Corruption practices and conflicts of interest in the activity of the "ARMA" in Ukraine

Public report Corruption practices and conflicts of interest in the activity of the National Agency for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine

This report was prepared by the journalists of the media holding «Vesti Ukraine» on the basis of open sources, materials of journalistic investigations, interviews with lawyers and business representatives, and the responses of state bodies received in accordance with the Law of Ukraine «on access to public information».

The conclusions of the report are advisory in nature and are aimed at improving the system of anti-corruption bodies in Ukraine Kiev, November 2018

01001, Kyiv, Sportivnaya sq, 1а, BC "Gulliver", +3(044) 290 01 00, info@vesti.ua

The creation of anti-corruption bodies in Ukraine took place at the request and with the assistance of the institutions of the European Union. In May 2014, Ukraine received from the EU the first part of financial assistance in the amount of €100 million. The National Anti-corruption Bureau of Ukraine (NABU), the Specialised Anticorruption Prosecutor's office (SAP), and the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (hereinafter - ARMA) were established.

The external prerequisites for the creation of ARMA were Ukraine’s obligations to implement the UN Convention against Corruption and other acts of international law, to implement the recommendations of GRECO and FATF, as well as one of the main criteria for Ukraine - to implement the Action Plan on visa liberalisation with the EU and one of the conditions for Ukraine to receive macro-financial assistance from the European Union.

However, in the Ukrainian reality and at the level of legislative regulation, as well as in the framework of law enforcement practice, the Agency does not work as European partners had expected.

Unlike European and international standards in the field of bringing unjustified assets back into the state's income, Ukrainian legislation does not contain the necessary and sufficient guarantees and warnings to provide a person with effective remedies in the event that coercive measures are used in the management of the seized assets.

Created as a body to fight corruption in the best European practices, in reality, ARMA has become a stronghold of corruption, conflicts of interest, and a tool to raid and seize businesses. Anton Yanchuk, who was appointed as the head of ARMA, is a client of one of the political factions of the Parliament ("People's Front"), which directly influences the work of the department and the selection of companies for asset management.

Contrary to the requirements of state procurement legislation, when choosing management companies ARMA consciously creates the necessary tender conditions for already predetermined companies and acts fraudulently within the electronic system ProZorro in order to hide the cost of their services and the real value of the property that is transferred to their management. The register of assets arrested in criminal proceedings is still unavailable to the public. As a result, the management companies that are chosen by ARMA to manage the assets transferred to it for management have an extremely dubious reputation. Some of them are directly controlled by large Ukrainian oligarchs, and some are directly or indirectly linked with deputies from the “People’s Front” faction and also have a significant criminal trail.

The Ukrainian media systematically publishes information about the fact that ARMA promotes raids and captures, as well as the transferal of seized property into the hands of persons close to the leadership of the department and of the "People’s Front" faction. Over the last two years journalists have repeatedly published facts concerning the illegal actions of ARMA in relation to such assets as the "Gulliver" business center, the "Vesti Ukraine" media holding company, the Novoyavorovskaya and Novorozdolskaya thermal power plants, the Saltovka bakery, the AIS automobile holding company, and many others. Due to the inefficient operation of ARMA, the heating season in several districts of the Lvov region is under the threat of disruption. The expulsion of journalists of the “Vesti” newspaper from their office and the direct obstruction of journalistic activities is the most cynical and illegal special operation of the Ministry.

According to the corresponding Law, an independent external evaluation of ARMA's activities should be carried out annually. However, as of 31.10.2018, such checks have not yet been carried out. In addition, members of a Commission that should verify the Agency haven’t even been appointed. Therefore, we publish this report as an alternative assessment of the activities of ARMA and the Agency's management at the end of 2017-2018.

Table of contents

1. Inconsistencies between legislation on the management of seized assets and the Constitution of Ukraine .......................................................................................................................................................... 3 1.1. Lack of legal certainty in the definition of “asset management”..................................................... 3 1.2. Violation of the right of private property and the right to equal substantive and procedural rights.......................................................................................................................................................... 4 1.3. Violation of the presumption of innocence and the principle of limiting the retroactive effect of the law ....................................................................................................................................................... 5 2. Subjective approach and abuses in law enforcement practice in the management of seized assets ... 6 2.1. Inaccessibility of the register of assets under the leadership of ARMA .......................................... 6 2.2. Non-transparent tender procedures for the allocation of asset management rights .................... 7 2.3. Lack of an exhaustive and well-defined list of assets to be sold ...................................................10 2.4. Retention of obligations and operating costs of the seized property for the owner of the assets…

12 2.5. Lack of protection of the interests of third parties, including labour collectives, tenants of property, and consumers of products and services ................................................................................12 2.6. The lack of accountability for ARMA’s ineffective management of arrested assets ....................15 3. Corruption risks and conflicts of interest in ARMA’s activities ............................................................19 3.1. Political involvement of the ARMA leadership ..............................................................................19 3.2. Dubious reputation of companies that ARMA selects for asset management .............................20 3.3. Corruption and conflicts of interest in the selection of management companies ........................23 3.4. ARMA's participation in raiding and capturing businesses ...........................................................25 Open questions of the public concerning the activities of ARMA ..............................................................27

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1.

Inconsistencies between legislation on the management of seized assets and the Constitution of Ukraine

The legislative framework governing the management of seized and confiscated assets consists of the Law of Ukraine No. 772-VIII "On the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes"1 (hereinafter – the Law) from 10 November 2015. The Law was signed by the President of Ukraine Petro Poroshenko on December 9, 2015 and entered into force on June 11, 2016. ARMA was established as a central executive body by the Cabinet of Ministers’ Resolution from February 24, 2016. This issue is also regulated by article 170 (seizure of property) and article 100 (storage of physical evidence and documents and decisions concerning them) of the Criminal Procedure Code of Ukraine (hereinafter - the CPC of Ukraine).

According to the Law, ARMA is a central executive body with a special status that ensures the formation and implementation of state policy in the field of identifying and searching for assets that may be seized in criminal proceedings and/or for managing assets that can be seized or confiscated in criminal proceedings.

The Law aims to harmonize national legislation with European standards in order to implement European Union directives regarding the freezing and confiscation of funds and proceeds of crime. At the same time, this Law violated a number of articles of the Constitution of Ukraine, which has the highest legal force, defines the fundamental rights and freedoms of the person, and guarantees their observance, namely:     

Lack of legal certainty in the definition of “asset management”; Lack of an exhaustive and well-defined list of assets to be sold, including without a court decision; Violation of the right to private property and the right to ensure equal material and procedural rights; Violation of the presumption of innocence and the principle of limiting the retroactive effect of the law; Reasonableness and proportionality of limiting the right of ownership to the tasks of criminal proceedings.

In this regard, the powers of ARMA on managing arrested property were appealed against on August 14, 2018 in the submission to the Constitutional Court of 56 deputies of the Verkhovna Rada2.

1.1. Lack of legal certainty in the definition of “asset management” The provisions of the Law and the CPC of Ukraine contain the definition of "asset management". Providing a conclusion regarding the Law, the main scientific-expert department of the Verkhovna Rada of Ukraine indicated that the concept of "asset management", firstly, is used in the Law in several meanings. Secondly, the definition of asset management defines one concept through another, and then defines another concept, which is unacceptable because it does not meet the principle of legal certainty.

Contrary to the main purpose of adopting the Law, referring to “corruption crimes” in the title of the Law bears only an emotional charge without legal content, since the scope of the Law applies to arrested assets obtained from corruption and other crimes, an exhaustive list of which is not established by law. This was also noted in the Conclusion of the public anti-corruption expertise from November 2, 2015 and the Conclusion of the main scientificexpert department of the Verkhovna Rada of Ukraine concerning Draft Law No. 3040.

For comparison, article 3 of Directive 2014\42\EU of the European Parliament and of the Council from 3 May 2014 on the freezing and confiscation of funds and proceeds of crime in the European Union, the need for the implementation of which is referred to in the explanatory note to the Ukrainian Law, clearly defines its scope. The Directive applies to such criminal offences as corruption of EU officials, counterfeiting of the Euro, fraud and forgery

Law of Ukraine No. 772-VIII http://zakon.rada.gov.ua/laws/show/772-viii Constitutional submission on ARMA https://www.slideshare.net/andrewvodianyi/ss-109946028?ref=https://vestiukr.com/strana/298932-deputaty-osporili-pravo-arma-rasporjazhatsja-arestovannymi-aktivami 1 2

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of non-cash means of payment, money laundering (legalisation of proceeds from crime), terrorism, corruption in the private sector, drug trafficking, organized crime, human trafficking, sexual violence, sexual exploitation of children and child pornography, and interference in information systems.

As a result, the provisions of the Law and the Criminal Procedure Code of Ukraine in terms of legal mechanisms for determining measures for the management of seized assets are unpredictable in their consequences for persons whose assets are arrested and transferred to the management of ARMA. Following the results of the management, the seized assets, including physical evidence, can be both retained (restriction of ownership) and sold/alienated (deprivation of ownership) without the consent of the owner .

1.2. Violation of the right of private property and the right to equal substantive and procedural rights The Criminal Code of Ukraine contains the concepts of confiscation and special confiscation of property as measures of a criminal-legal nature, which are applied in cases established by law at the stage of the completion (closure) of criminal proceedings. Seizure also applies at the stage when criminal proceedings are still ongoing, and includes a temporary deprivation of the person’s rights to alienate, possess, and/or use the property (according to the decision of the investigating judge or court). The purpose of the seizure of property in criminal proceedings is the preservation of property, including physical evidence. Seizure of property does not imply the transfer of the ownership of the property to the state.

