The civilised world has now become very familiar with the tragic consequences of the unprovoked, barbaric, full-scale invasion of Ukraine, which continues to claim lives and cause untold destruction of Ukrainian infrastructure. Among a few examples are completely destroyed hospitals, schools, airports and other civil buildings all over Ukraine. There is obviously no need to explain that this unprecedented level of damage will take a great deal of time to restore with enormous financing required and multiple efforts to be made.

To compensate for the incurred losses to the extent possible, on 3 March 2022 the Parliament of Ukraine adopted the Law of Ukraine “On the Basic Principles of the Compulsory Seizure of Property of the Russian Federation and its Residents in Ukraine” No. 2116-IX (the Law). Then, on 1 April 2022 the Law was amended by extending the list of subjects whose property in Ukraine can be seized by the Ukrainian authorities.

Under the Law, the property, which includes movable and immovable assets, funds, bank deposits, securities, shares, and other assets located (registered) in Ukraine, can be compulsory seized if its owner is one of the following subjects or “residents”:

  • individuals – nationals of the Russian Federation and persons who are not nationals of the Russian Federation but have a close connection with the Russian Federation, in particular if they reside or carry out their main activities there;
  • legal entities (branches and representative offices) that carry out their activities in accordance with the laws of Ukraine in Ukraine:
    • of which the Russian Federation is a direct or indirect founder (participant, shareholder) or beneficiary; or
    • in which the Russian Federation directly or indirectly owns a share in the authorised (share) capital, shares, equity participation, other membership (participation in any form) in a legal entity; or
    • in which legal entities, of which the Russian Federation is direct or indirect founder (participant, shareholder) or beneficiary, own a share in the authorised (share) capital, shares, equity participation, other participatory interests (participation in any form) in the legal entity.

The Law also envisions that under a decision of the National Security and Defence Council of Ukraine or a court, individuals or legal entities (regardless of nationality, place of residence, location, main activities, etc.) can be treated as residents of the Russian Federation if they:

  • publicly deny or support military aggression by the Russia Federation against Ukraine;
  • support the establishment and approval of the temporary occupation of part of the territory of Ukraine; and
  • continue their economic activities in the Russian Federation during martial law in Ukraine, imposed due to the military aggression by the Russia Federation.

The decision for the compulsory seizure of residents’ property in Ukraine is made by the National Security and Defence Council of Ukraine, and will be enforced by a decree of the President of Ukraine. Even though there is no explicit guidance for now as to how the decision is made (regarding which property should be seized), such seizure will be based on the principles of legality, transparency, objectivity, purposefulness, strategic importance and effectiveness.