How Asset Recovery&Management Agency and State Property Fund compete for asset management

No one doubts the poor performance of the Asset Recovery and Management Agency (ARMA). The President's Office has voiced plans to transfer the asset management function to the State Property Fund (SPFU), leaving the Agency with only tracing. Or even liquidate ARMA altogether.

Meanwhile, EU institutions are calling for the Agency's functionality not to be touched, but to be "rebooted". LIGA.net looked into the positions of the stakeholders.

• Subscribe to LIGA.net in English on Twitter

Why ARMA exists

After the victory of Euromaidan, the question arose of how to find and manage the assets of former government officials. The European Union initiated the creation of the ARMA. Its functionality is not well understood in Ukraine.

This Agency was supposed to search for assets of former officials and corrupt officials, seize them through the courts and transfer them to third-party businesses for management. After that, the confiscated assets were to be privatized. As a result, the Ukrainian budget was meant to receive money.

The creation of ARMA was one of the conditions for Ukraine's European integration. The European partners wanted this process to be as open and transparent to Ukrainian society as possible.

But in the case of ARMA, things went wrong almost immediately. First, the European Commission was not satisfied with the Ukrainian law. ARMA had a lot of failures when they could not find managers for "difficult" assets, such as former presidential residence Mezhyhirya or Odesa airport.

Corruption scandals, a missing registry of seized assets, and poor communication with law enforcement tainted the organization. Stories surrounding charges against ARMA leaders further marred its reputation.

The invasion altered things further. As Ukraine's survival became clear, seizing Russian assets emerged as an issue, as well as what to do with Russian assets in the country.

In fact, these assets are managed by the courts. They hand them over to the ARMA management, which, at its own discretion, is looking for managers and is supposed to gradually privatize them.

How assets are transferred to management

Separate conditions were created for each company to be arrested and to find a manager. It is difficult to monitor this because of the lack of transparency in the procedure. It is impossible to dismiss ARMA managers and appoint new ones at the drop of the hat. According to the law, the appointment of a head for five years takes place after a competition.

This has led to a situation where the acting head of ARMA, Dmytro Zhoravovych, has become the head of a large industrial holding. He manages enterprises that do not belong to him, using his own discretion, without any procedures.

For example, the ARMA took over the Hlukhiv Quarry and Mykolaiv Alumina Plant, which were linked to Oleg Deripaska, a package of corporate rights to the TUI Ukraine tour operator (TTVK), which belonged to Russian businessman Alexei Mordashov, real estate, and Tatneft gas stations.

A negative example is Forward Bank. owned by Rustam Tariko became insolvent. In total, since the beginning of the war, ARMA has held 141 tenders, but has managed to find managers for only 21 assets.

What is the appeal of the SPFU?

On the other hand, Ukraine has the State Property Fund (SPFU). The SPFU was established in 1992. Its key task was to privatize former Soviet property that the state could not effectively manage.

Over time, the Fund got hold of assets confiscated by the state, such as two titanium deposits of the United Mining and Chemical Company (UMCC), which were previously leased by Dmytro Firtash's companies. The Fund's task remains to sell the assets under its control. However, before the auctions, they must be effectively managed in order not to lose their capitalization.

ARMA partially repeated the tasks of the State Property Fund, looking for assets and new buyers for them. However, the agency, which was created to find assets, cannot handle asset management, which requires more professional management skills. The non-transparent asset management system also does not help.

The government wants to simply liquidate the ARMA, according to the head of the Servant of the People faction in the Verkhovna Rada, David Arakhamia. The main reason for this is the non-transparent activities of the institution and the absence of open auctions.

The proposal is to give management of all assets to the SPFU, as it conducts auctions through state platform Prozorro. However, it should be noted here that due to the conventions of the law, Prozorro.Sale cannot enter into an agreement with the ARMA on the sale of goods, as Prozorro confirmed itself. This is due to the fact that ARMA is looking for management to manage the seized property, not to sell it.

What to do with ARMA

Anastasia Radina, MP from the Servant of the People faction and chair of the Committee on Preventing and Combating Corruption, expresses a different position on ARMA. In her opinion, the ARMA should be preserved, but only the function of finding assets should be left to it. Property management should be transferred to the State Property Fund. This opinion is based on the fact that the current head of the SPFU, Rustem Umerov, is "an effective head of the Fund."

The same opinion was voiced in one of his interviews by Rostyslav Shurma, deputy head of the President’s Office, who is the de facto overseer of the state's economic policy in Ukraine.

But there is a problem here that the staff can change. Today the SPFU is headed by "good Umerov"; tomorrow it may be "bad" Dmytro Sennychenko or Mykhailo Chechetov.

This does not solve the problem globally. It has to be solved systematically. With an understanding of what we want from the property that goes to the state. And with a clear division between those who search, those who manage, and those who privatize. Otherwise ARMA's purpose is unclear since it doesn't actually manage anything.

The EU opposes liquidating ARMA, suggesting an audit and new leadership instead. ARMA's creation was key to Ukraine's EU visa waiver. If the EU wants to preserve ARMA, it may be a condition for further European integration.

The European Union is against the liquidation of ARMA. They say that an audit of the agency and a competition for a new head should be held. The establishment of the ARMA was one of the important beacons that helped Ukraine to get a visa waiver from the EU. If European officials are talking about preserving ARMA, it may be one of the conditions for further European integration.

A competition for the head of the ARMA is due to take place in the near future. Civil society activists are already expressing concerns about its results. They say that the head of the agency will not be independent.