The state Asset Recovery and Management Agency, or ARMA, came under fire recently for leasing some of the assets it recovered to the companies belonging to Ukrainian oligarchs, including Rinat Akhmetov, Dmytro Firtash and Oleksandr Yaroslavsky.
The agency needs third parties to manage the assets transferred to it by the courts ahead of their sale. But the sale process can take years, and the opaque mechanisms used to pick companies to run recovered and frozen assets opens up opportunities for corruption, experts say.
ARMA’s management denies any accusations of wrongdoing. They say very few companies have been applying to manage property belonging to suspected criminals, fearing repercussions, while there is nothing strange that some companies are affiliated with oligarchs.
“It’s not a job that many companies want, while large companies (belonging to oligarchs) have the capacity to protect their business in the case of actions (against them) by previous owners” said Vitaliy Riznyk, the head of ARMA’s Asset Managing Department, in an interview with the Kyiv Post.
And Daria Kaleniuk, the director of the Anti-Corruption Action Center, was part of a group of experts who launched the state agency back in 2016. She says there isn’t anything illegal in allowing an oligarch’s company to manage frozen assets – as long as the oligarch isn’t on trial in Ukraine.
Short record
ARMA was created in 2016, and tasked with finding, recovering and managing assets stolen via corruption schemes.
The creation of such an institution was demanded by the European Union as one of the prerequisites for Ukraine to receive its visa-free regime with the Schengen Area countries. The demand was met and the visa-free regime came in to force in 2017.
Creating an asset recovery agency made a lot of sense for Ukraine, since the regime of ex-President Viktor Yanukovych, ousted in 2014, is believed to have stolen billions of dollars from the country.
According to Riznyk, the company has since recovered Hr 21 million ($750,000) worth of assets, but as of November the state budget had received only about Hr 7 million ($250,000), as most of the property in the agency’s possession hasn’t been sold yet.
It hasn’t been the modest revenues raised that attracted criticism of ARMA, but rather its choice of companies that qualified to lease the recovered assets.
The agency shortlisted 43 companies to be granted the right to manage recovered assets. A number of them are associated with oligarchs, such as the richest Ukrainian – Akhmetov, the exiled oligarch Firtash, and Kharkiv millionaire Yaroslavsky. The organization denies allegations of specifically choosing those companies, stating that all credible companies willing to take part in managing recovered assets were added to the list.
The list includes DCH holding owned by Yaroslavskiy, Metinvest-Shipping owned by Akhmetov and UkrTransCenter associated with Firtash. Several other companies on the list have strong connections with the three businessmen.
However, Riznyk says that the companies were approved fairly, based on their profiles.
“There isn’t any official reason for us to exclude them,” he told the Kyiv Post.
Overall Ryznik feels that ARMA has been a success so far, bringing the budget Hr 7 million in the first six months after the agency’s first auction.
However, ARMA has drawn criticism for its secretiveness: it doesn’t disclose information about how exactly the shortlisted companies manage the recovered assets, or how the companies the manage them were picked.
In answer, Riznyk says that the agency doesn’t reveal “sensitive information” that may hurt their contractors, and insists that all assets remain in state possession and that nothing will be sold off in secret.
But since the agency hasn’t yet sold any valuable property, apart from a number of cars and empty offices, it is hard to prove this statement.
Who should manage frozen assets?
It seems that every major asset that is transferred to ARMA by the courts comes with its own scandal.
The most recent one arose on Sept. 27, when the courts arrested and passed to ARMA 32 properties belonging to AIC, a chain of car repair stations. AIC is being sued by its creditors, including Ukrsibbank (the country’s third-largest bank, owned by BNP Parisbas) for allegedly failing to pay back some $250 million in loans.
The agency, soon after, leased the assets to Residential Complex Vozdvizhenka LLC, a development company that is part of the DCH holding owned by Yaroslavsky, which has little to no experience in managing car repair stations.
The owner of AIC is Dmytro Svyatash, a lawmaker from the 26-member Vidrodzhennya parliament faction and a former member of the Party of Regions, the now defunct party of Ukraine’s runaway former president, Viktor Yanukovych.
In mid-November, employees of AIC protested in downtown Kyiv, accusing ARMA of colluding with Yaroslavsky.
Riznyk said the agency awarded right to manage the AIC property to the highest bidder. ARMA’s auctions aren’t public.
“There were around 30 premises (belonging to AIC) that were in poor condition, Vozdvizhenka conducted an audit and bought insurance with their own money – it was by far the best option,” Riznyk says.
