After the EuroMaidan Revolution drove President Viktor Yanukovych from power in 2014, the topic of returning stolen assets and valuables to their country of origin has become more popular than ever. The anti-corruption public initiativeswere the leverage for this process. Law enforcement and government authorities took this vector quite actively: even in the state budget for 2015, a separate item of income has appeared – 1.5 billion hryvnias from the sale of property obtained through corruption schemes.
However, the recovery of stolen assets was nevera unique challenge solely for Ukraine. Abroad, it is a systematic multidisciplinary activity both in the public and in private sectors with numerous successful (and not very) examples, and the theoretical material on this topic might be just enough for a serious library. In fact, stolen asset recovery is the key focus of the World Bank Group and United Nations’ Office on Drugs and Crime partnership initiative, the so-called Stolen Assets Recovery Initiative (StAR), which brings together around 100 partner countries.
The cornerstone
The cornerstone of asset recovery in Ukraine was laid on Nov. 10, 2015, when the parliament approved the law on “The National Agency of Ukraine on Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes.” In February 2016, the Agency (ARMA in short) was established on paper, but started its operational activities in October 2017.
In essence, the agency is engaged in two independent processes – tracing of corruption derived assets and, if seized, management of them. In the first case and in simple words it means that in the execution of a request of a Ukrainian law enforcement body on tracing of assets abroad, ARMA is authorised to apply to its partners in more than 100 countries around the world (to CARIN, Interpol, Europol, etc.).
This system works: the agency sends and receives requests from them. Here are the exclusive figures: during 2018, ARMA forwarded 81 requests to 32 foreign countries (that said, in the first half of 2019 – 43 requests to 23 countries). At the same time, the foreign analogues of ARMA in 2018 sent 15 requests on tracing of assets in Ukraine (in the first half of 2019 – 6 requests). I will summarize, the exchange of data is happening.
In 2019, it has become clear that the above-mentioned is not enough to boost the return of illegally siphoned-off assets to Ukraine. The reason is simple: interstate instruments of legal interaction are slower than the actions of criminals.
Fortunately, Ukraine does not need to invent a bicycle: the return of illegally siphoned offassets most often occurs when the state cooperates with the private legal business. When asked why the state should cooperate in these matters, the answer is rather pragmatic – the return of stolen assets to countries of origin is an extremely difficult and expensive process.
1) The difficulty is that in criminal, civil and administrative processes, it is necessary to involve a large number of lawyers, experts, and private detectives in a numberof states (2-10) over several years. It is impossible for the state to accomplish this task independently by secondment of civil servants – education, knowledge and experience with specific jurisdiction are required.
2) Complexity on the verge of art causes an extremely high price. After all, if it comes to the recoveryof billions, it could cost hundreds of millions. This price is not caused by monopoly or corruption factors, but by the cost of such services on the market over the last 20 years. Moreover, if someone spends hundreds of thousands of dollars on hiding corrupt assets, the work on their return will never be cheap. At the same time, such a price is so high that no country in the world can pay it. Imagine a 300 million USD worth public procurement of services on ProZorro.
However, countries do not pay for such services directly. The mechanism of public-private partnership in the field of recovery of crime-derived assets is called litigation funding. In essence, it is a venture investment activity, where the investor – for example, the fund – with the participation of law firms, independently finances all costs of litigation and administrative processes in all necessary jurisdictions for the necessary time until the result is reached, i.e. return of stolen assets to the country of origin.
Further, all expenses are offset, and the reward is paid at the expense of a part of the returned funds and is called the “success fee.” Usually the reward is high due to the high risk for the investor – in case of failure, he loses all his investments.
The ones ahead
In the USA, investing in lawsuits by 2017 has become an industry valued at $3 billion. Specialized banks and hedge funds dominate it. According to Burford Capital’s “2016 Litigation Finance Survey”, the market for judicial financing in the US has quadrupled.
The situation is similar in the UK. According to a report by the British company Justice Not For Profit, the market for external litigation financing has grown by 743% in recent years. In 2018, Chambers, one of the most respected global law firm’s ratings, began rating investors in lawsuits. Open source reports indicate that Bentham International Monetary Fund (one of the oldest companies in this field) and Burford Capital (the world’s largest investor in litigation with $ 3 billion in raised capital) are in the first group of the rating.
Our initiatives
The experience of foreign countries shows that the effect of the mechanism described above is to recover only a part of the stolen funds. However, without application of this mechanism, the country, most likely, will return nothing, but spend a lot.
After all, the expectable question is – why has Ukraine not yet used this instrument? Because in Ukraine there is still no legal regulation for its application. It is astonishing how the funding of lawsuits to recover assets on a success fee basis in our country may be considered illegal, because no regulatory act stipulates that.
The problem may be solved right now, and all needed to be done is to amend one presidential decree from 2002 (No. 581), which regulates the protection of the rights and interests of Ukraine during, in particular, the consideration of cases abroad with the participation of a foreign entity and Ukraine.
In spring of this year, ARMA drafted amendments to that decree and arranged it for approval by governmental bodies (Ministry of Finance, Ministry of Economic Development and Trade, Ministry of Foreign Affairs, Ministry of Justice) and by the Prosecutor General’s Office. The government has already approved the draft and on the 13thof June sent it to the President’s Office, where it is currently under consideration.
If President Volodymyr Zelensky signs the decree, in the nearest future, the law enforcement system will receive an effective and actually free instrument of returning the illegally siphoned off funds back to Ukraine.
It is highly likely that the investors will be found for such litigation processes quickly. If a competitive selection is held, the fight will be fierce. These businesspersons have been interested in Ukraine for a long time: the infamous enormous corrupts assets, siphoned off since Ukraine’s independence, are well known. The investors have been waiting for the legal regulation of cooperation with Ukraine for a long time.
In addition, the litigation-funding model, offered by ARMA is the simplest and fastest. When this technique becomes legal in Ukraine, in the next 2-3 years the filling of the state budget of Ukraine with billions of corrupt funds, recovered from abroad, will become absolutely real.
Anton Yanchuk is head of the Asset Recovery and Management Agency (ARMA).
