How the Russian trace of the company, which had been sold before the war, almost caused the confiscation of the business from its Ukrainian owners 

One of the most resonant legal and economic news in recent days has become the HACC’s refusal of the Ministry of Justice’s request to confiscate Khust and Zhezheliv Quarries. These assets were planned to be nationalised as a part of the process of confiscating russian oligarch Oleg Deripaska’s assets in Ukraine. 

While the world is still discussing the mechanisms to confiscate russian assets, the process has already been in action in Ukraine since the fall of the last year. Under the mechanism, in which the Ministry of Justice and the HACC are playing the leading roles, it has been possible to confiscate the Ukrainian assets of other known Russian oligarchs Mikhail Shelkov, Vladimir Yevtushenkov, Arkadii Rotenberg and others. 

However, the main reason for confiscation has been the so-called ‘Russian trace’: the presence among asset owners individuals who are under Ukrainian sanctions due to the aggression of the Russian Federation. 

At the same time, disputes can take place regarding those co-owners of the assets who are not under sanctions.  

The case with the confiscation of Khust and Zhezheliv quarries, which had been indirectly owned by Deripaska till October 2021, has become a good illustration of such disputes.

How the deal was done

Until October 2021, Khust Quarry PJSC and Zhezheliv Quarry PJSC belonged to the Austrian construction company Strabag SE which has been actively operating in Russia since the 1990s. The co-owner of the company, who has 27,8% of its shares through the Cypriot holding company Rasperia Trading Ltd., is Deripaska. 

A few months before the full-scale war, Strabag SE sold 100% of the shares of both companies for around 13 million UAH to the Cypriot company Samsta Ltd., whose nominal owner became the German investment banker.

To finance the deal, a loan was obtained from the Liechtenstein company Financial & Investment Energy Holding (F.I.E.H.), which received both quarries as collateral for the debt.

In fact, the end beneficiary of the deal became the group of companies ‘Kryviy Rig Cement,’ which includes Ukrainian businessmen Ihor Mazepa, Vitaliy Antonov, Vasyl Danylyak, Ihor Zavinovskyi and others. This fact was mentioned in the comments for the media by Mazepa himself. 

Although such an approach to buying a business questions transparency, it is not legally prohibited. It can be used not only to conceal information about the owner but to protect the assets.  

What the Court has decided

The position advocated by the Ministry of Justice in this case was that the sale agreement was fictitious and concluded to remove assets from under the sanctions in the interests of Oleg Deripaska who has actual control over Strabag SE and systematically withdrew assets from under sanctions earlier.

Buyers of quarries, including Ukrainian beneficiaries, according to the government representatives, acted in the interests of the Russian oligarch. Furthermore, doubts were expressed about the market price of the deal.

The arguments provided by the Ministry of Justice, supported by the HACC in the first instance court, may be justified in the context of economic counteraction to Russian aggression, but are not flawless from factual and legal sides.

Claims that the buyers of the assets acted fictitiously and in the interests of Deripaska seem weakly substantiated, given their wealth and experience in the business.

The beneficiaries of the agreement themselves denied its fictitious nature. For example, Ihor Mazepa repeatedly emphasized that the operations of both quarries were integrated into the work of the aforementioned ‘Kryviy Rig Cement’ holding.

On June 16, the Appeals Chamber of the High Anti-Corruption Court (HACC) cancelled the first-instance decision regarding Khust Quarry PJSC and Zhezheliv Quarry PJSC and denied their confiscation ‘due to the lack of sufficient evidence regarding the possibility of a sanctioned person to dispose of the corporate rights of Hustskyi Quarry PJSC and Zhezhelivskyi Quarry PJSC.

Currently, the full decision is not publicly available. Still, it can be assumed that such a decision was established due to the lack of evidence to prove that the agreement was concluded in the interests of Oleg Deripaska.

Also, it was a questionable argument that the Russian oligarch controls Strabag SE. Despite conducting its business in the Russian Federation and having Russians among its shareowners, Strabag SE is a quite well-known public company.

After the beginning of the Russian aggression against Ukraine, the representative of Rasperia Trading Ltd. Thomas Bull was excluded from the Supervisory Board, and his dividends are not paid.

In addition, even if the Appeals Chamber of the High Anti-Corruption Court (HACC) had decided in favour of confiscation, it would be doubtful that this process could go smoothly. As noted above, both quarries are in lieu of F.I.E.H., which financed the deal.

According to the Law on Pledge, if the state confiscates the pledged property, it has to compensate the damages caused to the pledgee.

The above-mentioned scheme of buying assets could have been used to prevent future loss of funds. If these assets had been yet confiscated, the Ukrainian beneficiaries could demand compensation from the state for the loss of collateral.

Why such a decision was made 

The key thing seems to be that the attempt to confiscate both quarries in the general pool of Deripaska’s assets was a mistake. If there were suspicions that the agreement was fictitious, it would be reasonable to focus on proving this fact and supporting it with more compelling arguments.

In fact, only extracts of media publications, as well as certificates and letters from law enforcement authorities, and not actual evidence, were given in favour of this thesis.

Besides, there were no arguments proving the fact that Deripaska has been the beneficiary of the agreement to avoid sanctions. Strabag SE is a well-known public European company that has never been under sanctions, and the simple fact that a sanctioned person owns shares in its corporate structure is obviously not enough.

Also, this case is not even theoretically about responsibility for non-compliance with sanctions or their evasion, since currently, these facts are not offences according to the legislation of Ukraine. In April, the Verkhovna Rada of Ukraine introduced a draft law on the criminalization of such cases, the EU is also on the way to increasing responsibility for evasion of sanctions, and the punishment for these may include confiscation. However, this does not erase the need for a proper assessment of the circumstances for each case and justification of the position.

What’s next

After the decision of the Appeals Chamber of the HACC, the current owners can freely dispose of the property.

Back in February 2023, Samsta Ltd. concluded an agreement with another Cypriot company Overin Ltd. on buying both assets. However, this deal has been put on hold during the case. By the way, it is this company that is publicly mentioned as the owner of the ‘Kryviy Rig Cement’ holding.

Now these obstacles have been removed and the deal can be completed. Overin Ltd. itself is, at least, partially, controlled by F.I.E.H.: on May 11, The Anti-Monopoly Committee of Ukraine approved the acquisition of 25% of Overin Ltd.’s shares by the company F.I.E.H.

​​Although in the case of the Khustskyi and Zhezhelivskyi quarries, the decision of the Appeals Chamber of the HACC appears to be justified, in the future other situations may arise when suspicions about the evasion of sanctions will be real.

To prevent this, Ukraine should introduce legislation that would establish responsibility for such facts.

In general, the Ministry of Justice, despite the lack of personnel and high workload, should be more thorough in justifying its arguments and investigating the circumstances of each case. The “Russian trace” is not a universal argument for a derogation from the right of ownership and even in case of positive court decisions in the future, such owners can count on compensation for losses, which will be paid by taxpayers.

This publication is done as a part of the ANTS project “Russian Assets as a Source of Recovery of the Ukrainian Economy” which is implemented in cooperation with the National Democratic Institute (NDI) and financial support of the National Endowment for Democracy (NED).

Published: Ekonomichna Pravda, June 2023

Author: Markiyan Bem, Partner at Nazar Kulchytskyy & Partners