Asked why oligarchs and wealthy business people are those winning the rights to manage assets, Riznyk says that there are only a few companies willing to take the risk. Only around 70 companies applied to ARMA to lease frozen assets, and of these only 43 were approved. Riznyk won’t say which applicants were rejected.
“The problems that occur when you take on an expropriated asset are both legal and physical, with a lot of companies, especially international ones, not willing to deal with previous owners,” he adds.
Kaleniuk adds that there are only a handful of companies willing to take on such risks, while companies controlled by Akhmetov and Yaroslavsky have the capacity to protect their assets from both legal and physical assault.
“(But) I think that the main reason why thoes companies are there is because there’s no official reason why they shouldn’t be included in the list (of possible asset managers),” said Kaleniuk.
She points out that ARMA has powers to supervise the way that the leased assets are managed, and can step in to prevent any mismanagement.
Glib Kanevskiy, the head of ARMA’s Public Council, the organization’s independent supervisory board, says that the agency has run into criticism from both the public and the business community.
He cites a recent conflict over two power plants in Lviv Oblast as an example.
On June 12, Kyiv’s Solomyanskiy district court confiscated Novoyavorivsk and the Novyi Rozdil power plants from the brothers Bohdan and Yaroslav Dubnevych, business tycoons and lawmakers with the 135-member Bloc of Petro Poroshenko faction in parliament. According to the National Anti-Corruption Bureau, the power plants illegally bought gas at below market prices between 2013 and 2015, effectively robbing the state of Hr 1.4 billion.
After the power plants were transferred by the courts to ARMA, and later leased to energy company Garant Energo M, it turned out that the power plants have a huge debt to the state-owned oil and gas company Naftogaz Ukraine, and therefore can’t operate, which left thousands of households without heating.
In November, the Dubnevych brothers accused ARMA of raiding their property, and blamed the agency for leaving people without heating. The two power plants only resumed full operations in mid-November after Garant Energo M agreed to take on the power plants’ cumulative Hr 305.2 million debt to Naftogaz.
But because the heating season had been delayed, government officials accused ARMA of mismanagement.
Riznyk and Kanevskiy both say that apart from the debt, all of the plants’ equipment was either trashed or stolen by the time ARMA took control of them, hinting that the previous owners had tried to sabotage them.
But Nazar Kholodnytskyi, the head of the Specialized Anti-Corruption Prosecutor’s Office, on Oct. 17, told the parliamentary newspaper Golos Ukrainy, that the Dubnevych brothers were unaware of any such scheme.
The Dubnevych brothers were unavailable for comment.
Awkward secrecy
Most critics of ARMA say its lack of transparency is a huge problem. The agency is yet to provide any public reports about its activities.
Riznyk refused to release any information about the contract between ARMA and Garant Energo M on the management of the Novoyavorivsk and Novyi Rozdil power plants, saying the contract documents “have sensitive information.”
The organization performs private tenders to select the company that will manage a given asset. The tender commission consists of ARMA members, a legal representative and a government observer. The results are published on the agency’s website, but there is little information about how the tender was conducted or who took part. Moreover, there is no database of all of the tenders conducted by the organization.
Riznyk says that ARMA doesn’t use Prozorro, the transparent public procurement platform, because “there has to be a human factor” in picking the right companies to manage assets.
“It’s not the highest bidder should win, but a company that has relevant and successful experience,” he says.
But not everyone is satisfied with this approach.
Vitaliy Tytych, the lawyer of the families of Maidan victims and one of the main critics of ARMA, claims that the whole organization is highly unprofessional.
“The people chosen to perform a crucial role in society were chosen with poor judgment,” he says.
The idea of creating an asset recovery organization is good itself, yet without a proper competitive interviewing process for top positions, the organization becomes a tool in the hands of those in power, says Tytych. He says every major auction held by ARMA is followed by a scandal, and that the organization is being used as a mechanism to raid property.
“You get sued on a trumped-up case and your property is taken over by people in masks,” says Tytych, adding that by the time the court hearings are over, even if you win, you’ve lost your money and your business.
But Oleksandr Lemenov, the head of the anti-corruption Reanimation Package of Reforms group, is holding his fire on organization, stating that even though there are problems it is still too early to judge ARMA’s work.
“The organization is new and it needs time to develop a stable mechanism that will work,” he says. “There will always be scandals, as there will be always those who don’t like what the organization is doing.”
Kaleniuk says the agency should hire a good public relations specialist to explain itself to the public better.
Kanevsky’s response to the criticism that the organization is facing is that it is hard to please everyone.
“ARMA is like an unwanted child,” he says, with the government creating the organization to please the European Union, but then abandoning it when the deal with the EU came through.