The Law on ARMA presupposes not only the seizure of property, but also the right of its enforcement (alienation), which contradicts the constitutional norms and guarantees regarding the right of private property and creates conditions for depriving a person of this right.

According to Article 316 of the Civil Code of Ukraine (hereinafter - the CC of Ukraine), the right of ownership is the right of a person to a thing (property), which one exercises in accordance with the law under one’s own will, regardless of the will of others. According to part 1 of article 319 of the CC of Ukraine, the right of ownership is the possession, use, and disposal of one’s property at one’s own discretion.

The right to use means the opportunity provided by law to use and exploit property, as well as to receive useful properties from it and to consume it.

Based on the importance of property rights, along with other civil rights, the law establishes its inviolability, which is enforced by part 4 of article 41 of the Constitution of Ukraine. No one may be unlawfully deprived of his or her right to property.

According to part 2 of article 321 of the CC of Ukraine, a person can be deprived of the ownership right or restricted in its implementation only in cases and per the procedure established by the law.

The right to property is fundamental and protected in accordance with national legislation, taking into account the principles of article 1 of the Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”

State intervention in the human right to the peaceful enjoyment of possessions should be based on a law, which is understood as a regulatory legal act that should be accessible to interested persons and should be clear and predictable in its application and in terms of the consequences of its norms.

According to article 17 of the Law of Ukraine "On the implementation of decisions and the application of the practice of the European Court of Human Rights", the practice of the ECHR is used by Ukrainian courts as a source of law.

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The requirement of inviolability of the right of ownership implies respect for the following basic principles of property protection, reflected both in EU law and in the practice of the ECHR: the legitimacy and legality of interference in property relations; the proportionality of such interference; the verification of the actions/omissions of the state as a whole during interference in property relations; the observance of the "fair balance" of interference, as well as the existence and adequacy of compensation; appropriate legal guarantees of protection for such interference (as well as the existence of such guarantees).

The first and most important requirement of article 1 of Protocol No. 1 is that any interference by state authorities in the peaceful possession of property must be lawful (see Iatridis v. Greece [GC], No. 31107/96, § 58, ECHR 1999 II). The requirement of lawfulness, within the meaning of the Convention, requires compliance with the relevant provisions of domestic law and compliance with the rule of law, which includes freedom from arbitrariness (see "Hentrich v. France", 22 September 1994, § 42, Series A no. 296-A, and "Kushoglu v. Bulgaria", No. 48191/99, §§ 4962, 10 May 2007).

With the introduction of "unbalanced" legal mechanisms regarding the management of arrested property in the Law on ARMA, there are risks of the use of "non-standard" coercive measures, abuse by officials, and the formation of inconsistent judicial practice by the courts and officials of state bodies at their own discretion.

The introduction in the national legal system of the compulsory management of seized assets in the public interest at the expense of an unlawful violation of the constitutional guarantees of the protection of the right of private property and the right to ensure equal material and procedural rights of an individual is unacceptable. When adopting legal norms regarding the management of seized assets, it is necessary to take into account constitutional guarantees of the equality of persons before the law and the need to maintain a balance between the competing interests of society and the individual in order to prevent crime and protect human rights.

1.3. Violation of the presumption of innocence and the principle of limiting the retroactive effect of the law Article 58 of the Constitution of Ukraine also establishes 2 fundamental principles that have a fundamental role in the field of criminal law, namely: the principle of limiting the retroactive effect of the law (it does not have retroactive force as a law that for the first time establishes legal responsibility for certain behaviour, as well as a law that makes responsibility for committing an act more heavier compared with the previously existing law) and the principle of the impossibility of punishment without the law (there is no punishment for acts that at the time of their commission were not acknowledged by a law as an offence). Contrary to this requirement of the Constitution, measures to manage arrested assets are also applied in criminal proceedings to assets that were received as private property prior to the adoption of the Law and changes to the CPC. In accordance with article 62 of the Constitution of Ukraine, the principle of the presumption of innocence in criminal law is implemented at all stages of criminal proceedings. The Law on ARMA grossly violates these rules, because a person is accused of owning assets derived from corruption and other crimes when criminal proceedings are still ongoing, i.e., before the indictment of the court has received legal force and before the establishment and proof of the prosecution "beyond reasonable doubt" of the fact of receipt/acquisition of such assets by a person as a result of corruption and other crimes. The accusation cannot be based on assumptions; all doubts as to the proof of a person's guilt are interpreted in his or her favour.

Contrary to the main purpose of the adoption of the Law, the generally recognised principles of law, and the constitutional guarantees of their observance, the legal institution "management of arrested assets" introduced in Ukraine gives ARMA the grounds, at the stage when the pre-trial investigation is ongoing, to manage, including to

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sell/alienate, the arrested assets owned, used, and disposed of by a person, including a bona fide owner, whose guilt has not been proved in the manner prescribed by law.

According to part 1 of article 19 of the Law, the agency manages assets, the amount or value of which is equal to or exceeds 200 minimum wages, as of January 1 of the relevant year. As of 2017 this amount was 640,000 hryvnia, and in 2018 – 744,600 hryvnia.

In accordance with paragraph 7 of section 6 of article 100 of the CPC of Ukraine, physical evidence with a value of over 200 minimum wages - if possible, without prejudice to criminal proceedings - is transferred with the written consent of the owner, and in case of its absence - by the decision of the investigating judge or the court of ARMA, for the implementation of measures to manage them in order to ensure their safety or to preserve their economic value.

Realising that the emergence of an institution for managing arrested assets in the national legislation is conditioned, including by certain political processes, at the same time its implementation in a legal and democratic state at the expense of numerous violations of constitutional norms and the foundations of civil and criminal legislation is unjustified for any reason and creates a real threat of uncontrolled and inconsistent law application, which will lead to unpredictable consequences.

In contrast to European and international standards in the sphere of collecting unjustified assets into the state income, the Law and norms of the CPC do not contain the necessary and adequate guarantees and warnings to provide a person with an effective remedy in the event that the state applies coercive measures to manage arrested assets.

2.

Subjective approach and abuses in law enforcement practice in the management of seized assets

Due to the gaps in legislation, as well as due to the subjective approach of the leadership of ARMA and the presence of significant corruption risks in the activities of the Agency, a number of unresolved issues and abuses in the management of seized/confiscated property have already arisen in law enforcement practice.

2.1. Inaccessibility of the register of assets under the leadership of ARMA Article 21 of the law regulating the activities of ARMA stipulates that the assets received by the Agency for management shall be subject to evaluation, which is carried out by entities of valuation activity determined by the results of a competition. After evaluation, ARMA has the right to transfer the asset to management on the basis of a contract with a company determined by the results of a competition.

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According to the 2017 ARMA report, 125 assets were transferred to the agency’s management. As of December 31, 2017 an entity of valuation activity (company not named) carried out 109 assessments of property items transferred to ARMA for management.

Their total cost was 483 million hryvnia.

What the assets are and what companies they were transferred to isn’t known to the public. At the end of 2017, ARMA reported on “taking measures to define the concept of developing, building, and filling up the Asset Register”.

As of 31.10.2018, the Register of assets arrested in criminal proceedings is still not available on the ARMA website3. Accordingly, the public does not have Data from the public report of ARMA for 2017 information about the full list of assets that were transferred to the management of ARMA, what companies were transferred to managers, and what their estimated value is.

Full data on the assets that were transferred to the management of ARMA in 2018, the number of assets sold, and a list of companies that manage assets are not publicly available.

2.2. Non-transparent tender procedures for the allocation of asset management rights The procedure itself used by ARMA to distribute the rights to manage the confiscated assets contains signs of corruption. The journalists of the “Vesti” newspaper4 analysed the tender documents, as well as some court materials, and came to the conclusion that the requirements for those who apply for the role of ARMA’s confiscated assets managers are designed in such a way as to allow or not allow a particular commercial structure to work in manual operation. The Agency itself refused to explain to journalists according to what criteria a particular company is given priority during the competitions, despite the evidence that ARMA actually distributes the income of commercial structures that they will receive from the management of other people's assets.

According to the Law “On state procurement”, the Agency is obliged to publish information about the winner, as well as the contract concluded with them. Journalists found out that on the website of the ProZorro system it’s possible to find a lot of announcements from ARMA, in which we are talking about the awarding of rights to manage real estate. But these announcements appear after the tender committee of ARMA has determined the winner.

At the same time, in ProZorro there is no tender documentation or generally any information regarding the type of services for procurement or the qualification requirements for participants of procurement tenders.

In response to the request of journalists from the "Vesti" newspaper, ARMA stated that before starting the tender procedure the Agency sends letters to companies with which it cooperates and which could potentially act as asset managers.

3 4

https://arma.gov.ua/register-of-seized https://vesti-ukr.com/strana/306033-kak-arma-pomohaet-oliharkham-obohashchatsja-na-arestovannoj-nedvizhimosti

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In ARMA’s tenders the most important principles of tender procurement established by the Law of Ukraine No. 922 are systematically violated, namely: - fair competition among participants; - maximum economy and efficiency; - openness and transparency at all stages of procurement; - non-discrimination of participants; - objective and impartial evaluation of tenders; - prevention of corruption and abuse.

The basic principle of the competition is violated - the competitive nature of the parties in order to select the most advantageous offer from the most qualified participants. In accordance with the mandatory requirements of Law No. 922, there is a requirement for several participants to participate in the competition. In the event that only one proposal is submitted, the auction does not take place. At the same time, according to the information from the website of ARMA, in a number of tenders there is only one participant, who was subsequently chosen as the winner.

