Asset Recovery and Management Agency head responds to critique over funds, Naftogaz clash

When Olena Duma was appointed as the Head of the Asset Recovery and Management Agency (ARMA) in June this year, there was significant criticism around the future of the Agency. However, Duma quickly got to work. While not without issues, the registers of seized assets were opened under her leadership. ARMA also started more actively managing assets. 

LIGA.net spoke to Olena Duma about some of the recent high-profile developments related to the agency's work. We discussed the opening of the registers, as well as the case of Viktor Medvedchuk's former gas station chain under the Glusco brand. Duma also addressed how much ARMA earns from and spends on managing seized assets. Additionally, she provided insight into her plans to build constructive relations with Ukrainian civil society stakeholders.

LIGA.net: The Unified State Register of Seized Assets has recently opened. But, according to NGOs, it is not complete and difficult to use. Can you tell us when the full version with a user-friendly interface might appear? Or what prevents its creation?

Olena Duma: In fact, this is a unique, progressive register. I do not agree with your point that it is inconvenient.

No such register has ever existed in Ukraine, although the first terms of reference (ToR) were approved back in 2017. But, as I understand it, the law enforcement agencies did not agree to put it into effect. Now we realize that it is an important national issue to create and launch this register.

ARMA should be as open as possible. Today, there are more than 134,000 entries in this register, and more than 7,000 decisions still need to be brought in. 48,906 of them relate to assets that have been transferred to ARMA's management. 

As for convenience or inconvenience, I will say the following. The Register is not a static product. It is constantly updated and improved. Of course, the terms of reference approved in 2017 need to be updated. And we would be happy to see specific proposals from NGOs regarding the registry. 

In order to find 23% of Kametstal, you have to scroll through nine pages of seized Motor Sich shares...

I also see some inconveniences. But we cannot take management agreements, such as those of Motor Sich, and, if they consist of 15-20 pages, oblige the registrar to transfer the agreement itself and add information that is of interest to individual users.

There is a department within the ARMA central office that deals with opening and filling out the register. It consists of five people. It took a titanic effort to organize the registers and the regulatory framework and open them.

I even signed separate instructions and orders to engage registrars from other ARMA offices to fill in the register with information in compliance with all legal requirements. They concerned the closure of addresses, location and characteristics of assets pointing to addresses (this requirement had not been met before). We also engaged IT specialists from the Cyberpolice to open data (information about the asset) that could not be seen under the ToR approved in 2017. 

Why am I saying this? Because these five people are constantly updating the register in tight deadlines. But, according to the rules of the current legislation, in order to show the information you mentioned, the Agency needs additional powers and physical capabilities.

The previous leadership of ARMA was accused of a non-transparent system of transferring seized assets to other companies. This was done by the sole decision of the ARMA leaders. Are you going to change this procedure?

This is the key issue that I kept in focus when I was running for the position of the head of ARMA. We must ensure that asset management tenders are held in public. This point is present in the Association Agreement with the EU (Article 148).

We have gone through all the stages of coordination between different branches of government regarding the sale of assets and will have improved procedures (government decrees No. 719 and No. 558).

On a positive note, ARMA has implemented the rules on the possibility of selling assets abroad. 

Until 2023, the mechanism for selecting receivers was not regulated at all. Therefore, a change in the procedure for selecting managers of seized property is also in the works. We have received recommendations from the Ministry of Justice, according to which a new procedure is being developed.

We have also developed a new document, which we are coordinating with the Ministry of Economy. It has already been published on the ARMA website. In particular, so that the public can give their suggestions and comments. Organizations such as Transparency International and State Watch have provided reasonable suggestions, and ARMA is taking most of them into account. These are changes that ARMA, the state, and society really need. They will definitely strengthen the body both nationally and internationally.

What are the criteria for selecting a manager? How is its activity monitored so that it does not harm the asset?

The main criterion is maximum profitability and the corresponding budget contributions. At the same time, in any case, minimum guarantee payments to the budget will be made for asset management.

