The sanctions mechanism has existed in Ukraine since independence. Since 2014, when the Russian invasion of Crimea and the eastern regions of our country began, sanctions have been imposed on Russian companies and residents. After the outbreak of a full-scale war in 2022, the pool of sanctions instruments expanded significantly.
According to the publicly available data of the Ministry of Foreign Affairs of Ukraine, sanctions have already been imposed on almost 10,000 individuals and over 6,000 legal entities – citizens and residents of Ukraine and other countries. The current picture of sanctions can be tracked in the State Register of Sanctions, which was launched in Ukraine on 31 January 2024. Nevertheless, there are still many ambiguities and inconsistencies in the sanctions regulations. The procedure for imposing sanctions is sometimes non-transparent, hasty and one-sided. At the same time, there is no effective procedure for reviewing or cancelling sanctions that have already been imposed, making it difficult for businesses to prove their honesty to the state.
The Ukrainian legal community assumes that the number of cases of nationalization of business assets under the sanctions legislation will increase, and that circumvention of sanctions will be criminalised in the coming months. What does this mean for Ukrainian business? How can companies protect themselves and avoid losing their assets? And finally, why should sanctions compliance become mandatory for every Ukrainian company? Volodymyr Vashchenko and Denys Shkarovskyi, partners at VB Partners, spoke about this in an interview with Forbes BrandVoice.
— What are the sanctions imposed by Ukraine on businesses accused of having links with or acting in favour of an aggressor country?
Volodymyr Vashchenko: Sanctions are a traditional mechanism for protecting national security in civilised countries. Until 2014, the sanctions legislation in Ukraine applied to North Korea, Sudan, Iran and other blacklisted countries. In 2014, Ukraine adopted a separate law on sanctions, and a number of other transformations took place in 2022-2024. At that time, these were temporary economic restrictive measures aimed not at seizing business assets but at stopping truly illegal behaviour.
Tangible changes in Ukraine’s sanctions policy occurred in 2022 with the adoption of amendments to the Law of Ukraine ‘On Sanctions’.
— How has Ukrainian sanctions legislation changed in recent years?
Volodymyr Vashchenko: There are four fundamental changes.
- The start of blocking assets owned by Russian businesses even indirectly.
- The introduction of a new sanction, but only for the period of martial law, – the recovery of assets of sanctioned persons into the state’s budget. Until 2022, the sanctions were applied by a decision of the National Security and Defence Council, but now, after the NSDC, the Ministry of Justice initiates the recovery of assets into the state’s budget, and the High Anti-Corruption Court applies the sanction.
- The introduction of new articles in the Criminal Code of Ukraine in April 2022: 111-2 – ‘Aiding the aggressor state’ and 111-1 – ‘Collaboration activities’.
- Introduction of the State Register of Sanctions.
Despite the upgrade, Ukraine’s sanctions legislation is still framework-based, unpredictable and non-transparent, and the grounds for imposing sanctions are unclear. The law defines them as ‘actions that pose real or potential threats to national security, interests, etc.’. Such definitions create uncertainty, in particular for businesses: what should they actually do to avoid sanctions?
— What risks may Ukrainian businesses face due to ties with Russia after 2014 and after 2022?
Volodymyr Vashchenko: The main risk is that law enforcement agencies will apply sanctions legislation retroactively. The fact is that until 2014, Russian business was widely represented in Ukraine, with Russians participating in privatisation, tenders, buying and absorbing assets. This happened with the assistance of the then government. However, after the start of Russian aggression in 2014, Russian businesses felt increasing pressure and began to withdraw from Ukraine gradually, although they continued to be present in the banking sector, energy, and other areas. It was only during the full-scale invasion – on 27 September 2022 – that the Ukrainian government introduced an embargo on trade with Russia. But even without these bans, bona fide Ukrainian businesses severed ties with Russian residents. However, law enforcement agencies nevertheless began registering criminal proceedings against companies that had business relations with Russian residents before 24 February 2022, accusing their managers and owners of treason and financing aggression.
— How does this threaten business?
Denys Shkarovsky: There are three sets of consequences that may arise for a business if it falls under the sanctions flywheel.
The first is reputation. There was no direct ban on relations with the Russian Federation until 2022, but any mention of working with Russians even until 2022 causes a negative attitude of counterparties and society towards the company.
The consequences are different: from a negative information field around the company to problems with banks’ compliance, termination of relations with counterparties and financial losses.
The second is legal consequences. For businesses that have been working with Russia and Belarus until 2022, Article 110-2 of the Criminal Code, which has been in place since June 2014, applies. After 2022, Article 111-2 will apply. These are particularly serious crimes against national security. Investigations into such cases are accompanied by a full range of criminal proceedings: interrogations, searches, seizures of property and, in the case of a notice of suspicion, detention in a pre-trial detention centre or international wanted list. The Prosecutor General’s Office dashboard and official statistics confirm the consistently high number of cases under these articles against businesses.
