Back to budget: how the British experience will simplify the recovery of withdrawn assets

April, 2020

– Vitalii Vlasiuk, managing partner at ePravo Law Firm
– Oleg Shaulko, Head of the UNBA Foreign Office in London
According to the World Bank, public officials from developing countries steal an estimated $20-40 billion each year.

And Ukraine, unfortunately, finds itself at the top of this list.

For decades, billions of dollars have disappeared from Ukraine, finding its way into bank accounts, real estate markets and luxury goods in the UK, Austria, Switzerland and other foreign jurisdictions.

Most of them are still «being traced and recovered» by Ukraine. The creation of a special Asset Recovery and Management Agency in 2015 didn’t take us too far.

What is the complexity of such procedures? And what world experience should Ukraine use?

How to recover a withdrawn asset?

It’s no secret that the stolen assets are most often displayed in countries where English law prevails.

One of the main ways to recover funds from such jurisdictions is to impose a world arrest on assets derived from corruption and other crimes (world freezing order), and then recover those funds within a civil action brought before an English court.

The arrest is imposed by a ruling of the High Court of London, which freezes assets of the defendant around the world and is among the lawyers known as “nuclear weapons”, as it forbids each and every action with the assets.

Therefore, should a civil proceeding be concluded in favor of a plaintiff, the latter is guaranteed the further recovery of those assets.

This safeguard was successfully used by PrivatBank in its claim before the High Court of London against former owners Igor Kolomoiskii and Hennady Bogolyubov.

A similar procedure also applies in the European Union: at the beginning of March, it was announced the continued freeze of the assets of former President of Ukraine Viktor Yanukovych and nine people from his associates.

However, there is a considerable problem. World freezing order is a cool but expensive tool.

A week of work of a team at a leading law firm in London would cost more than £50,000, while preparing for an arrest warrant can take months of hard work.

However, there are often no alternatives to this tool. What shall we do, then?

Litigation Funding

It turns out that the West has long had a special form of pooling investors who invest in litigation – funders.

It is a successful multi-million dollar business in the so beloved by our corrupt officials United Kingdom, where the enforcement of court decisions is guaranteed.

There are more than ten major funders networks that form the relevant market. As of today, they have funded over £1.9 billion in claims.

Moreover, the UK leading editors – Law Society Gazette, CityAm and The Times – confirm the continued rapid growth of the funders market, which is a testament to the model’s popularity.

How does it work? Funders provide funding specifically for prosecution, mainly for the remuneration for lawyers.

If the case is won, the funders receive a concerted share of the money actually collected, usually 20-30%. If the case is unsuccessful, the funder loses its money without the right to claim on the principle of “no win, no fee”.

Considering the significant risks of such an investment, the litigation funder carefully analyzes the prospects of the case and independently selects the lawyers to whom it will pay, since it has a direct interest in ultimately satisfying the claim.

This model works particularly good in conjunction with the Unexplained Wealth Order tool, where the result of the funded legal work is not the seizure of the assets but their recovery in the event of the owner’s inability to explain the legality of the origin.

The wife of the former head of the International Bank of Azerbaijan, Ms. Zamira Khadzhieva, has recently become a victim of this tool: she will almost certainly be deprived of property worth £16 million and may still be imprisoned.

Another high-profile case funded by the funders is a lawsuit over the privatization of the YPF Oil Company in Argentina: £106 million has been recovered, of which the funders received £19 millions.

Foresights for Ukraine

Establishing a funder institute to trace and recover withdrawn assets should open the best foresights for Ukraine.

First, there is no need to allocate funds from the state budget, which is expensive and difficult to process.

Second, affordable funding will enable the state to act on all known theft facts to prove it.

Thirdly, for corrupt officials, the possibility of “negotiating” with dishonest officials who sabotage the lawsuit is eliminated: independent funders will seek to win anything and get their share.

Fourth,

once the process is set in motion nothing can stop it, and another change of power in Ukraine will not «reverse gear it» — the funds will be recovered.

Finally, fifth, it is up to the funders to select foreign lawyers who will bring the case to court, which eliminates another possible corruption component.

We would also add that, in general, the funding of litigation by funders means increasing access to justice.

So, as the Ministry of Justice is disbanding the Directorate for Human Rights and Access to Justice, the Verkhovna Rada is, fortunately, moving in the right direction — a corresponding draft law No. 3304 has already been registered in Parliament.

This draft law actually proposes to borrow an existing model. At the same time, in the conditions of Ukraine, it makes sense to increase the privacy of funders in order to protect them from possible retaliation by “overtaken” corrupt officials.

In any case, we believe that the Verkhovna Rada should introduce the proposed innovations. We hope to see the first results of their work fairly soon, so that our corrupt officials will finally lose their composure.

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