Draft law No.4057, adopted by the Verkhovna Rada of Ukraine in the first reading and, allegedly, aimed at the confiscation of assets of Yanukovych and his associates, poses a serious threat to the fundamental property rights of all the citizens of Ukraine, not only to the property of the ‘criminal officials’, so it shall be rejected.

Instead of addressing the declared issue, the draft law will make it more difficult to recover the property seized in the course of criminal proceedings against Ukrainian ex-officials subject to the EU sanctions.

The draft law amends the Code of Criminal Procedure of Ukraine with a procedure of recovering monetary funds, valuables, and income from them to the state budget before the court conviction. According to the draft law, this procedure can be used with regard to any individual or legal entity who will have no actual possibility to protect their property rights guaranteed by the Constitution. The draft law suggests a sort of extended confiscation, which means confiscation of all property of a person if its legitimate origin cannot be proven.

The novelties of the draft law that de facto introduce the procedure of confiscating property from the third parties without  conviction  might contradict the Constitution of Ukraine, as they offer neither safeguards, nor tools to protect private property of the citizens and legal entities. Thus, the draft law shifts the burden of proving the legitimate origin of the assets onto the property owner. In the international practice, it is an exception, rather than a general rule. It is dangerous to adopt this approach in such a flawed legal form in the Ukrainian laws without a reformed judiciary and prosecution.

The authors of the draft law on confiscation without conviction (when a crime has not been proven in court) have intentionally distorted the international standards related to the confiscation of assets with an evident purpose – to justify passivity and professional incapability of the law enforcement bodies to recover the seized assets of Yanukovych and his associates to the state budget by using the legislative instruments already provided by the national law.

The draft law is a temporary solution to this problem and, should it be implemented, may have fatal consequences for the entire country, as it might serves as evidence that the persons subject to EU sanctions are persecuted in Ukraine for political reasons, which can be used as an argument by their lawyers to contest against the sanctions in the European courts.

Thus, the RPR warns that any confiscation of assets of Yanukovych and his associates or any other person according to the procedure suggested by the draft law No. 4057 might be successfully contested in the European Court of Human Rights which, in a few years, will oblige the state of Ukraine return the illegally confiscated property to its owners. Ultimately, it will allow Yanukovych and his associates to legalize their illegally acquired assets.

Moreover, should the draft law No. 4057 be adopted, it will signify Ukraine’s rollback in the sphere of progressive laws on the recovery of assets, which had been adopted by the parliament in February 2016 to meet the EU requirements within the visa liberalization action plan. In particular, the draft law contradicts EU Directive of 2014 on confiscation that allows confiscation without conviction only with regard to the property directly connected with the crime, while extended confiscation – only after the conviction.

Any similar amendments to the laws on asset recovery without thorough analysis conducted by the EU experts or the Council of Europe are unacceptable.

Taking into account the risks described above, the RPR considers it impossible and unacceptable to make any attempts to adopt and/or improve the text of the draft law and calls on the MPs to reject the draft law No. 4057.

Legal analysis of the main flaws of the draft law No. 4057 carried out by RPR:

• Regulations of the draft law No. 4057 on recovering monetary funds, valuables, and income from them to the state budget without conviction distorts the international standards on the confiscation of assets enshrined in the United Nations Convention against Corruption and EU Directive 2014/42/EU on the freezing and confiscation of instrumentalities and proceeds of crime.

• The draft law shifts the burden of proving the legitimate origin of the assets onto the property owner, which happens in exceptional cases even in the developed countries. Thus, according to the draft law, to confiscate the property, during the criminal proceedings a prosecutor shall only prove that the property belongs to the third party who received this property from the suspect of the criminal proceedings instituted in accordance with a number of articles of the Criminal Code (No. 191, No. 368, No. 368 (2), No. 369 (2), No. 209, No. 255). The property shall be confiscated on the basis of a court ruling unless the owner or the third party prove the legitimate origin of the property in question and the amount of the property meets the income officially declared by the property owner. Not all owners will be able to prove the legitimate origin of their property, since the obligation to declare property does not extend onto all individuals and legal entities. Thus, it might be very difficult to determine whether the third party was a bona fide acquirer.

In exceptional cases, international standards of assets confiscation provide for partial shifting of the burden of proof onto the defendant. At the same time, the prosecutor shall prove that the property may be derived from proceeds of crime of the defendant. There can be an exception – extended confiscation which allows to confiscate all the property of the owner who cannot prove its legitimate origin. However, it is possible only on the basis of a previous court ruling that establishes the fact of a relevant crime committed by the defendant. This is provided for by Article 5 of EU Directive 2014/42/EU on the freezing and confiscation of instrumentalities and proceeds of crime. The draft law No. 4057 violates this international standard, as it allows extended confiscation without conviction, before the crime is proven.

• The draft law does not establish an obligation to notify the owner that the procedure of recovering their property to the state budget has been initiated. It is only mentioned that the prosecutor shall notify the attorney of the suspect about such a claim, although no details are provided as to in which way and within which period of time it shall be done.

According to the international standards of confiscation of proceeds of crime, timely notification of the owner and all the concerned parties about the government’s plans to confiscate their property is a mandatory guarantee of property rights protection.  For example, in the USA, the notification is delivered directly to the owner through various means of communications (SMS, email, post office letter) and published in public domain in the public available sources. A certain period of time is provided for all the concerned parties to claim their legal interest in the property. The procedure and the rules for presenting such motions are clearly written out. The draft law No. 4057 neglects this fundamental requirement, creating such a mechanism of assets confiscation when the owner will be notified about the confiscation post factum and will not be able to contest it.  

• The draft law obligates the court to consider the motion within 10 days after it is submitted to court. At the same time, the property owner does not have to be present at the court sitting when the motion is considered. Nevertheless, one of the four issues to be settled by court is the issue whether the suspect or the third party can prove the legitimate origin of their property. The draft law provides for the possibility of filing an appeal against the court ruling. The court ruling shall be served to the person who owns the property to be recovered to the state budget. If the court ruling is not appealed against, it shall be immediately implemented.

This approach poses a threat to the fundamental right to private property which, according to Article 41 of the Constitution, is “inviolable; the expropriation of objects of the right of private property may be applied only as an exception for reasons of social necessity, on the grounds of and by the procedure established by law, and on the condition of advance and complete compensation of their value; confiscation of property may be applied only pursuant to a court decision, in the cases, in the extent and by the procedure established by law.”

• The RPR stresses that already existing enacted laws and statutes allow to confiscate assets of Yanukovych and his associates – even if it was transferred to the third party – without introducing additional amendments to the legislation.

To this end, during the criminal proceedings a prosecutor shall prove the illegitimate origin of the property in line with Articles 96-1 and 96-2 of the Criminal Code of Ukraine and obtain a court conviction.

The law on special confiscation was already adopted by the Verkhovna Rada in February 2016 to implement the action plan on the introduction of a visa-free regime for Ukraine and received a positive opinion and approval of the European Union experts.

The year before – in February 2015 – legislative amendments were introduced to allow extended confiscation of property the legitimate origin of which has not been proven, regardless of whether it is connected with crime, in the civil or criminal proceedings after the person was convicted of a corruption crime. If the defendant flees from prosecution or is put on the wanted list, s/he can be convicted in the absence of the defendant.