looted and stacked abroad by the ex-president and his associates.

Unsurprisingly there is a plethora of legal and practical issues that Ukraine must face in pursuing this commitment. These are not unique to Ukraine. Any country massively exploited by its corrupt leadership is bound to confront similar impediments, as did Haiti, Libya, the Philippines and many others. So what are these difficulties and how have Ukraine and its foreign partners been acting so far?

Repatriation of criminally acquired assets is a daunting endeavor. For one thing one should first identify them. In very old times criminals would bury treasure chests in cellars and thereby conceal their shady fortunes. Today bank secrecy and company secrecy perform similar functions, insofar as beneficiaries behind corporate entities can remain unknown. In recognition of this, on November 16, 2014 the G20 has adopted High-Level Principles on Beneficial Ownership [PDF] as part of the organization’s anti-corruption agenda.

According to a report [PDF] by Oliver Bullough of The Guardian, Mr. Yanukovich and his associates used a network of companies spread across various jurisdictions, e.g. Austria, Cyprus, Latvia, Switzerland and UK, to funnel their ill-gotten gains. It is suspected that a large chunk of money ended up in UK, Middle East or Singapore. In some cases attorney-client privilege helped avoid disclosure of the shell companies’ beneficial owners, which is a commonplace in laundering the proceeds of corruption [PDF].

The amount in question is unclear so far. Ukraine’s prosecution service asserts that $100billion were misappropriated but there are good reasons to be skeptical of this grandiose assessment. The figures however may indeed run into billions of American dollars. What is not controversial is that grand corruption flourished in Ukraine before the revolution and remains endemic now, with devastating consequences for the population’s welfare.

Good-faith and proactive cooperation of other states is essential if Ukraine is to overcome hindrances in finding the assets of its former officials. On April 29-30, 2014 the Ukraine Forum on Asset Recovery was held in London to reaffirm the Western states’ commitment to assist Ukraine and establish the necessary contacts. It was attended by the US Attorney General Eric Holder, who announced the creation of a specialized FBI anti-kleptocracy squad. Also present were UK Home Secretary Theresa May, Foreign Secretary William Hague joined by high-ranked Ukrainian prosecutors and representatives of numerous European countries and international organizations. According to Ukraine’s Deputy Minister of Justice Ruslan Riaboshapka [in Ukrainian], meetings at the forum were essential to secure what he believes to be “highly efficient” cooperation. In August 2014, Ukraine mandated [PDF] the Basel Institute on Governance’s International Centre for Asset Recovery, a Swiss NGO, to assist in recovery of Mr. Yanukovich’s assets and liaise with Ukraine’s foreign partners.

Another crucial step is to freeze assets, which is a preventive measure normally taken either at the haven state’s own initiative or upon the aggrieved state’s request. (Importantly, Article 54(2) of the widely ratified UN Convention against Corruption obliges state parties to ensure that assets may be frozen based upon a substantiated order issued by another state’s competent authority.) In Ukraine’s case, Switzerland, Austria and Liechtenstein were remarkably prompt at freezing assets of Mr. Yanukovich and his close associates. On March 6, 2014 the Council of the EU introduced [PDF] an EU-wide freeze of their assets. The same day US President Barack Obama signed an executive order that empowers the Secretary of the Treasury to designate, inter alia, those individuals involved in the misappropriation of state assets of Ukraine. Their assets were subject to freeze and their travel to the US subject to prohibition. In a matter of days the Secretary of the Treasury exercised these powers against Yanukovich and several other Ukrainians.

Several Ukrainians on the sanctions list are currently contesting the EU’s measures before the Court of Justice of the European Union (ECJ). For example, top legal aide of the toppled regime Andiy Portnov claims that the EU measures violated his right to defend himself, his right to an effective remedy and the right to property. He also alleges that the Council did not state sufficient reasons for blacklisting him. The susceptibility of EU sanctions to human rights challenges is apparent from the ECJ’s existing case law, in particular the famous case of Kadi (for discussion of the right to property implications of sanctions, see para. 368 et seq.). While casting any predictions is hardly appropriate, one might imagine that the outcome of Portnov v. Council and other related cases will hinge on the quality of information provided by Ukraine or collected by the EU member states’ law enforcement agencies.

Inevitably, Ukraine’s ultimate goal is to secure confiscation of misappropriated assets and their repatriation. An interesting legal question is whether confiscation must be triggered by a request issued by Ukraine, with a judgment of a Ukrainian court attached to it, or whether the haven state can determine on its own that the assets were stolen and confiscate them. Domestic laws differ on this point. For instance, the Swiss Federal Department of Foreign Affairs explains [PDF] that Switzerland will require a judgment of Ukrainian courts that would establish the illicit provenance of assets. In contrast, UK enables civil (non-conviction based) asset forfeiture. Such forfeiture is independent of any criminal proceedings and the civil burden of proof applies. UK has expressed [Ukrainian, PDF] its readiness to cooperate with Ukraine should it want to resort to non-conviction based forfeiture.

One difficulty that Ukraine faced in terms of its own domestic law was its inability to try the absconded ex-president in absentia. This has been changed through an amendment of the Criminal Code of Ukraine passed in October 2014 [Ukrainian]. The law also expands the scope of crimes that may result in confiscation orders being issued.

Human rights may come into play with regard to foreign enforcement of such orders. For instance, Radha Ivory suggests that enforcing a confiscation order issued by a foreign state may fall foul of the European Convention on Human Rights if the relevant proceedings in that foreign state entailed a “flagrant” denial of justice. Although no case law directly supports the contention it holds much appeal. Thus, European states had better be slightly cautious in dealing with Ukrainian judgments that might be tainted by corruption or political interference.

Lastly, confiscated assets will have to be repatriated to Ukraine. The return of misappropriated assets is one of the pillars of the UN Convention against Corruption, covered by the provisions of Chapter V of the Convention. The Convention allows the repatriating state to deduct its reasonable expenses incurred in investigations, prosecutions or judicial proceedings. Of course proper implementation of the Convention in domestic law is crucial. In practice the ease of achieving repatriation will greatly depend on the credibility of Ukraine and its achievements in fighting public corruption. Few countries will want to go to the trouble of returning funds that will end up being embezzled by the current officials. An example of good practice is the establishment of various regimes for monitoring [PDF] the use of repatriated funds.

That said, part of the money will probably never be recovered. For instance, at the moment it would be unrealistic to hope for Russia’s cooperation and compliance with its obligations under the UN Convention against Corruption. This unfortunately is the sad reality for now.

To sum up, there is a host of legal and practical hindrances that Ukraine needs to overcome in its pursuit of the moneys allegedly diverted by Mr. Yanukovich and his “family.” The supposed wrongdoers will vigorously resist efforts to locate, freeze, confiscate and return stolen assets and further legal battles should be expected. The best recipe for Ukraine is a competent and impartial domestic investigation of the previous regime’s misdeeds, as well as broader transformations on its way to the rule of law.

Anton Moiseienko earned LL.B from Kyiv National Taras Shevchenko University and LL.M from the University of Cambridge. He is currently pursuing PhD at Criminal Justice Centre, Queen Mary University of London.

Suggested citation: Anton Moiseienko, Stolen Asset Recovery: The Case of Ukraine, JURIST – Student Commentary, Dec. 2, 2014, http://jurist.org/student/2014/12/anton-moiseienko-stolen-asset-recovery.php.