For example, the procedure of electing the company LLC "Navigator business center" as a property manager under contract No. 21 took place in violation of the current law, in particular the Law of Ukraine "On state procurement", namely – it violated the basic principle of competition, which is the competitiveness of the parties. According to the mandatory requirements of law No. 922, at least 2 participants have to take part in a competition. In the event that only one proposal is submitted, then the auction doesn’t take place. From the information provided on the ProZorro website5 it is seen that there was only one participant - LLC "Navigator business center", which became the winner. I.e., the Agency (ARMA) held a state procurement tender for management services concerning the property owned by LLC "Kiev City Apartments", "Yunson Group", and the "Excelsior" asset management company, ignoring the basic requirements that are mandatory and must be complied with in order to conclude a management contract.

At the same time, according to the rules, if only one bidder submitted an offer, the purchase is automatically cancelled and does not go to auction. As a result, elements of a crime under article 364 (abuse of power or official position) and articles 368 and 369 (receiving/giving a bribe) of the Criminal Code of Ukraine are seen in the contract concluded by the management of ARMA with the company "Navigator business center". The parties to the contract concluded it with the receipt of illegal benefits, as is evidenced by the lack of information about the tender for asset management and the lack of evaluation and bidding.

The Agency refers to the Law “On state procurement” when asked the question why ARMA does not hold open tenders. It states that if the expected amount is less than 300,000 hryvnia, the structure may not hold an auction with the help of ProZorro, and can arrange a closed auction or even buy the service from a single participant in the negotiation procedure.

In the tender announcements of ARMA that were studied by the journalists of "Vesti", in the column “expected cost” – the sums "20" or "25" are specified. The announcements indicate that the figure defined in the “expected cost” and “transaction price” fields is the monthly amount of the manager's remuneration, which is 20-25% (excluding VAT) of the management income. I.e., the meagre amount due to which ARMA manages to circumvent the Law “On state procurement” is the percentage that the company should receive when managing assets.

5

https://prozorro.gov.ua/tender/UA-2018-01-06-000021-a

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At the same time, according to part 1 of article 19 of the Law on ARMA, the Agency manages assets the amount or value of which is equal to or exceeds 200 minimum wages, as of January 1 of the relevant year. In 2017, this amount was 640,000 hryvnia, and in 2018 – 744,600 hryvnia.

According to journalists, the amount received by the winning company from the implementation of asset management (leasing of space, for example) is significantly higher than the amount that allows for “pre-threshold” private procurement.

For example, ARMA itself, when signing a contract with LLC "Navigator business center", indicated in the documents that the projected income from space management on three floors of the "Gulliver" business center would be 420 hryvnia per 1 square meter, excluding depreciation. This means that for three floors with a total area of 4459 square meters the manager can receive 1.87 million hryvnia. Therefore, the managing company will receive 468,000 hryvnia, and the tender falls under the law “On state procurement”.

In July 2018, ARMA said6 that since the beginning of the year revenues from managers to the state budget "from the management of arrested assets on the basis of management contracts" amounted to 4.8 million hryvnia.

Accordingly, with the amount of "commission" of the managing companies being at the amount of 20-25%, their profits were from 960,000 hryvnia to 1.2 million hryvnia. It isn’t known to the public which assets and management companies brought this profit, due to the lack of an open register of assets that are managed by ARMA (see section 2.1.).

Investigative journalists from the project “Our Money” found out7 that in September 2018 ARMA entered into three agreements with private companies for property management services, while hiding data about the cost of services.

Thus, in September, agreements were concluded with LLC “Gagarin-Servis” (monthly remuneration of 25%), LLC “Residential complex Vozdvizhenka” (25%), and LLC “Veles Adv” (50%). All agreements were concluded without tender procedures, ARMA did not publish the transactions themselves, but only reports on the conclusion of agreements with a minimum amount of data about the subject of the procurement: “1 service”.

6

https://arma.gov.ua/news/typical/nadhodjennya-do-derjbyudjetu-vid-upravlinnya-areshtovanim-maynom

http://nashigroshi.org/2018/09/24/arma-pokazuje-vartist-posluh-upravytelej-areshtovanoho-majna-u-vidsotkah-nevidomo-vidchoho/ 7

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After the publication of this information, journalists from "Our Money" received a letter from the head of ARMA’s department for asset management Vitaly Reznik. The authorised person from ARMA reported that the percentage of the manager’s monthly remuneration specified in the purchase reports indicates how many deductions the manager will make from the proceeds from managing the seized assets, provided that the management will be profitable. Otherwise, the manager will not receive any remuneration. At the same time, judging from the response of ARMA, managers will not be held accountable for loss-making asset management.

Concerning the holding of competitions without tenders, ARMA explained that the cost of procuring asset management services is zero hryvnia in accordance with the provisions of the Civil Code of Ukraine under the Law on compensation of expenses. The payment of remuneration to the manager is carried out at the expense of management income. At the same time, ARMA believes that they spend budget funds on managers, and therefore do not perform state procurement procedures.

Contrary to the requirements of Ukrainian legislation on state procurement, when selecting management companies for the seized/confiscated property, the management of ARMA consciously forms the tender conditions for already pre-defined companies and conducts fraud with the ProZorro electronic system in order to hide from the public the cost of their services and the real value of the property that is transferred to management.

2.3. Lack of an exhaustive and well-defined list of assets to be sold According to Article 21 of the Law, the management of movable and immovable property, securities, property, and other rights is carried out by ARMA not only by transferring it to management, but also by the sale of the relevant assets.

However, part 4 of article 21 of the Law does not contain an exhaustive and clearly defined list of assets to be sold.

It states that property, including in the form of items or large quantities of goods, the storage of which, due to bulkiness or other reasons, is not possible without unnecessary difficulties, or the costs of providing special storage conditions or the management of which are commensurate with its value or which quickly loses its value, as well as property in the form of goods or products subject to rapid deterioration, shall be sold at prices not lower than market prices. The approximate list of such property is determined by the Cabinet of Ministers of Ukraine.

On September 13, 2017 the Cabinet of Ministers of Ukraine adopted resolution No. 685 “On the Approximate listing of property…”8. The list of assets to be disposed of established by the government is also not exhaustive and contains such asset criteria according to which any arrested asset can be sold at the discretion of the investigating judge, court, law enforcement, or other state authorities.

Activity on the sale of the confiscated property through an electronic auction is carried out by the state enterprise "Setam", which is a sub-division of the Ministry of Justice of Ukraine.

8

http://zakon.rada.gov.ua/laws/show/685-2017-%D0%BF

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As for the implementation procedure, according to part 5 of article 21 of the Law, assets are transferred for sale with the consent of the owner. The assets may be transferred for sale without the consent of the owner on the basis of a decision of an investigator of a judge or court, a copy of which is sent to ARMA immediately after its issuance with the appropriate appeal of the Prosecutor.

In law enforcement practice there have already been cases when ARMA has sold property arrested as material evidence without the consent of the owner. At the same time, the legality of such a sale is disputed by the owner, since the assets transferred to ARMA, contrary to the Law, were not assessed before the transfer as those that cost more than 200 minimum wages.

On September 28, 2017 property in the form of 20 cars owned by LLC "Skif Group security company" was transferred to the management of ARMA by the decision of the Pechersky district court of Kiev. This property was previously arrested in criminal proceedings as evidence.

According to the representatives of the owning company, in the court decision there is no assessment of the arrested property by subjects of valuation activity in accordance with the Law of Ukraine "On the valuation of property, property rights, and professional valuation activities in Ukraine". Thus, the investigator, the Prosecutor, and the judge, being experts in the field of law, realising that they are not subjects of valuation activities in accordance with the Law, and allowing the possibility of the real value of each individual unit of the property of LLC "Skif Group security company" being less than 200 minimum subsistence levels, deliberately used their official position, which caused significant harm to the rights, freedoms, and interests of LLC "Skif Group security company".

Despite the fact that LLC "Skif Group security company" did not give its consent for the sale of the assets to the Agency, on 24 October 2017 the head of ARMA Anton Yanchuk signed decrees No. 119 and No. 121, which order to ensure the implementation of activities related to the transfer of three vehicles from their owner LLC "Skif Group security company" to the e-auction organising state enterprise “Setam”.

On November 3, 2017 ARMA transferred these cars for sale at the “OpenMarket” auction (state enterprise "Setam")9. On November 28 and December 7, 2017 the cars were transferred on the basis of the Act of issuing property to the winners of the auction of the electronic trading state enterprise "Setam".

On April 10, 2018 the court of authorised officials of the National Anti-corruption Bureau of Ukraine ordered to enter into the Unified register of pre-trial investigations information about abuses committed by the head of ARMA Anton Yanchuk, officials of the Main Military Prosecutor's Office of the Prosecutor-General's office of Ukraine, and the judge of the Pechersky district court of Kiev Litvinova I.V. during the disposal of the arrested movable property of LLC “Skif Group security company”.

A case was also recorded when ARMA transferred for sale property that had already been released from arrest at the time of the auction.

One of the cars sold by ARMA is a BMW X6 2017 year of production, which was purchased by its owner for credit funds and is pledged to the bank. The property was arrested in the framework of criminal proceedings and transferred to the management of ARMA according to the decision of the Pechersky district court from 28.09.2017. The owner of this car, citizen N, is neither a suspect nor a witness in this criminal case.

On November 17, 2017 the investigating judge of the Pechersky district court of Kiev decided to remove arrest from this property.

