Crimea-Related Sanctions Imposed by Ukraine
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The regime of national sanctions is a new legal institution for Ukraine. Unfortunately, the establishment of this legal category is related to the terrible times experienced by our country. The institution of national sanctions was the response of Ukraine to external aggression. Prior to such aggression Ukraine did not need it for different reasons, but some of them may be emphasized separately. First, Ukraine was a state with a multi-vector foreign policy. Second, the economic interests of Ukraine were in priority in contrast to political, so the imposition of sanctions against potential Ukrainian trading partners due to political reasons (in circumstances, where there was no external threats) was recognised as unreasonable.
On 14 August 2014 the Verkhovna Rada of Ukraine enacted the Sanctions Act, which provided the legal framework for imposition of sanctions in response to external threats. According to Article 3 of the Sanctions Act, Ukraine may apply sanctions against individuals and legal entities in response to the actions of a foreign state, foreign legal entity or individual, or other parties creating imminent and/or potential threats to national interests, national security, sovereignty and the territorial integrity of Ukraine, supporting terrorist activities and/or violating human and civil rights and freedoms. Other grounds for imposing sanctions are resolutions of the United Nations General Assembly and Security Council, decisions and regulations of the Council of the European Union and facts of the violation of the Universal Declaration of Human Rights, the Charter of the United Nations.
Lists of sanctioned persons and restrictive measures in respect of them may be proposed by the Cabinet of Ministers, Verkhovna Rada of Ukraine, the President of Ukraine and the Security Service of Ukraine. Those proposals shall be adopted by the National Security and Defence Council of Ukraine, enacted by a Presidential decree and approved by a resolution of the Ukrainian Parliament within 48 hours of the issue of the relevant Presidential decree.
In accordance with the abovementioned procedure, on 12 August 2015 the Cabinet of Ministers of Ukraine provided the extended list of personal sanctions against individuals and legal entities that were directly or indirectly connected to the continuing armed aggression against Ukraine.
On 22 September 2015 Ukraine imposed personal sanctions on a number of individuals and legal entities (mostly of Russian origin) associated with supporting the continuing violation of the national sovereignty and territorial integrity of Ukraine. Restrictive measures were introduced under the Presidential Decree of 16 September 2015 No.549/2015 On Decision of the National Security and Defense Council of Ukraine of 2 September 2015, On Application of Personal Special Economic and other Restrictive Measures (Sanctions).
While the procedure of imposition of sanctions is not complex, it lacks transparency, since the state authorities are not obliged to provide evidence of activities against Ukraine by persons included in the list of persons under sanctions. In addition, there is no open procedure for consideration of potential persons for further application of sanctions against them. Setting aside minor procedural issues, the major problem is in the operation of sanctions after their imposition.
Summing the data from the lists of persons under sanctions, it can be concluded that the following restrictive measures are most common type of imposed sanctions: assets freezing (temporary restriction of right of the entity to dispose of its property); avoidance of removal of funds outside Ukraine; stoppage of business and financial transactions; ban on participation in public procurement; ban on financing companies that are subject to sanctions. Sanctions against Russian transport companies may be noted separately. For instance, airlines that performed flights to Crimea after the peninsula received the status of a temporarily occupied territory were prohibited to fly to Ukraine and to perform transit passages through the airspace of Ukraine. The situation is also clear with banking and financial measures. Thus, the Board of the National Bank of Ukraine in its Decree of 1 October 2015 No. 654 On Providing Implementation and Monitoring of Efficiency of Personal Special Economic and other Restrictive Measures (sanctions) clarified that in case the freezing assets measure is applied to a person then the funds may be entered in the bank account of such a person. However, a bank should reject any payment document of an account’s owner envisaging disposal of such funds. Also, payments to accounts of persons under sanctions to which the sanction of stoppage of financial transactions was applied must not be provided, banks are obliged to reject any payment documents envisaging payments to accounts of persons under sanctions.
By way of summary, the Ministry of Infrastructure of Ukraine and the National Bank of Ukraine provided clear instructions on how to deal with the prohibition of transit and with financial sanctions. However, there are still a number of restrictive measures and in regard thereto it was totally unknown as to how private persons should act with persons under sanctions, and are they obliged to perform sanction clearance? The simple response to that question is ‘yes’, because it is in the interests of such private persons. For example, in case a counterparty of a foreign supplier was added to the list of persons under sanctions and is subject to a ban for business activities and financial transactions, it would be unable to pay for supplied goods. While there is a clear mechanism for dealing with persons under sanctions and prohibited transactions by banks, there are no instructions for other entities and institutions on compliance with imposed sanctions.
As a result, an interesting practice was revealed in actions of the Ministry of Economic Development ad Trade of Ukraine. Without proper regulations on how to carry out the stoppage of business activities of a person under sanctions within Ukraine, the Ministry imposed a special sanction of temporary stoppage of business activities envisaged by Article 37 of the Foreign Economic Activity Act on legal entities with reference to government sanctions. It should be noted that in accordance with the aforementioned Act, special sanctions may only be applied in case of breaches of that Act or related laws. Thus, the Ministry of Economic Development and Trade of Ukraine has no grounds to apply the special sanction solely on the ground of application of government sanctions against a person, if there was no breaches of exchange control rules or laws on foreign economic activity by such person. Such a situation occurred because the core act on sanctions (Sanctions Act) lacks provisions regarding the operation of particular restrictive measures. This led to the situation when specific public authorities must comply with the regime of sanctions, but they have no adopted procedures for implementation of restrictive measures. In the end, they are obliged to use legal tools available to them even if this were to contradict effective legislation.
Moreover, the Sanctions Act does not contain the procedure for contesting imposed sanctions, so a person under sanctions should apply to the administrative court with a claim to reject the Decree of the President of Ukraine whereby the sanctions were imposed. Such a claim will be considered in an ordinary procedure for administrative claim, so the burden of proof with regard to the legality of imposed sanctions will be on the state authorities, particularly the President of Ukraine.
The legal analysis of imposition and operation of government sanctions shows that procedural issues regarding those sanctions require significant modifications. First of all, instructions for operation of every restrictive measure should be adopted to avoid further wrongful practices by the state authorities. In addition, guidelines for private entities on dealing with persons under sanctions are required (it is common practice in the US and the EU, by the way). Finally, a transparent procedure for contesting sanctions and liability for breach of the regime of sanctions should be adopted. Without those modifications the operation of government sanctions is not efficient and, in fact, may cause troubles for innocent counterparties of persons under sanctions.