The main idea is also to preserve the assets, their value, and their insurance. 

So a business plan will be required?

Yes, it will be required. Of course, the term "business plan" is not defined in the law. But there is a concept of efficiency and budget contributions. And, accordingly, it provides for control: these are inspections, including in-house inspections. We are already systematically carrying them out where ARMA records ineffective management. So the Agency takes appropriate measures.

What is happening around the Morshynska mineral water brand, where [Russian oligarch] Mikhail Fridman is among the beneficiaries? There was a scandal about the transfer of the asset to Karpatska Dzherelna brand owner, which has a market share many times smaller than Morshynska and is one of its competitors. Is it true that Karpatska Dzherelna has not yet assumed control over it?

Let me start with the case of Morshynska. A draft management agreement is currently being devised. The asset valuation is in the final stages. Procedures for obtaining a merger clearance from the AMCU will be carried out, as required by law.

But the main problem is to obtain the owner's permission to manage the asset. This is required by part 7 of Article 21 of the ARMA law. This requirement actually blocks the possibility of appointing a manager for such a large asset (and not only for it). In fact, we have to ask our adversary what to do with the Ukrainian enterprise. Today, effective management of such assets depends on legislative regulation. There are a lot of such assets.

Draft Law 6233 should solve this problem if the Verkhovna Rada votes for it. I wonder why MPs have not yet adopted this much-needed law (the draft was registered in October 2021 - ed.).

However, I am glad that after appeals to the government, the Speaker of the Verkhovna Rada, and the Anti-Corruption Committee, MPs started hearing us. Last week, we saw a positive assessment of this draft law by the NACP (National Agency on Corruption Prevention) and received a letter from the NABU (National Anti-Corruption Bureau of Ukraine) stating that the agency had no comments. There is also support from the Ministry of Justice and the Ministry of Finance. In the near future, the draft law No. 6233 will be considered at a meeting of the relevant Verkhovna Rada Committee on Anti-Corruption Policy. I believe that the parliament will adopt it. This is a national issue.

What is your relationship with the State Property Fund (SPFU)? 

We have a working relationship. Both ARMA and the State Property Fund work in the public interest.

There is an opinion that the powers of the SPFU and ARMA should be significantly defined, that ARMA carries out the seizure process, and the SPFU is already managing, because this is their area of expertise. What do you think of this idea?

This idea was relevant until 2023. Now I am convinced that ARMA's work will be evaluated differently. I believe that MPs, the public, and international institutions that monitor the Agency's activities are already changing their attitude towards it. They see different intentions and different motivation, which contrasts with what happened before. They see our achievements. 

I can even say that all the statements that were previously made against ARMA could have been logical and correct - primarily because of non-transparent asset management and "manipulated" tenders. Now that we are doing everything openly, the attitude is objectively changing.

I would like to add that ARMA was established in 2015 by analogy with similar bodies in the European Union. The Agency is accredited in the CARIN system (an informal inter-agency network of law enforcement and judicial practitioners in the field of asset tracing, freezing, seizure and confiscation - ed.) and works with 88 countries and 54 institutions that constantly exchange information. It is the combination of asset identification, tracing and management that closes the full cycle of work with seized property. The SPFU does not have such functions and capabilities.

No foreign country supports the liquidation of ARMA. I know this because I constantly communicate with my colleagues, and we have inquiries and answers from them. In addition, the State Property Fund manages state property, and ARMA manages privately seized assets.

Finally, ARMA has no authority to decide whether to seize property or not. The Agency executes the relevant court decision. It is the court's decision that specifies what to do with the asset. If the document says "transfer to management," we transfer it to management. If the decision says "sale", then ARMA gives the asset for sale.

You had a conflict with Naftogaz over U-Go gas station network (former Glusco gas stations). It is interesting that your predecessors defended Naftogaz when it was managing the asset. That was four months ago. What has changed in four months?