Despite notifying ARMA officials about the removal of arrest from the property transferred to their management and the direct ban of the court on holding tenders, on November 20, 2017 electronic bidding was conducted illegally, without any legal grounds, using the “Setam” platform10. On November 24, 2017 ARMA decided to cancel the results of the auction and withdraw some cars from sale. However, ARMA did not return the cars to their owners within the three-day period stipulated by the Law.

https: //arma.gov.ua/news/announcement/natsionalne-agentstvo-peredast-dp-setam-dlya-realizatsii-transportni-zasobi https://ubr.ua/ukraine-and-world/events/rezultaty-nezakonnykh-torhov-po-prodazhe-tak-nazyvaemykh-mashin-klimenkootmeneny-3859516 9

10

11 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

In the public report of ARMA concerning the results of 2017 it is stated that as of 31.12.2017 the Agency took measures for the sale of 12 vehicles, 3 of which were sold. The report of ARMA states “as a result of the transformation of the asset into cash through sale, the economic value of the assets was preserved and their maturation was ensured as a result of interest for their use, and the assets themselves were returned to fully-fledged economic turnover”11.

The choice of what property should be transferred to management and what property should be sold is made by ARMA subjectively and not publicly, without clearly defined criteria. Legislative gaps allow ARMA to sell absolutely any asset transferred to its management without taking into account the interests of the legal owner and the state budget.

2.4. Retention of obligations and operating costs of the seized property for the owner of the assets The issue of tax and other obligations of the owner in the event that their property is arrested and transferred to the management of ARMA also remain unresolved. For example, according to the existing law enforcement practice, in the event that vehicles are transferred to the management of ARMA, transport taxes and other encumbrances remain on the property owner.

Among the grounds for the imposition by the State Fiscal Service of vehicle tax in respect of a specific vehicle is the mandatory right of ownership of physical persons for who the tax on such a vehicle was determined.

For example, in the case of an ARMA-controlled BMW X6 2017 model from 28 September 2017 (see section 2.3.), its owner, citizen N, was deprived of the physical ability to own it from 14.07.2017. The Agency took measures to sell the said vehicle by contacting the state enterprise “Setam”.

Despite the fact that the car dropped out of the possession of citizen N, on May 26 2018 she received a tax notice - the ruling of the main department of the State Fiscal Service in Kiev determining the amount of tax liability for the payment of transport tax in the amount of 25,000 hryvnia for this car. The tax period for which the transport tax is charged is 2018.

A similar situation arises when real estate is transferred to management by ARMA. In fact, not owning and not being able to operate their property, the owner is obliged to pay real estate tax and payments on previously concluded housing and maintenance contracts and utility bills.

The issue also remains unresolved in the event that property acquired on credit is arrested and transferred to the management of ARMA. Not owning the property, its owner is not liberated from its obligations to the borrowing bank to pay back the loan.

In the event that seized property is transferred to the management of ARMA, the issue of transferring tax, credit, and other obligations related to the right of ownership should also be settled. Otherwise, the owner, deprived of the right to dispose of his/her property and/or receive profit from it, may not be able to service their obligations.

2.5. Lack of protection of the interests of third parties, including labour collectives, tenants of property, and consumers of products and services The issue regarding an object of a labour collective that is transferred by ARMA to the management of the selected managing company or sold through sale is not regulated in the current legislation. The company managing the property or the buyer of the property may, at their discretion, either propose to the employees of such an object to

11

https://arma.gov.ua/files/general/2018/02/22/20180222170051-21.pdf

12 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

renew their employment contract or involve its employees in the management of the property. Thus, as a result of the transfer to ARMA’s management, the right to work of employees of such an object is violated.

From those cases that Vesti’s team of journalists had the opportunity to examine, in some cases when ARMA transferred seized property to management companies, these companies involve their workforce, thereby depriving the employees who worked at these facilities of their workplaces before arrest was imposed. At the same time, the owner of the arrested asset continues to incur obligations regarding the payment of taxes, fees (mandatory payments) to the budget or state trust funds, and the payment of wages under previously concluded labour contracts.

In the event that the owner’s funds are seized within the framework of the prohibition of expenditure operations related to the transfer of money for these needs, the constitutional rights of employees of the business entity, as well as the interests of the state to receive taxes and fees, are violated.

Also, the issue of responsibility for ineffective management and actual sabotage of socially important objects is not resolved.

For example, due to the inefficient management of the Novoyavorovskaya and Novorozdolskaya thermal power plants in the Lvov region, which in August 2018 were transferred to ARMA as evidence in an investigation carried out by the National Anticorruption Bureau, the inhabitants of two regional centers in the Lvov region were left without heating and hot water. The two power plants were transferred to a company selected by ARMA, "Garant Energo-M", which has neither prior experience of such activities nor a license to conduct it. The owners of the objects accused ARMA of promoting raider captures and colluding with the leadership of the management company. According to ARMA, it is precisely the previous owners, management, and certain employees who sabotage the work of the equipment12.

According to the director of the ownership of the asset LLC "Energiya-Novoyavorovsk" Andrey Gnatush, despite the arrest of its property, the Novoyarovskaya thermal power plant has the right to enter into agreements, pay taxes, calculate salaries, and carry out other economic activities. However, in August 2018, "Naftogaz of Ukraine" refused to renew the contracts of the Novoyavorovskaya and Novorozdolskaya thermal power plants for the purchase of gas, and then stopped delivering it. National Joint Stock Company "Naftogaz" refers to letters sent by ARMA stating that this property is managed by the Agency. According to the representative of the owner of the arrested assets, in oral conversations representatives of ARMA reported that the owner can carry out any actions to ensure the carrying out of economic activities, but the market participants did not receive an official answer and explanation from ARMA on this issue. 70,000 inhabitants of the Lvov region became hostages of this situation13.

In the event that residential or commercial real estate objects are transferred to the management of ARMA, the issue of the rights of tenants and sub-tenants also remains unresolved. In particular, the rights of the owner and the tenant of such real estate to the property (furniture, equipment, etc.) that is located in these real estate objects are not considered. The court did not arrest this property, but the managing companies chosen by ARMA illegally use it.

In January 2018, ARMA took control of a number of real estate objects/apartments in the center of Kiev14. The owner of these apartments is the company "Kiev City Apartments". In accordance with the main activity of LLC “Kiev City Apartments”, these apartments were transferred to long-term lease to individuals and legal entities before the arrest and prohibition to dispose of or use the specified property on July 14, 2017.

On 5 January 2018 ARMA signed contract No. 21, according to which the real estate management functions of LLC "Kiev City Apartments" were transferred to LLC “Navigator business center”.

12

https://vesti-ukr.com/strana/310800-skandal-s-arma-i-tets-vo-lvovskoj-oblasti-pod-uhrozoj-nachalo-otopitelnoho-sezona http://gazeta.lviv.ua/2018/10/04/audiozapis-rozmovi-predstavnika-arma-z-direktorom-novoyavorivskoyitec/?fbclid=IwAR3h5Zc3KJ1t7hf6y28O6ruNR21n9tCNlDLGOybWOc7QkivQmcc94QXSeuE 14 https://arma.gov.ua/en/news/typical/priynyato-v-upravlinnya-ponad-20-obektiv-neruhomosti-za-odin-den 13

13 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

In the media and other public sources information is systematically published about the facts of systematic gross violations by LLC "Navigator business center" of the requirements of the current legislation of Ukraine in terms of managing the aforementioned asset. Thus, immediately after the transfer of these objects to the management of the company, people of an athletic build started coming to the tenants of apartments and threatened them for the purpose of making them move out.

A foreigner described to “Vesti” how this happens15. "The company that I work for in Ukraine rents housing for me. That day, as usual, I went to work, and my wife remained at home with our one-year-old child. They rang the doorbell, and my wife, of course, did not open. They then cut the lock, ran into the room, and frightened my family. I immediately wrote a complaint to the Embassy," said the foreigner, who didn’t want to disclose his name to the journalists of the “Vesti” newspaper 16.

"They cut the lock, ran into the apartment, and first of all opened the refrigerator to see what they could eat. Then they started to voice insults. For example, they asked: ‘What do you chomp on? I don't want to eat it because I don’t want to be as ugly as you’. It's just a nightmare. The reforms are in effect," said an inhabitant of Kiev, who refused to disclose his name.

According to the owner of "Kiev City Apartments", on January 25, 2018, in particular, unknown persons who didn’t show their documents (allegedly prosecutors and representatives of the Management company), broke into the apartments of "Kiev City Apartments" located at the address Kiev, Glybochytskaya Street, building 32B (95 square meters) and building 32V (28, 48, 53, 75, 112, and 126 square meters respectively) and demanded from tenants to urgently vacate the room if new contracts with "Navigator business center" aren’t signed. These individuals behaved very arrogantly, broke open the locks, opened the fridge, ate the food of the tenants without their permission, and so on.

As a result of these actions the assets (apartments) of LLC “Kiev City Apartments” were damaged, and the tenants suffered material and moral damage. Two of the apartments (No. 75 and No. 53) were inhabited by unknown persons who, according to information received from neighbors, led an immoral life and violated the rules of good neighbourliness.

Such actions violated the rights not only of the owner, but also of the tenants, who faithfully complied with the conditions of long-term lease agreements and who, after being intimidated by the Management company, were forced to change their place of residence. At the same time, article 770 of the Civil Code of Ukraine establishes that even if the ownership of property being rented changes (in accordance with Article 814 of the Civil Code of Ukraine - change of ownership), the rights and duties of the lessor pass to the new owner, i.e., the lease agreement doesn't stop its action.

Of course, such behaviour with regards to property (apartments) has a very negative impact on their physical condition, does not contribute to the preservation of the apartment, and in the future will lead to unforeseen costs associated with its management, to a significant reduction in the economic value of the apartment, or even to the impossibility of its operation.

