Author - Markiyan Bem 

According to the Law of Ukraine On Sanctions, assets to be forfeited to the state include not only assets belonging to a sanctioned person, but also assets in relation to which a sanctioned person "can directly or indirectly (through other individuals or legal entities) perform actions similar by their content to exercising the right of disposal" (Article 4 of the Law of Ukraine On Sanctions). In practice, it can lead to a conflict as to who really owns respective assets.

For example, asset owners often transfer an asset or a share in their ownership structure to so called "nominees" for certain purposes (related to tax, political, managerial or other issues), remaining their actual owners. It happens especially often with shares in the corporate ownership structure.

There are quite appropriate approaches developed legal practice of the High Anti-Corruption Court (HACC) to determine the existence of such a connection between a person and assets. Thus, in the decision in the case regarding the forfeiture of Oleg Deripaska's assets to the state (Case No. 991/265/23), the court (Clause 7.14.3) interpreted the content of direct or indirect actions similar by their content to the right to dispose of assets as "the ability of a person to decide the legal and actual fate of these assets (including through alienation to other persons), making direct or indirect management and administrative decisions regarding them, determining priority areas of development, identifying counterparties, using profits and/or receiving income from these assets."

And in the decision of the HACC Board of Appeals in Case No. 991/6606/22 (regarding Mykhailo Shelkov's assets), the court set out the following criteria for determining whether a person can perform actions similar by their content to the right of disposal:

• using the asset, including without formalizing legal relations between the formal owner and the sanctioned person;
• systematicity, duration, method, scope and content of the use of the asset by the sanctioned person (where such use does not necessarily have to be permanent or continuous);
• the existence of direct or indirect family, friendly, corporate or other links, subordination, employment relations etc. between the owner and the sanctioned person;
• purchasing the asset by order and/or in the interests of a person not indicated as its owner;
• incurring costs by the sanctioned person and/or by owner by order of the sanctioned person for the maintenance of the asset;
• making transactions by he sanctioned person and/or by owner by order of the sanctioned person associated with the efficient use of the asset;
• improving the properties of the asset or customizing the conditions of its use for own needs;
• the possibility to make decisions by the sanctioned person on the use of the asset by other persons affiliated with the sanctioned person;
• the possibility to influence the fate of the asset by the sanctioned person, inter alia, by giving a relevant order to the formal owner etc.;
• the possibility of the sanctioned person to influence the appointment of the management of an enterprise, to determine economic activities, product range of the enterprise, its pricing policy, pool of contractors, and to make decisions on the reorganization or liquidation of the enterprise, in case such asset is represented by corporate right or the enterprise as an integral property complex,
• and others.

Furthermore, the HACC Board of Appeals specified that the above list was not exhaustive, and the court would evaluate the circumstances in the aggregate. However, it should be noted that it is the practice of the application of these criteria that is important, and this practice raises some concern at certain points.

In 2022-2023, in most cases on the seizure of Russian assets, HACC used to proceed from the following: if a sanctioned person holds a majority share in the authorized capital of an enterprise, such enterprise shall be considered to be under actual control of the sanctioned person. And it is quite logical. Moreover, the court drew attention to the attempted alienations of a certain share in the sanctioned person's assets to another, possibly affiliated, person (Clauses 92 – 128 of the decision in Case No. 991/6606/22 regarding Mykhailo Shelkov's assets), and took into account that such person held an office of the head of the enterprise, considering it to be an additional factor (Clause 123 of the same decision). 

However, in some cases, the court seemed to impose the sanction in the form of the forfeiture of assets to the state in relation to the assets that had a too distant connection with the sanctioned person. The decision in the case regarding the forfeiture of Oleg Deripaska's assets to the state (Case No. 991/265/23) is indicative in this regard. In the said decision the court faced the question of whether PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry belonged to the said person. 

Circumstances of the case

Before 2021, PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry were owned by the Austrian company Strabag SE controlled by the Russian oligarch Oleg Deripaska who has been under Ukrainian sanctions since 2018. In October 2021, Strabag SE and the Cypriot company Samsta Limited belonging to the citizen of Germany and Turkey Florian Guth concluded two purchase and sale contracts for 100% of shares of PrJSC Zhezhelivskyi Quarry and PrJSC Khustskiy Quarry. 

Florian Guth used to work as a financial analyst and an accountant at Ceecat Capital and became the owner of Samsta Limited three weeks before the acquisition of quarries. The cost of acquisition of the securities of PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry, according to the contracts was UAH 13,129,690.00, which is more than three times higher than Florian Guth's annual income.

Therefore, to purchase those assets, Mr. Guth raised a loan from F.I.E.H., a company in which a famous Ukrainian businessman Vitalii Antonov is an ultimate beneficiary. According to the loan agreement, Samsta Limited transferred 100% of shares of PrJSC Khustskiy Quarry and 100% of shares of PrJSC Zhezhelivskyi Quarry to secure its performance. 

