Forcible seizure the Russian Federation’s and its residents’ property in Ukraine
On 1 April 2022, the Ukrainian Parliament has adopted changes (the Draft Law No. 7169 of 15 March 2022) to the Law of Ukraine “On the Basic Principles of Forcible Seizure of Objects of Property Rights of the Russian Federation and its Residents in Ukraine” (the “Law“), aimed to amend its principal provisions.
The Law provides that:
- forcible seizure of the Russian Federation’s and its residents’ property in Ukraine is carried out without any compensation (reimbursement) of their value due to the full-scale aggressive war waged and pursued by the Russian Federation against Ukraine and the Ukrainian people.
The property which might be seized:
- movable and immovable property, funds, bank deposits, securities, corporate rights, other property (assets) that are placed (registered) on the territory of Ukraine and directly or through affiliates owned by the Russian Federation and its residents.
The Russian Residents (the “Resident“) according to the Law are:
- citizens of the Russian Federation*;
* excluding those who defend (defended) the independence, sovereignty and territorial integrity of Ukraine, take (took) direct part in rebuffing and deterring (neutralising) the armed aggression of the Russian Federation against Ukraine and ensuring national security, eliminating the threat to state independence of Ukraine, its territorial integrity during martial law, state of emergency or during military conflict
- persons who are not citizens of the Russian Federation but have the closest connection with the Russian Federation, have a place of residence or conduct primary activity in the Russian Federation;
- legal entities, their branches, representative offices that carry out their activities under the legislation of Ukraine on the territory of Ukraine:
- the founder (participant, shareholder) or ultimate beneficiary of which directly or indirectly through other legal entities (regardless of their quantity and place of registration) is the Russian Federation and/or the mentioned above individuals, including individuals through other legal entities (irrespective of their amount and place of registration) performed managerial functions and exercised control over the activities of this legal entity until 24 February 2022; and/or
- the founder (participant, shareholder) or beneficiary of which is directly or indirectly the Russian Federation; and/or
- in which the Russian Federation directly or indirectly has a share in the authorised (compound) capital, shares, units, other membership (participation in any form) in a legal entity; and/or
- in which legal entities, the founder (participant, shareholder) or beneficiary of which is directly or indirectly the Russian Federation, have a share in the authorised (compound) capital, shares, units, other membership (participation in any form) in the legal entity.
According to the decision of the National Security and Defense Council of Ukraine (the “NSDC“) or the court, the following individuals or legal persons (regardless of citizenship, main activity, etc.) may be equated to the Resident:
- who are permanently located outside Ukraine or in the temporarily occupied territory of Ukraine, and
- publicly deny or support the military aggression of the Russian Federation against Ukraine, the establishment and affirmation of the temporary occupation of part of the territory of Ukraine, and
- who have not suspended or stopped carrying out their commercial activities on the territory of the Russian Federation during the martial law in Ukraine introduced in connection with the military aggression of the Russian Federation against Ukraine.
Procedure for forced seizure of property:
1. the Cabinet of Ministers of Ukraine prepares draft decision on the forcible seizure in Ukraine of objects of property rights of the Russian Federation and its Residents (the “Decision on seizure of property“) and submits it to the NSDC;
2. the NSDC adopts the decision on seizure of property;
3. the decision of the NSDC on seizure of property shall be implemented by decree of the President of Ukraine (the “Presidential Decree“);
- registration of the state ownership through the Cabinet of Ministers of Ukraine is carried out on the basis of the Presidential Decree;
- transfer of seized property to commercial management on a temporary or permanent basis to a specialised state enterprise, which, if necessary, should be created by the decision of the Cabinet of Ministers of Ukraine based on the seized property of the Russian Federation and its residents (integral property complexes).
- property of the Russian Federation and its residents which is not subject to obligatory registration becomes state-owned from the effective date of the Presidential Decree.
4. within six months after the cancelation or termination of the martial law, the Presidential Decree shall be subject to approval by the Verkhovna Rada of Ukraine by adopting a relevant law.