There is another case that is no less resonant. In January 2018, officials of ARMA and LLC "Navigator business center", along with the participation of unknown athletic individuals ("titushki"), literally stormed an elite apartment in the “Diamant” residential complex in the heart of Kiev (Taras Shevchenko Boulevard, house 27 B) in order to take control of it. Public attention was drawn to this case, since ARMA officials then said that this apartment belongs to the former Minister of Income and Fees Aleksandr Klimenko. However, the “Excelsior” asset management company officially owns this apartment. Judging by the website of the "Diamant" residential complex, the cost of apartments in this residential complex ranges from $455,000 to $2 million. ARMA stated that this apartment, unlike the other arrested luxury real estate, was leased to a Charitable Fund in memory of the heavenly hundred (code EDRPOU 39519877). As journalists found out, this Fund is headed by a citizen close to the leadership of ARMA - Andrey Pavlenko. According to the data in state registers, in 2010-2011 Pavlenko was repeatedly detained by law enforcement bodies and appeared as a suspectin criminal investigations under part 1 of article 190 (fraud) and article 296 (Hooliganism) of the Criminal Code of Ukraine17.

https://vesti-ukr.com/strana/275721-chto-skryvaet-arma-kak-natsahentstvo-prevratilos-v-rejderov https://vesti-ukr.com/strana/275721-chto-skryvaet-arma-kak-natsahentstvo-prevratilos-v-rejderov 17 https://from-ua.com/articles/436268-anton-yanchuk-muzei-pamyati-nebesnoi-sotni-i-sinie-trusi.html 15 16

14 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

It should be noted that the court ruling on the arrest of property directly concerns the premises itself, but the issue of property located there, which by right belongs to the owner, remains unresolved. This principle is grossly violated not only by the management companies selected by ARMA, but also by the management of the Agency itself.

The property from the aforementioned apartments of the "Diamant" residential complex was presented in the so-called "Park of corruption", which ARMA presented in the summer of 2018 with the support of the EU Anti-Corruption Initiative in Ukraine (EUACI) and sponsors - the EU and the Danish International Development Agency (DANIDA).

Property in the apartment transferred to the management of ARMA in the residential complex "Diamond", January 25, 201818.

This property, which was not subject to arrest, was used by ARMA during the presentation of the "Park of corruption", with the participation of the head of the European Union Mission in Ukraine Hugh Mingarelli on June 1, 2018 in Kiev.

2.6. The lack of accountability for ARMA’s ineffective management of arrested assets Paragraph 4 of part 1 of article 1 of the Law stipulates that asset management is the activity of possessing, using, and/or disposing of assets, i.e., ensuring the safety of assets seized in criminal proceedings and their economic value. In accordance with the provisions of part 3 of article 21 of the Law, asset management is carried out on the terms of efficiency, as well as the preservation and increase of their value.

In accordance with article 1043 of the Civil Code of Ukraine, a manager who has not shown due care in the management of property in the interests of the founder of the management or the beneficiary is obliged to compensate the founder of the management for the losses caused and the beneficiary of the management for the lost profit. The manager is responsible for the losses caused if they can’t prove that they arose as a result of force majeure, or the guilty actions of the founder of the management or its beneficiary.

18

https://ru.tsn.ua/ukrayina/v-izyatoy-kvartire-klimenko-v-kieve-nashli-izdeliya-faberzhe-1095395.html

15 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

Thus, the activity of the managing company shall be based on the principles of legality, and also the preservation of all properties of the property transferred to management, its integrity and the integrity of all things that are in it, and also their consumer qualities. In fact, the managing company is obliged to make every effort to ensure that the market value of the property does not decrease.

In accordance with article 22 of the Law, ARMA carries out periodic, but at least once a month, verification of the effectiveness of the management of the seized assets transferred to its management. In the event that the facts of improper asset management or attempts to alienate assets by the manager are established, ARMA informs the relevant law enforcement bodies to check and respond in accordance with the law and immediately takes measures to change the manager of the respective assets.

However, as is evidenced by the recorded facts, the actions of the property management companies selected by ARMA are clearly contrary to the requirements of the Law and lead to the destruction of the property transferred to them. And the Agency itself not only does not prevent such actions, but also takes part in them.

In addition to the aforementioned example of ineffective property management of LLC “Kiev City Apartments” (see section 2.5), the case of ARMA’s management of real estate located in the “Gulliver” business center, including the premises in which the “Vesti Ukraine” media holding was located, is also indicative.

On July 14, 2017, the ruling of the investigating judge of the Pechersky district court of Kiev satisfied the motion of the Main Military Prosecutor's Office in criminal proceedings to seize the property owned by LLC "YUNSON GROUP". The decision of the investigating judge of the Pechersky district court of Kiev from August 29, 2017 partially satisfied the motion of LLC "YUNSON GROUP" to cancel the arrest in terms of the ban on the use of the Property. Thus, the legal right to use the property belonging to it was assigned to LLC “YUNSON GROUP”.

The background to the situation is that this property is office space in the “Gulliver” business center, one of the most prestigious business centers in the very center of Kiev, where the “Vesti” media holding is also located. These premises were arrested after the high-profile searches carried out by the Military Prosecutor's Office and the police on July 14, 2017 within the framework of the political case against the former Minister of Income and Duties, Aleksandr Klimenko. During these searches, which took place under the personal control of the Military Prosecutor Anatoly Matios, even heavy weapons (BTR) were involved in the center of Kiev.

Searches in the office of the "Vesti Ukraine" media holding in the "Gulliver" business center, July 14, 2017

16 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

It should be noted that earlier journalists of the Holding repeatedly investigated the activities of the Main Military Prosecutor's Office, ARMA19, the “Navigator business center” company20, and other structures and individuals in the higher echelons of power (corruption, ineffective reforms, etc.). The media holding has been put under systematic pressure by law enforcement bodies and right-wing radical groups since May 2014 (the presidential election, which was won by Petro Poroshenko). The vigorous actions of state bodies in the attack on the holding give grounds to regard ARMA’s attack as the exertion of pressure on the media outlets whose position is undesirable for the authorities.

On September 28, 2017, in accordance with the ruling of the Pechersky district court of Kiev, this property was transferred to ARMA for the implementation of management actions. Despite the fact that LLC "YUNSON GROUP" had the right to freely use the property belonging to it, ARMA, disregarding the will of the owner, committed actions aimed at disposing of it outside the limits of its granted powers.

At the end of 2017, the company “Coliers” was selected in an ARMA competition as the manager of these assets. However, having understood the situation, the company's representatives refused to participate in the management.

Instead of “Coliers”, the representatives of ARMA again involved LLC "Navigator business center" for management. This company was the only participant in the tender for the choice of manager that was held by ARMA, which obviously violates Ukrainian legislation. At the same time, the head of the legal department of ARMA Andrey Potemkin is the brother of the lawyer of the founder of "Navigator business center" and the owner of the vodka Empire "Petrus" Lyudmila Rusalina (see section 3.3.).

Knowing that LLC “YUNSON GROUP” is the owner of real estate and wasn’t deprived of the right to possess it, on February 8, 2018 the investigator on especially important cases of the first investigative department of the investigative department of the Main Military Prosecutor's Office of the Prosecutor-General's office of Ukraine Vitaly Opanasenko, the employee of ARMA Andrey Potemkin, with the use of "titushki" (unknown persons of an athletic build), seized the 31st, 32nd, and 33rd floors of the "Gulliver" trade and office complex and, using unidentified persons with metal crowbars, cracked open the entrance doors of the premises.

Gas of an unknown origin was used against journalists. There was smoke in the office of the publication, the fire alarm system was triggered, and the employees in the entire building of the business center were evacuated. The editor of the "Vesti" website Anastasiya Reyn received 1st degree retinal burns.

Access to workplaces for the journalists of Radio “Vesti”, the "Vesti" newspaper, and the websites vesti-ukr.com and ubr.ua was blocked, newsrooms and radio broadcasting studios were occupied by "titushki", which made it impossible to broadcast radio stations. Journalists were deprived of their right to pursue legitimate professional activities. About 200 media employees lost access to office infrastructure, work equipment, office equipment, and their personal belongings.

https://vesti-ukr.com/strana/276144-18-chem-uvlekajutsja-sotrudniki-arma-seks-ihrushki-pjanki-i-devushki-lehkoho-povedenijafoto-video 20 https://vesti-ukr.com/strana/276909-kriminal-i-vodochnaja-koroleva-v-druzjakh-kto-uhrozhaet-i-lishaet-zhurnalistov-vestej-ofisa 19

17 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

Only a week later did the Holding's team manage to organise the work of online publications, the daily newspaper, as well as the broadcast of live radio. Journalists were not able to work at full capacity since they lacked access to the high-tech equipment of the radio complex in the occupied office.

Also note that from the 3 floors that are owned by "Yunson Group", employees of ARMA and the Prosecutor-General’s Office are interested in precisely the one that the editorial office of “Vesti” uses.

The seizure of the Holding was accompanied by a pogrom of the editorial office.

Immediately after the capture of the 32nd floor, the editorial office was occupied by unknown men in balaclavas, who introduced themselves as employees of the management company - "Navigator business center". They barricaded themselves inside the premises and started to smash the equipment of journalists and the expensive equipment of the "Vesti" radio station. Surveillance cameras also recorded the use of alcoholic beverages.

For several months unknown people were in the office of the holding; they stole the A representative of LLC "Navigator business centre" during the management of the Media Holding "Vesti Ukraine" office

property of the publication21 and threw the personal belongings and documents of journalists out of the window22. During this time, the employees of ARMA and the managing company chosen by it trashed the offices that it allegedly “managed”23.

The security guards of the "Gulliver" business center detained men who tried to carry weapons, and others were detained while they attempted to take cameras, batteries, and even hand cream out of the “Vesti” office.