Along with the sale of the quarries, Strabag SE alienated to the nominee owners another two enterprises, Bitunova Ukraine LLC and SAT Ukraine LLC. Bitunova Ukraine LLC, SAT Ukraine LLC, PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry are the companies interconnected by the production cycle, because the first two companies were involved in the construction and repair of roads, while the other two companies produced necessary materials.

HACC's position

When solving this case, taking into account the fact that since 2017, different states introduced sanctions against Oleg Deripaska, the court arrived to the conclusion that he systematically removed assets from sanctions. Oleg Deripaska had a decisive influence on Strabag SE, the owner of the quarries. Instead, Florian Guth had no financial possibility to purchase the said assets, that is why he raised a loan from the company belonging to a Ukrainian citizen in order to purchase the quarries. Florian Guth became the owner of Samsta Limited, the company that purchased the quarries, three weeks before their purchase. The court also took into account that the assets had not been audited or appraised before their purchase. 

Thus, in the opinion of the court, despite the alienation of PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry, Oleg Deripaska continued to control these enterprises through the persons under his control. 

It should be noted that the court arrived to such a conclusion mostly based on the letters and statements prepared by the Security Service of Ukraine, NABU, and other law enforcement agencies. This somewhat weakens the persuasiveness of the decision in this regard since such documents are not the primary source. In general, we can single out two groups of the circumstances established by the court.

At first, it is obvious that before 2022, Oleg Deripaska controlled Strabag SE. It is also true that since 2017, an increasing number of countries have successively imposed sanctions on him, as a result of which he eventually lost control of Strabag SE. It is plausible that, anticipating such an outcome, he could take measures to remove his own assets from sanctions and prevent their forfeiture. In particular, although it is not obvious from the court decision, Deripaska could transfer Bitunova Ukraine LLC and SAT Ukraine LLC to the nominee owners. 

At second, the circumstances established by the court indicate undoubtedly that Florian Guth was a legal owner of PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry. The conclusion that he did not have enough funds to purchase the said assets also seems to be quite convincing. He got funds to purchase those assets in the form of a loan from the Ukrainian company currently holding PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry in pledge.

It should be noted that the connection between the said groups of actual circumstances is extremely weak, if not absent at all. While the first group of facts directly concerns Oleg Deripaska, we cannot say the same about the second group based on the data set out in the decision. Despite this fact, the court stated the existence of such connection, thus actually establishing that Florian Guth and Vitalii Antonov were playing the role of nominee owners controlled by Oleg Deripaska. At the same time, the court did not provide evidence of any connection between Deripaska, on the one hand, and Antonov and Guth, on the other hand.

It seems to be plausible that Florian Guth is a nominee owner, yet not of Deripaska but rather of Vitalii Antonov, who is actually a pledge holder of assets of PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry through his companies. 

It should be mentioned that the fact that Oleg Deripaska took numerous measures to evade sanctions, as well as the article in the newspaper stating that Vitalii Antonom used to purchase assets from sanctioned Serhii Kurchenko, are not enough to say that PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry continue to be under control of the Russian oligarch. 

The fact that Deripaska retains control over assets could be proven by the understated acquisition cost of PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry, but the court did not analyze that fact and did not establish the market value of those enterprises. Moreover, we should not exclude that Deripaska, in order to reduce the impact of sanctions, decided to simply get rid of the said assets by selling them at a price lower than the market one. However, this, again, does not call into question the validity of the agreement on the purchase and sale of those assets concluded in October 2021. 

Conclusions 

The confiscation of assets of Russian oligarchs is a necessary and important process, and the work of the HACC and the Ministry of Justice in this area can hardly be overestimated. However, the rights of third parties (non-sanctioned persons) shall be protected. 

We should admit that the court, which has access to all materials in the case, has a better vision of the overall situation. However, the text of the decision itself, which is a key document in assessing how well the restriction of property rights was founded, contains a number of possible defects that raise doubts about its justification.

It should also be noted that even in the event of final forfeiture to the state, PrJSC Khustskiy Quarry and PrJSC Zhezhelivskyi Quarry (the HACC decision has not come into force yet), F.I.E.H., the company holding these assets in pledge, continues to retain its rights of a pledge holder by virtue of Part 2, Article 57 of the Law of Ukraine On Pledges. According to the said provision, if the state takes measures to foreclose pledged property or property rights (nationalization, requisition, confiscation, sequestration, as well as other measures with similar consequences), it shall compensate the damage caused to the pledge holder as a result of those measures.

It is not clear by now whether the situation with the forfeiture of assets to the state falls under the said norm. The courts will have to decide it in case the HACC decision becomes final and the pledge holder brings this question before the court.

The publication was prepared with the support of the International Renaissance Foundation as the part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase II: ensuring the effectiveness of mechanisms at the national and international level" project.