Civil forfeiture – an effective mechanism or just a waste of time?

Kateryna Gupalo
Arzinger Law Firm, Kiev
Kateryna.Gupalo@arzinger.ua

Yurii Kleban
Arzinger Law Firm, Kiev
​​​​​​​Yurii.Kleban@arzinger.ua

The discrepancy between the standard of living of officials and their official income is a problem in many countries of the world – and the higher the level of corruption, the more obvious the luxury that officials surround themselves with is. But it is often complicated for law enforcement agencies to prove that respective assets have been acquired illegally. As a result, due to the presumption of innocence (when any doubt about the person’s guilt shall be interpreted in this person’s favour), many unscrupulous officials have managed to avoid liability.

One of the attempts to resolve this problem in Ukraine was the introduction of criminal liability for illicit enrichment. The Criminal Code of Ukraine was supplemented with the respective Article in 2011. Later, this Article was changed several times and eventually declared unconstitutional in 2019 (later it was revised and returned)^[1] but despite the fact that a small number of sentences for illicit enrichment were passed, this Article did not solve the main problem – the return of illegally obtained assets.

To solve this problem, on 31 October 2019, Verkhovna Rada of Ukraine adopted a Law introducing the mechanism of the so-called ‘civil forfeiture’ – the recognition of assets as illegally acquired and returning them to the State budget.^[2] The respective mechanism is not new and has been successfully applied in many countries of the world. In Ukraine, it authorises the prosecutors of the Specialized Anti-Corruption Prosecutors Office (a separate independent division of the Prosecutors General’s Office) to file a civil lawsuit against a person authorised to perform the functions of the state or local self-government for collection of assets acquired without legal basis.

The subject of such a claim may be the assets (including funds, vehicles, real estate, cryptocurrency, received services, and other tangible and intangible assets) acquired after the Law came into force (28 November 2019) and value of which exceeds the legal income of the person by more than UAH 1,003,500 (approximately USD 37,000). The Law defines an exhaustive list of legal ways for civil officials to legally acquire assets. This list includes wages, remuneration for scientific, teaching and sports activities, passive income in the form of dividends, rent, deposit interest rate, among others.

Also, the formal under-estimation of the value of acquired assets does not save from civil forfeiture. For example, some civil officials declare the value of luxury cars or real estate several times lower than the market level. In this case, the minimum market value will be used to determine the value of the asset. In addition, facts of registration of property to the figureheads cannot also be ignored. Therefore, if the prosecutor can convince the court that certain assets were acquired by another person at the direction of the official, or the official can dispose of respective assets, such assets may also be confiscated.

When the value of illegally acquired assets exceeds UAH 6,292,000 (approximately USD 230,000), the civil forfeiture will be preceded by criminal proceedings. But even if criminal proceedings are closed, this will not deprive the prosecutor of the right to file a separate claim seeking for the civil forfeiture.

The main advantage of this instrument is its civil-law nature. It means that the civil official, whose wealth exceeds income, is not protected by the presumption of innocence, which is one of the criminal procedure principles. As a result, the assets owner has to prove the legality of its acquisition (in contrast to criminal proceedings where the prosecutor has to prove that the official’s income is not of legal origin).

It is worth mentioning that within the civil forfeiture procedure, the law enforcement agencies are not obliged to solve the corruption crime or establish who provided the official with certain assets, or for what. Merely the fact of the absence of legal sources for their acquisition is sufficient.

Moreover, there are many methods to identify unscrupulous civil officials and, as a result, to seize illegally obtained assets. One of them is the electronic declaration system. Thus, if the official declares the ownership of a small apartment but actually lives in a luxury house and uses luxury cars, there are reasonable questions about the origin of such assets.

Mainly, it is the duty of the National Agency for the Prevention of Corruption to establish the fact that the official’s standard of living does not correspond to his declared income. Thus, the officers of the Agency may ask the official to provide additional explanations if they have any doubts about the legality of acquired assets. If such explanations do not prove the legality of assets’ origin, the Agency’s officers have the power to initiate the civil forfeiture procedure before the Specialized Anti-Corruption Prosecutors Office.^[3]

Moreover, citizens can also report to the National Agency for Prevention of Corruption about the illegal income of officials using the legal guarantees of the institute of whistleblowers.^[4] The mismatch between the officials’ living standards and their declared incomes has become a very popular topic for journalistic investigations, which could provide law enforcement bodies with work for many years.

It would seem that such a tool should have significantly simplified the work of law enforcement agencies and increased the number of assets returned to the State. However, almost two years after the civil forfeiture was introduced, the Specialized Anti-Corruption Prosecutors Office has filed only two respective lawsuits.

The first (and so far, the only) successful civil forfeiture case was the case of one of the people’s deputies of Ukraine. The people’s deputy declared UAH 1,200,000 of income (approximately USD 45,000), allegedly received from renting out the tank intended for dumping waste remaining after processing beets. Journalists investigated and discovered that the industrial facility has long been out of order, is not being used for its intended purpose and there are indications that the company allegedly renting it is fictitious. Nevertheless, the people’s deputy received rent payments on a regular basis. 

Further, the law enforcement agencies continued the investigation and discovered that the people’s deputy lost the ownership rights to the mentioned real estate object long before it was allegedly rented out. Additionally, it was established that from the moment of renting, the tenant’s representatives have never visited the industrial facility and never used it.

During the court hearings the lawyers failed to prove the legality of the assets’ origin and, as a result, the court decided to confiscate, in the State’s favour, all the funds received from the renting out of the industrial facility.

The described case is quite illustrative because it proves that civil forfeiture can be an effective and quick tool for returning illegally obtained assets to the state budget. Currently, the process of appealing the court decision is still ongoing but, if the Court of Appeal upholds the decision, it will enter into force and be enforceable. 

This case is a confirmation that the Specialised Anti-Corruption Prosecutors Office has received a powerful mechanism that, if actively applied, will significantly improve the level of anti-corruption in Ukraine.