Due to the Russian invasion of Ukraine that started in late February 2022, on 3 March 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On the Basic Principles of Forced Expropriation in Ukraine of Property of the Russian Federation and Its Residents” (“Law“). The Law came into force on 7 March 2022 and is aimed at enabling Ukrainian authorities to expropriate the property owned by the Russian Federation and its residents for the reasons of public necessity without any compensation paid for such expropriated property.
Affected property and entities
Any movable and immovable property, funds, bank deposits, securities, corporate rights and other property (assets) that are located (registered) in Ukraine and directly or indirectly owned by the Russian Federation or its residents may be subject to expropriation under the Law.
The expropriation will affect the property owned (directly or indirectly) by:
- the Russian Federation
- legal entities (their branches, representative offices) operating and registered in Ukraine in which:
- the participant (shareholder) or beneficial owner (directly or indirectly) is the Russian Federation; and/or
- the Russian Federation (directly or indirectly), or legal entities directly or beneficially owned by the Russian Federation, directly or indirectly own interest in the capital, shares, membership units, or any other form or membership or participation in a legal entity
The decision to expropriate the property of the Russian Federation and its residents shall be taken by the National Security and Defense Council of Ukraine (NSDC) based on a draft prepared by the Cabinet of Ministers of Ukraine. The NSDC decision must then be enacted by a decree of the President of Ukraine. The Law requires that the presidential decree be ratified by the Verkhovna Rada of Ukraine no later than within six months following the repeal or end of martial law in Ukraine.
Once expropriated, the property should be transferred under the management of a specialized Ukrainian state-owned enterprise established by the Cabinet of Ministers of Ukraine. The registration of Ukraine’s title to the expropriated property will be held on a basis of the presidential decree. Title registration is required only for immovable property, corporate rights and means of transport.
The Law expressly provides that any restraining orders or injunctive reliefs of Ukrainian courts may not suspend the decision of Ukrainian authorities to expropriate the Russian property and may not stop the procedure of title registration.
Ukrainian authorities are now reportedly considering expanding the reach of the Law to the property in Ukraine owned directly and indirectly by Russian citizens and Ukrainian citizens recognized in Ukraine as collaborationists. Given this, further amendments may be introduced to the Law in the coming days and weeks.