After the forceful capture of the premises, movable property that belonged to tenants disappeared from them, namely LLC "Innovation and solutions", LLC "Digital designs", LLC "New-media" (Media holding "Vesti Ukraine"). According to the conclusion of the evaluator in matters of the cost of objects of independent evaluation, the cost of the movable property that was stolen from tenants amounted to 27 million hryvnia.

The office of the media holding "Vesti Ukraine" after the "management" of the managing company "Navigator business center" selected by ARMA

Titushki with experience: occupiers of "Vesti" continue to steal the equipment of journalists. https://vesti-ukr.com/kiev/279342-titushkiso-stazhem-zakhvatchiki-vestej-prodolzhajut-krast-tekhniku-zhurnalistov 22 A lot of garbage, broken furniture, and broken windows: how "Navigator business center" manages the office of "Vesti". Photos/videos. https://vesti-ukr.com/strana/280281-kucha-musora-polomannaja-mebel-i-vybitye-stekla-kak-sejchas-vyhljadit-ofis-vestej-fotovideo 23 https://vesti-ukr.com/strana/277661-sem-dnej-okkupatsii-ofis-vestej-razhromlen-reshenie-suda-ihnoriruetsja 21

18 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

Journalists of the Holding appealed to law enforcement bodies due to a violation of article 171 of the Criminal Code of Ukraine "Obstruction of journalistic activity". Representatives of the owner of the “Gulliver” business center addressed to the National Anti-corruption Bureau (NABU) with a request to investigate the non-transparent tender via which representatives of ARMA chose a company with a criminal trail to manage the editorial office of the media holding “Vesti” and didn't even try to consider alternatives.

Well-known Ukrainian politicians, experts, lawyers and human rights activists, influential figures of journalism, and media personalities supported the media Holding “Vesti Ukraine”. The office of the international Committee to Protect Journalists in New York (CPJ) issued a statement strongly condemning the seizure of the Holding.

But no reaction from the Ukrainian authorities followed. The head of ARMA Anton Yanchuk avoided communication with journalists and refused to comment on the situation24. The media holding "Vesti Ukraine" appealed to the President Petro Poroshenko, the head of the Verkhovna Rada Andriy Parubiy, the head of the Prosecutor-General’s Office Yury Lutsenko, the Prime Minister Vladimir Groisman, and a number of diplomatic missions with a request to react to the situation with "Vesti" and to dismiss the head of ARMA Anton Yanchuk.

In fact, instead of effectively managing property, the managing company “Navigator business center” chosen by ARMA organized a pogrom and caused millions of losses to the "Vesti" media holding. The above-described actions for the purpose of appropriating or taking possession of the property of companies with the abuse by official persons (employees of legal entities under public law), the Main Military Prosecutor's Office of the Prosecutor General's office of Ukraine, ARMA, and the investigating judge of the Pechersky district court of their official position is a criminal and punishable act according to Article 191 of the Criminal Code of Ukraine.

Even if the facts of improper management of assets or attempts to alienate assets by the managing company are established, ARMA, contrary to the law, does not react to these facts or issue a warning to them. Also, contrary to the obligation, no immediate measures are taken to change the manager of the respective assets.

3.

Corruption risks and conflicts of interest in ARMA’s activities 3.1. Political involvement of the ARMA leadership On December 7, 2016 the lawyer Anton Yanchuk, who previously held the position of Deputy Minister of Justice of Ukraine for European Integration, was appointed as the head of ARMA. According to his official biography, in 2005-2008 Anton Yanchuk worked for the law firm "Gramatsky and Partners", and then for the law firm "MLGroup", the founder of which was the current Minister of Justice Pavel Petrenko. In parallel Yanchuk appeared at first as the assistant to the people's deputy Arseniy Yatsenyuk (2007-2012), and then later Pavel Petrenko. Both politicians at that time were part of the “Batkivshchina” party, but

Anton Yanchuk, head of ARMA

they now represent the “People’s Front” faction.

In 2014, Yanchuk was appointed as the assistant Minister of Justice, and then the Deputy Minister of European Integration25.

As was discovered by Ukrainian journalists, the appointment of Yanchuk in ARMA became a political compromise between the faction of “People’s Front”, whose representatives he is close to, and the “Bloc of Petro Poroshenko” faction, which needed to appoint a close person to the position of the head of the State Bureau of Investigation. https://vesti-ukr.com/strana/277679-hlava-arma-ubezhal-ot-voprosov-jurista-pro-zakonnost-zakhvata-ofisa-vestej The lawyer of Minister Petrenko, Yanchuk, was the head of the National Agency for the Recovery of Assets. https://ukranews.com/ua/news/462693-yuryst-ministra-petrenka-yanchuk-ocholyv-nacagentstvo-z-povernennya-aktyviv 24 25

19 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

Thus, despite the formal independence of the head of ARMA Anton Yanchuk, he is the creature of one of the political factions of the Parliament ("People's Front"), which directly influences the work of the department and the selection of companies for asset management.

3.2. Dubious reputation of companies that ARMA selects for asset management According to ARMA, at the end of 2017 80% of the total number of objects transferred to the management of the Agency was transferred to the management of "managers selected on the basis of competition". In order to manage confiscated assets, ARMA is required to choose a management company that meets certain eligibility requirements26. Among the requirements there are completely objective (the availability of equipment, material and technical base, employees, the absence of criminal cases) and subjective ("the presence of an impeccable business reputation") ones. The Agency claims that they can join any willing company that meets the above criteria.

As of 01.11.2018, the ARMA website contains a list of 40 companies that have this right 27.

The data of the “‘Vesti’ publication on the basis of analysing the statement on the ARMA website”28

Having studied the list of these companies, journalists have come to the conclusion that some of them are controlled by large Ukrainian oligarchs and have a dubious reputation, including the existence of ongoing criminal investigations into their activities.

ARMA Qualification Requirements for Confiscated Property Managing Companies https://arma.gov.ua/pages/kvalifikaciyni-kriteriividboru-osib-yaki-mozhut-zdiysnuvaty-upravlinnya-aktyvamy 27 Companies that can manage assets https://arma.gov.ua/pages/kompanii-yaki-mozhut-zdiysnuvaty-upravlinnya-aktyvamy 28 https://vesti-ukr.com/strana/311732-otnjat-i-podelit-novye-skhemy-chinovnikov-po-otzhimu-imushchestva 26

20 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

Some of the management companies selected by ARMA are directly related to large Ukrainian oligarchs. We are talking about three companies of the Kharkov oligarch Aleksandr Yaroslavsky: LLC "DCH INFRASTRUCTURE & REAL ESTATE" (code 38736738), LLC "BUDINVEST-DK" (code 37797889), and LLC "Residential complex ‘Vozdvizhenka’".

Also on ARMA’s list there are two companies whose ultimate beneficiary is the oligarch Rinat Akhmetov: Private Joint-Stock Company "Ukrtransleasing" (30674235) and LLC "METINVEST-SHIPPING" (31158623).

ARMA’s list of companies also includes the company "UKRTRANSCENTER" (code 39327690). According to journalists from the “Ekonomicheskaya Pravda” publication29, this is a fake company used for withdrawing cash ("layer") belonging to the oligarch Dmitry Firtash. In January 2015, this company received almost 94 million hryvnia from the “Sumykhimprom” enterprise for organizing cargo transportation. The “Sumykhimprom” plant, which is de jure owned by the state, has been de facto managed for several years by people from “Ostchem Holding”, which manages Firtash’s chemical business. The company “Ukrtranscenter” was established a few months before the specified tender. Previously, “Synthesis Resource”, which is also controlled by Firtash, provided transportation services - this company won this particular tender.

Most of the management companies selected by ARMA are directly or indirectly related to deputies from the "People's Front" faction and also have a significant criminal trail.

The most dubious reputation among the companies selected by ARMA belongs to the "Navigator business center" (see Examples of management from Section 2), the beneficiaries of which are Nikolay Petrenko and Lyudmila Rusalina30. They are also co-owners of the holding company "Petrus-Konditer", which manufactures confectionery products (TM "Domashne Svyato" and "Perepelka") and the manufacturer of alcoholic beverages LLC “Petrus-Alko” (TM “Zlatogor”, “Status”, “Chekushka”, “Gorilochka”, “PetrusAlko”, and others). Nikolay Petrenko is also officially listed as the assistant to the people’s deputy from the "People's Lyudmila Rusalina and Nikolay Petrenko, the beneficiaries of the Front" faction Sergey Drayuk. According to the fiscal company "Navigator business center" service in the Kiev region, the company “Navigator business center” used the services of a transit/conversion group – they illegally formed a tax credit from it. The company also appears in the investigation of the ProsecutorGeneral's Office for tax evasion in the amount of more than 20 million hryvnia. It is precisely this company that is involved in the most scandalous case involving ARMA – the seizure of premises rented by the “Vesti” media holding (see section 2.6.).

29

https://www.epravda.com.ua/rus/columns/2017/11/15/631192/

30

https://vesti-ukr.com/strana/277841-arma-rassledovanie

21 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

Rusalina, together with Lydiya Petrenko, is the beneficiary of another company that received from ARMA the right to manage assets - Private Joint-Stock Company "Central Ukrainian production and assembly enterprise ‘Atompromkompleks’" (14308150).

Journalists have repeatedly written about the employees of the company LLC "Navigator business center" Andrey Gritsenko and Vladislav Zaitsev, who is directly involved in the eviction of tenants and the seizure of the premises that the media holding "Vesti" rented. For example, on their social network pages they publish videos with The employee of LLC "Navigator business center" Vladislav naked women, conduct strange experiments (for Zaitsev example, setting fire to their own tongue), and write obscene poems. According to journalists, the employee of "Navigator business center" Vladislav Zaitsev directly lives in one of the arrested real estate objects that was transferred by ARMA to the management of this company. Both Zaitsev and Gritsenko were earlier repeatedly taken to court.