This is not about a conflict, but about the fact that ARMA cannot turn a blind eye to mismanagement. After signing the agreement with Naftogaz Oil Trading in 2022, the budget received zero hryvnias and zero kopecks. In 2023, it received UAH 1.5 million ($40,554). To be precise, it was UAH 347,000 ($9,382) for several months.

At the same time, Naftogaz Oil Trading incurred expenses for managing this asset and did not agree with ARMA on at least UAH 9.8 million ($264,956) spent on managing this asset. Thus, the manager did not fulfill the terms of the signed agreement.

During the entire period of property management, Naftogaz Oil Trading did not provide us with information on the accounts of the U.Go gas station network and did not show any profit from fuel sales. When the ARMA commission fully investigated the situation with Glusco's assets, I realized that even the previous management had asked for information on the status of the accounts. But there was no response.

To give you an idea, we are talking about 212 facilities. This includes 99 gas stations, 88 of which were functioning properly. The assets were scattered all over Ukraine. The ARMA commission conducted an inspection and took photos. Colleagues found that, in addition to gas stations, a retail network was operating in parallel: food, coffee, tea, etc. were sold. However, no one showed the Agency any income from this activity either.

The severance of business relations with Naftogaz Oil Trading is a consequence of the Agency's desire to work as efficiently as possible to fill the state budget. ARMA does not seek to determine whether the seized assets will be managed by a state or private enterprise. The Agency's goal is to get results for the warring country in the form of revenues.

Perhaps the previous ARMA leadership did not respond to the Glusco situation because it was seeking to identify systemic violations and collecting the materials in question.

How much money did the managers pay to ARMA in 2023?

ARMA's contribution to the budget for 2022 amounted to UAH 34.8 million ($940,863). At the same time, the managers spent almost UAH 748 million ($20.2 million) on the management of seized assets.

This year, the management revenue has already amounted to almost UAH 37.5 million ($1 million). On my initiative, the seized funds in the amount of UAH 1.8 billion ($48.7 million) were transferred to the ARMA account. I immediately signed an order to purchase military bonds. This means that the 1.8 billion worth of military bonds purchased will be added to the same amount after the government's decision.

I should also note that our deposit portfolio also amounts to UAH 3.6 billion ($97.3 million).

Are there any examples of successful assets that have been seized and transferred by ARMA to other companies?

Among the positive cases, I can name real estate - this is Vozdvyzhenka (in Kyiv’s Podil neighborhood - ed.), which brought UAH 11.5 million ($311,000) to the budget this year. Also, at the end of August, we received UAH 7.1 million ($192,000) from VinnytsiaPobutkhim ("Ushastyi Nian" brand).

Now, in the terms of our contracts, we always specify the amount of the minimum guaranteed payment to the budget, regardless of whether we receive any income. For example, in the case of U.Go, the minimum guarantee payment will be UAH 5 million ($135,182) per month. Also, in the case of fuel sales, 85% of the profit will go to the state budget. This is definitely better than getting zero.

What about other high-profile assets, such as Chornomornaftogaz?

This asset is currently undergoing an in-house audit, so I cannot fully inform you about the results. Chornomornaftogaz consists of 26 regional gas companies. The case is much more complicated than Glusco. ARMA records the absence of revenues to the budget. However, while the audit is underway, the Agency cannot publicly declare violations.

Because the management of 11 regional gas companies has been changing regularly for a long time, we see that law enforcement agencies often conducted inspections there. However, after I immersed myself in the documents and agreements, I realized that the management that runs Chornomornaftogaz has the right state-oriented position. First and foremost, it is that during the change of oligarch Firtash's leadership in the regional gas companies, the state faced resistance and appeals in the courts. It would be a crime against Ukraine to stop the processes due to the lack of budget revenues at this point, which is related to the change of leadership in favor of Ukraine. It would mean leaving Firtash's management in place.

At the same time, the management agreement stipulates that management revenues minus the manager's remuneration are to be transferred to the state budget. At the moment, there are no transfers of revenues, as the income is to be paid in the form of dividends in the first quarter of next year.