Together with these "employees" of LLC "Navigator business center", Mikhail Prantsipal also took an active part in the eviction of tenants of the company "Kiev City Apartments" (see section 2.5.) and the illegal actions concerning the property of the "Vesti Ukraine" Media holding. It was precisely he who oversaw the work of the so-called "titushki" who ensured the forceful eviction of tenants of assets transferred to the management of ARMA. Mikhail Prantsipal is listed on the website of the Verkhovna Rada of Ukraine as an assistant to the people's deputy Sergey Drayuk (“People's Front”).

Criminal investigations are conducted against a number of management companies that are on the list of ARMA, including by the fiscal authorities. For example, according to the results of the pre-trial investigation, the company "Pervaya logisticheskaya kompaniya" (37678031), included by ARMA in its list of managers, used the services of an illegal transit/conversion group in the period 2014-2016. The main beneficiary of this company is Maksim Shkil, who is connected (nepotism) to the Minister of Infrastructure Vladimir Omelyan (also from the "People’s Front" faction).

A criminal case was opened against Maksim Shkil concerning tax evasion, financial fraud, and bribery in during the tenders that were won by "Pervaya logisticheskaya kompaniya". In June 2017, law enforcement officers and the fiscal service conducted a search at the company's office in Lvov.

Another company from the list of ARMA - “Four Leasing” - appears in a criminal investigation from 12.10.2015 on the grounds of committing crimes under part 5 of article 191, part 1 of article 212, and part 2 of article 364-1 of the Criminal Code of Ukraine, which are being investigated by the main department of the SBU in Kiev and the Kiev region. According to the SBU’s version of events, the company “Four Leasing” was involved in the acquisition of funds from the National Bank of Ukraine, provided to the bank "Kievskaya Rus" in the form of two stabilisation loans in the amount of 170 million hryvnia and 385 million hryvnia respectively. The SBU indicates "Four Leasing" among the business entities that officials from the bank "Kievskaya Rus", in violation of the current legislation, issued loans to, and thereby caused significant future material damage to the deposit guarantee fund of individuals.

Thus, most of the companies selected by ARMA for asset management under non-transparent procedures and bypassing tender legislation are either controlled by large Ukrainian oligarchs or are directly or indirectly associated with deputies from the “People’s Front” faction. Some of these companies also have a significant criminal trail, and criminal cases are initiated against their ultimate beneficiaries or direct owners.

22 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

3.3. Corruption and conflicts of interest in the selection of management companies In the activities of the company LLC "Navigator business center" repeatedly mentioned above there are signs of corruption offenses in collusion with the officials of ARMA. As of 01.11.2018, the official website of ProZorro contains information according to which ARMA has concluded 6 asset management agreements with LLC "Navigator business center", code EGRPOU 35121843: • Contract No. 1578 dated 19.12.2017, valid from 19.12.2017 to 31.12.2017 (management of real estate objects (assets) in the amount of 74 units, contract price - 20%).

• Contract No. 21 dated 05.01.2018, valid from 05.01.2018 to 31.12.2018 (management of real estate objects (assets) in the amount of 74 units, contract price - 20%).

• Contract No. 26 dated 10.01.2018, valid from 10.01.2018 to 31.12.2018 (management of real estate objects (assets) in the amount of 3 units, contract price - 25%), terminated on 22.03.2018.

• Contract No. 186 dated 08.02.2018, valid from 08.02.2018 to 31.12.2018 (management of real estate objects in the amount of 1 unit, contract price - 25%), validity period extended until 31.07.2018.

• Contract No. 338 from 22.03.2018, validity from 22.03.2018 to 31.12.2018 (management of real estate objects in the amount of 16 units, contract price - 20%), terminated on 31.08.2018.

• Contract No. 1081 dated 05.10.2018, valid from 05.10.2018 to 05.10.2019 (asset management in the amount of 1 service, contract price - 25%).

According to the data forms in the report on the contracts concluded with LLC "Navigator business center", the Chairman of the Tender Committee of ARMA is Andrey Aleksandrovich Potemkin, who put his signature on these forms.

As was mentioned above, LLC "Navigator business center" belongs to Nikolay Petrenko and Lyudmila Rusalina, who are the main beneficiaries of the group of companies "Petrus". According to the Unified state register of legal entities, individual entrepreneurs, and public formations, Petrenko and Rusalina are also the ultimate beneficial owners (controllers) of more than 10 companies, in addition to LLC "Navigator business center”.

In two of these enterprises (LLC "Shpolyansky confectionery plant", code EGRPOU 32854125, and "Zeleny berer SKS", code EGRPOU 33209936) Vladimir Aleksandrovich Potemkin, the brother of the Chairman of the Tender Committee and Head of the Legal Department of ARMA Andrey Potemkin, was listed as the director and signatory from 17 March 2016 to 31 January 2018. From January 2018 Mikhail Prantsipal was simultaneously appointed as the founder, director, and accountant of these companies (see section 3.2.).

Vladimir Potemkin also, in accordance with the agreement on the provision of legal (professional judicial) assistance from 09.08.2017 and the order series KC No. 293430 from 27.12.2017, is the lawyer of Lyudmila Rusalina in the existing dispute concerning the divorce with her husband, the division of property, and other personal and property issues.

According to the Declaration of Andrey Potemkin as a civil servant for 2017, posted on the official website of the National Agency on Corruption Prevention 31, he holds the position of Head of the Legal Department of ARMA and, together with his brother Vladimir Potemkin, is the owner of an apartment in the city of Kiev.

31

https://declarations.com.ua/declaration/nacp_cdee0ec6-7cc3-4f4b-8e67-2ec9d6235923

23 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

The stated circumstances testify to the presence of a trusted and close relationship between Lyudmila Rusalina and the two Potemkin brothers, which in turn calls into question the objectivity and impartiality of the state procurement Tender Committee of ARMA with the participation of LLC “Navigator business center”.

In accordance with article 28 of the Law of Ukraine "On the prevention of corruption", Andrey Potemkin, as a subject of corruption, is obliged to: take measures to prevent the emergence of a real conflict of interest; report no later than the next working day about the presence of a real conflict of interest of the immediate head; not to take action and not to take decisions in the conditions of a real conflict of interest; take measures to resolve a real conflict of interest.

In violation of these requirements of anti-corruption legislation, Andrey Potemkin, being a subject of corruption, having a contradiction between official authority and private interest, due to family relations with his brother Vladimir Potemkin, who is a lawyer of the owner of LLC "Navigator business center" Lyudmila Rusalina, did not take measures to prevent and resolve the conflict of interest in the order prescribed by Law and participated as the Chairman of the Tender Committee of the National Agency by definition and the winner of state procurement "Navigator business center", including by signing the forms of the report on concluded contracts, which were posted on the ProZorro website for state purchases.

In addition, in accordance with article 67 of the Law of Ukraine "On the prevention of corruption", a ruling made (adopted) in violation of the requirements of this Law shall be subject to cancellation by the body or official person authorised to adopt or cancel the relevant acts, decisions, or may be recognised as illegal in court.

Journalists also found information about another example of a conflict of interest in ARMA. As a result of the appeal made by 56 deputies of the Verkhovna Rada to the Constitutional Court on August 14, 2018 (see section 1) regarding the constitutionality of ARMA's powers to manage arrested assets, the National Agency on Corruption Prevention (NAPC) announced an inspection not of ARMA, but of a number of deputies who were the co-authors of this appeal.

According to the “Vesti” newspaper32, the brother of the lawyer of the company "Navigator business centre" - a permanent partner and contractor of ARMA - works at NAPC. According to journalists, the lawyer of "Navigator business center", as well as the holding "Petrus", Stanislav Seregin is the brother of Aleksandr Seregin, who was appointed as a member of the National Agency on Corruption Prevention (NAPC) by the decree of the Cabinet of Ministers of Ukraine dated August 18, 2017).

32

https://vesti-ukr.com/strana/311732-otnjat-i-podelit-novye-skhemy-chinovnikov-po-otzhimu-imushchestva

24 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

His brother Stanislav Seregin took an active part in the actions of representatives of LLC "Navigator business center" concerning property damage and the eviction of tenants from "Kiev City Apartments" and "Yunson Group" assets transferred to the management of ARMA. A lot of photo and video evidence shows Seregin together with the representatives of this company Vladislav Zaitsev and Andrey Gritsenko (see section 3.2.)

Aleksandr Seregin, a member of NAPC

Sergey Seregin, a member of "Navigator business center", together with V. Zaitsev and A. Gritsenko, evicting tenants of “Kiev City Apartments”

According to the state registers, Stanislav and Aleksandr Seregin are co-heads of the “Seregin and Partners” law firm, registered on August 27, 2007.

3.4. ARMA's participation in raiding and capturing businesses As a part of the analysis of the law enforcement practice and activities of ARMA, there are also instances when the Agency openly occupies one of the parties in business conflicts concerning the transfer of assets to management in cases not related to anti-corruption investigations.

For example, the litigation between the “AIS” automobile holding company and structures of the Kharkov oligarch Aleksandr Yaroslavsky. At the end of September 2018, based on the results of a competition, ARMA signed an agreement with LLC "Residential complex Vozdvizhenka" (part of the DCH group of Yaroslavsky) to start the inventory of the property of the “AIS” group at 20 Baltiyskaya street in Kiev. The lawyers of “AIS” described the actions of the subordinates of the holding company of Aleksandr Yaroslavsky solely as the raid and capture of the group’s assets with the help of ARMA officials33.