Our task is to give Chornomornaftogaz the opportunity to operate in peace. When the state receives the dividends and ARMA receives the results of the inspections, we will be able to assess the quality and competence of the management of this asset.

Is ARMA involved in the process of merging regional gas companies with Gas Distribution Networks of Ukraine LLC (Naftogaz Group)? It appears that Chornomornaftogaz, which is managed by ARMA, will soon be left with "dummy regional gas companies" and the assets will be transferred to Naftogaz.

We do not see any cases of merger. During our audit, we sent inquiries regarding these issues. The Manager reported that in order to ensure sustainable continuity of natural gas distribution activities, after the change of management, gas distribution network operators are taking preparatory steps to conclude lease agreements for movable and immovable property with Gas Distribution Networks LLC.

Under such agreements, the lease income will be received by the operators of gas distribution networks. At the same time, the manager, in accordance with the management agreement and the provisions of the Law of Ukraine "On Joint Stock Companies," may receive management income.

Have you estimated the value of the assets managed by ARMA? The number of enterprises whose rights are held by the Agency? The number of real estate objects?

We have a Unified State Register of Seized Assets. Those assets that have been evaluated have this data.

As for the total amount of assets, it is a dynamic process. As there are regular court hearings, there are more and more assets, so the situation changes every day. Currently, the total value of assets controlled by ARMA is over UAH 70 billion ($1.893 billion). This is the value of assets seized in criminal proceedings.

The ARMA also has an understanding of the value of Russia's and Belarus' assets in Ukraine worth the same amount. And these volumes are growing every day.

One of ARMA's functions is asset tracing. What assets did the Agency find in 2023?

This year, the agency has traced assets worth more than UAH 8 billion ($216 million) (these are corporate rights). In addition, 19 airplanes, 2,000 real estate objects and 15 known unfinished projects. This list is constantly updated. There are also rulings on various assets worth UAH 5 billion ($135 million). There are also assets that are difficult to value, such as artwork and paintings.

I am interested in your opinion on the following: Fridman still has a large asset, the Kyivstar mobile operator. If his property is seized and transferred to the ARMA, how do you think such a large asset should be managed? Should it be transferred to competitors or should it be left in state management?

First of all, the issue of property management is decided by the court. If the court gives it to us, we will announce a tender to find a manager in accordance with the new rules. But I understand that this manager will definitely need to obtain a merger clearance, as there is high competition here.

The seizure and transfer of such a huge asset to ARMA is an absolute assumption. In similar situations, the state seized and immediately nationalized a similar property complex. Kyivstar may go through the same thing, as on September 5, the SBU charged Mikhail Fridman in the case of financing the war against Ukraine.

After your appointment, you had a conflict with anti-corruption activists. Over the past month, have you tried to find common ground with them and tell them about your actions, to gain their trust?

As the head of the ARMA, a body that exists at the expense of taxpayers, I cannot have conflicts with anti-corruption activists. As a civil servant, I am obliged to listen to the voices of competent watchdogs and experts.

We are happy to cooperate with everyone - with Transparency International, StateWatch, and any other organization. Because through cooperation with activists, we can give a new impetus to the development of the ARMA: to update the human resources, open registers, hold competitions, and so on. I may be a non-standard leader. For me, criticism is always an impetus for development. This is how it should be.

I think our willingness to cooperate is noticeable. So that everyone - both our civil society and our international partners - can see that ARMA is ready for dialogue and development. I have a very constructive attitude to any cooperation. 

Realizing the complexity and scope of work and the increased attention to the Agency's activities, we are seeking understanding and intensifying constructive cooperation with specialized NGOs.

Do you maintain a relationship with Valentyn Nalyvaichenko and remain a member of his party Spravedlyvist?

That's an odd question. I have never been a member of any political party. In particular, Valentyn Nalyvaichenko's party called Spravedlyvist. This matter came up during the selection process for the head of ARMA and was looked into. I can confirm and provided documentation to the selection committee showing that I have never had any affiliation with a political party.