"UkrSibbank" (owned by Yaroslavsky) previously opened a credit line to the automobile holding company, which the deputies Dmitry Svyatash and Vasily Polyakov had previously been involved in. According to the bank, the loan

https://vesti-ukr.com/strana/305548-arest-aktivov-ais-i-peredachu-eho-cherez-ahentstvo-arma-hruppe-dch-jaroslavskohokontrolirovali-stolichnye-siloviki-smi 33

25 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

amount was about $100 million. At the same time, “AIS” did not confirm this figure. The borrowers were unable to repay the loan and for several years were negotiating with the bank on restructuring. After that, “AIS” repeatedly accused the “DCH” group (a partner of the bank to recover the debt from the “AIS” group) and its beneficiary Yaroslavsky of trying to seize control of the automobile holding company.

In turn, the “DCH” group accused “AIS” of spreading false information. During several years “DCH” tried through the courts to seek the repayment of loans, but it didn't lead to anything. But then ARMA intervened, and at the end of September it transferred 32 properties belonging to the “AIS” group to the control of “Residential complex Vozdvizhenka” (a part of “DCH” belonging to Aleksandr Yaroslavsky).

The “DCH” group is a direct competitor of “AIS”, therefore there are serious doubts about the security guarantees of the assets transferred to its management.

Earlier, ARMA already signed a contract with LLC "Residential complex Vozdvizhenka" to manage the arrested assets of the “AIS” group, but the courts forbade them from implementing it. However, instead of choosing a new manager, ARMA once again concluded new contracts with the same LLC for the management of property seized from “AIS” without open competition.

According to the website “Fraza.ua”34, the raiding and capturing of assets of “AIS” is controlled by Aleksey Kuprienko - a person close to the President of the group Aleksandr Yaroslavsky - from “DCH”, and Andrey Dovbenko - the "political curator" of the ARMA state agency from the "People’s Front” faction - helps him in this.

As was told to the journalists of the “Vesti” newspaper35 by the “AIS” company, the management does not deny the presence of debt, but calls the actions of ARMA illegal. “We don't shout that we have no debts to UkrSibbank or that our objects are arrested illegally. We say that our equipment is illegally blocked, we aren’t allowed to access objects, we can't operate our property, at the same time the new manager appointed by ARMA presents to us arrears in the amount of 500,000 hryvnia per day for rent of all arrested objects, which amounts to 15 million hryvnia per month.

Although they don’t hold negotiations with us, while the sum itself is above the market one by several times," reported the owner of these assets, having added that “AIS” had paid off seven banks. The debt was only to UkrSibbank, concerning which “DCH” lost all courts cases, up to the Supreme Court and London. "And immediately after them criminal cases were launched, as a result of which the property was arrested. It was transferred to the management of the firm of Yaroslavsky according to a dirty agreement, without holding an open tender," summed up the company.

Another example: on September 18, 2018 in Odessa ARMA employees, following the decision of the investigative judge of the Shevchenkovsky district court of Kiev, searched objects belonging to the people's deputy and President of FC "Chernomorets", the businessman Leonid Klimov36. Namely: the building of the tourist complex of the "Kruiz" hotel, the premises of the Central Department store, warehouses in the "Sedmoy Kilometr" market, and offices and parking near the "Privoz" market. All of this property was transferred to the management of the owners of another Odessa hotel – “Gagarinn”, which belongs to the company "Gagarin-Servis", Yury Kulakov and Valentina Boychuk.

Thus, ARMA transferred this property to the management of direct competitors of the owner.

34 35

https://fraza.ua/stenograms/272221-kak-goskontora-stala-gosrejderom-istorija-zahvata-aktivov-gruppy-ais https://vesti-ukr.com/strana/311732-otnjat-i-podelit-novye-skhemy-chinovnikov-po-otzhimu-imushchestva

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26 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

A raider seizure of businesses with the participation of ARMA was also announced at LLC "Saltovka bakery" (Kharkov), which is one of the largest producers of bread in the region. From 2011 to 2018, LLC "Saltovka bakery" was a part of the international group of companies "Lauffer Group". In mid-February 2018, the Economic Court of the Kharkov region initiated the bankruptcy of LLC "Saltovka bakery". The initiator of the bankruptcy of the enterprise was the State Agricultural Fund. The Kharkov enterprise owes it more than 1.5 million hryvnia, and in 2017 the Agricultural Fund won a court decision on the recovery of this debt. The property of the bakery was arrested on January 8, 2018 and recognised as material evidence and transferred to the management of ARMA. The Agency chose a direct competitor to be the manager - the company with additional responsibility "Bakery Saltovka", which was established 2 months before the transfer of the asset to management. The combined founder and director is a citizen with a registered address at Enakievo in the Donetsk region, which is included on the list of settlements that the authorities of Ukraine do not carry out their activities. After the transfer of LLC "Saltovka bakery" to management it started to work under the trademark "Korovaevo" - a direct competitor of the owner of the company 37.

In March 2018, a representative of the National Police, with the support of unidentified militants, demanded to transfer the property for alleged safekeeping. According to representatives of the owner, the raiders forcibly seized not only the collateral of bakery No. 3, but also its cash proceeds, equipment, transport, raw materials, packaging, and other material values.

Under the leadership of Anton Yanchuk political involvement, high corruption risks, and conflicts of interest prevail in the activities of ARMA, which leads to the ineffective performance of the functions assigned to this body for the management of seized assets, as well as to the violation of the rights of the owners of these assets.

Open questions of the public concerning the activities of ARMA

37

1.

When will proposals be made to amend the legislation governing the management of seized assets, in order to bring it in line with the Constitution of Ukraine, namely paragraph 4 of part 1 of article 1 of the Law "On the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes" (the term asset management), article 19 (taking assets into management), article 20 (management of cash and bank metals), article 21 (management of movable and immovable property, securities, property, and other rights), as well as the related provisions of the Criminal Procedure Code?

2.

Why was Anton Yanchuk appointed the head of ARMA in violation of procedures and taking into account the obvious political bias with the “People’s Front” faction? When will the government consider the resignation of Anton Yanchuk, who has compromised himself with significant corruption risks, inefficiency, and open conflicts of interest in the management of the Agency?

3.

Why does ARMA not follow a transparent procedure when selecting companies to manage seized assets in accordance with the law on state procurement? When will the full list of criteria according to which all companies were selected for asset management and a public report on the effectiveness of their management activities be published?

4.

Why among the management companies that ARMA chooses are there a number of firms that are involved in criminal cases, including tax evasion (LLC "Navigator business center", "Persha Logistichna Kompaniya", "Four Leasing", etc.)?

5.

How was the company "Navigator business center", the head of which Lyudmila Rusalina works with the brother of the head of the Tender Committee of ARMA Andrey Potemkin, allowed to manage a number of assets? The managing company "Navigator business center" has caused millions in losses to the “Vesti”

https://vesti-ukr.com/strana/282257-saltovskij-khlebozavod-peredali-novomu-upravitelju

27 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018

media holding company. Its employees are suspected of theft and hooliganism on the territory of the managed property. Do you think this is effective? Who will reimburse the losses? How, in general, does ARMA intend to compensate the legal owners of the seized assets for the losses incurred from ineffective management if, after the completion of the pre-trial proceedings, they are found not guilty of the charges in the manner prescribed by law?

6.

On what basis did ARMA choose the company "Garant Energo-M" to manage the arrested assets of the Novoyavorovskaya and Novorostovskaya thermal power plants (Lvov region), taking into account the fact that not only does "Garant Energo-M" have no experience in energy plants, but it also did not even have licenses to conduct such activities until the property was transferred to its management? Why does ARMA transfer seized assets to the management of direct competitors of the owner in the same market (the situation with the transfer of the assets of the “AIS” group to the management of “DCH”)?

7.

On what basis and according to what criteria does ARMA choose to sell assets that have been transferred to its management? How does ARMA intend to compensate the owners of these assets for the losses incurred as a result of its illegal decision to sell this property?

8.

When and according to what criteria will a managing company be selected for Mezhyhirya, which was transferred to the management of ARMA? Who is now specifically responsible for the wealth of this residence?

9.

On what basis, taking into account the above examples of the extremely inefficient work of ARMA, are employees of the department paid bonuses in the amount of 250% of their salary? What is the total number of employees in general working in the department, taking into account the fact that at the end of 2017 20.9 million hryvnia of taxpayers’ money was spent on their salaries with accruals?

10. When will a Commission be formed and an independent external evaluation of ARMA's activities be carried out?

Experts on the work of ARMA: Lawyer Aleksandr Dulsky: "The National Agency receives property, which is then transferred to the management of the ‘correct’ company. When a business owner, being aware of the ordered nature of what is happening, starts to react, ARMA pretends that it has nothing to do with it. The crucial point is the rule of law, which is respected in Europe. In most of the cases related to the National Agency that I participated in there is an unlawful criminal case, which is ordered, politically motivated, and aims to destroy or seize businesses. In Ukraine, this is a shameful practice that is already included in the OSCE’s reports”38.

38

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Political scientist Aleksey Yakubin: "Under the guise of reforms so-called deregulation is carried out, which leads to the fact that powers are transferred to private entities that thus earn money from them. And, as a rule, the management of these companies include persons who are close to the ministries and departments. This is a veiled step towards strengthening the corruption component. There is a logical question: what are the budget funds, taxpayers' money, spent on if the powers of the public sector are redirected to third parties close to the political elite. There can be no talk about the competence of the employees of these newly created organs, because the practice of transferring government functions is in itself flawed"39.

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https://vesti-ukr.com/strana/275721-chto-skryvaet-arma-kak-natsahentstvo-prevratilos-v-rejderov

29 Report "Corruption practices and conflicts of interest in the activities of the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes (ARMA) in Ukraine", Kiev, November 2018