The third is the imposition of sanctions on businesses that have worked with Russia and Belarus, including the nationalization of assets. The list of sanctions specified in the law is not exhaustive, and the NSDC can apply any sanctions that meet the objectives of legal regulation. Currently, Ukrainian sanctions have been imposed on almost 17,000 people, mostly collaborators. However, these statistics also include erroneous sanctions against Ukrainian or foreign businesses.
— How can businesses detect the fact of being included in the sanctions list in time, predict the likelihood of sanctions and prevent them?
Denys Shkarovsky: There are almost always risks. However, since such a decision is political, as it is everywhere else in the world, and the state has not yet developed criteria for imposing sanctions, it is difficult to predict such decisions. But sometimes it is possible.
Firstly, there is no need to take actions that may lead to sanctions. Secondly, inclusion in the sanctions list is often preceded by criminal and other proceedings for violations of national security legislation. This may indicate that sanctions are already being prepared. The same applies to information campaigns around security issues. Thirdly, you need to know your supply chain well, as counterparty problems can cast a shadow on your business: you should constantly monitor your company and counterparties in the State Register of Sanctions, open registers of the judiciary, Opendatabot, YouControl, the media and other sources.
Red flags can help your business prepare for possible difficulties or neutralise them at the initial stage.
— Is there a need for sanctions compliance in business today, and how can businesses build it properly?
Denys Shkarovsky: This is a requirement at the time. The position of Sanctions Compliance Officer has always existed in multinational corporations. In Ukraine, businesses are also beginning to realise the importance of checking counterparties for sanctions risks, so this position is becoming relevant. This is illustrated by compliance vacancies on job search sites and LinkedIn.
To understand the sanctions policy and compliance requirements, such specialists need to study OFAC sources, data on EU sanctions on the European Commission’s platform, NSDC sanctions lists, explanations from the Ministry of Economy for business and NBU requirements for financial institutions to comply with the sanctions regime. Online tools can be used to automate compliance processes: World-Check (Refinitiv), Dow Jones Risk & Compliance, and LexisNexis.
— Why does Ukrainian business need sanctions compliance?
Denys Shkarovsky: Sanctions compliance helps businesses to avoid reputational losses due to ties with sanctioned persons and companies, protects against financial and legal risks, helping to avoid fines, account blocking and criminal liability.
With the introduction of criminal liability for circumventing sanctions, the issue of sanctions compliance is becoming mandatory. Moreover, it is a proof of reliability, which increases the trust of international partners and opens up new horizons for cooperation.
However, many businesses still neglect sanctions compliance, treating it as a bureaucratic formality. The demand for it and the corresponding culture in Ukraine are still being formed. However, it will definitely develop, as businesses need external high-level expertise in the realities of the times.
— How can ignoring sanctions compliance turn out for business?
Volodymyr Vashchenko: Here’s an example. Since March 2023, banks have been required to identify financial transactions with assets linked to the Russian Federation. So, even at the stage of receiving funds from a business, a bank can detect such connections and block funds. The company will lose its reputation, cooperation with counterparties, and may face the risk of criminal proceedings. It will start with searches, followed by the seizure of assets and funds. This can lead to bankruptcy and business liquidation.
— How can a business remedy the situation when it is already under the scrutiny of law enforcement?
Volodymyr Vashchenko: First of all, it is necessary to restructure the work with contractors, getting rid of toxic ones, even if it leads to financial losses. You can also prove your integrity by demonstrating regular payment of taxes in full and transparent documentation. This means that businesses need to be transparent and be part of business associations. If there is information about the risk of nationalization of assets, it is necessary to take a proactive stance and promptly provide law enforcement with all the necessary data.
— What should a professional lawyer do to help businesses resolve the situation with sanctions?
Businesses do not always see their problem areas. Therefore, a sanctions lawyer must properly analyse the specifics of the company’s operations and the background of its clients and counterparties and identify areas where risks may arise. This is a retrospective study of all business relationships prior to 2014. The lawyer should also constantly monitor the client’s information field, study its business reputation, and assess territorial risks. Finally, the lawyer should check compliance with legal requirements when entering into contracts and making payments.
If suspicious violations are identified, the legal team should investigate and prepare a list of tips, predictable consequences and suggest ways to eliminate them. If there are already criminal proceedings, the lawyer should conduct an audit of the client’s business and prepare for its defence.
— What trends in Ukraine’s sanctions policy should we expect in the near future?
Volodymyr Vashchenko: The state will not stop investigating relations with Russia, Belarus and related companies and individuals. Therefore, criminal proceedings under articles against the foundations of national security will continue.
If sanctions circumvention is criminalised, a new layer of such proceedings will open up. However, it should be understood that the law does not have a retroactive effect and will only apply to situations that have arisen after its entry into force.
By the way, criminalisation of sanctions circumvention is a requirement of the European Union. Last year, the EU adopted several directives to unify criminal liability for sanctions violations.
The draft law introduced by the President in 2025 will enable cross-border investigations and international law enforcement cooperation in relation to such facts in the EU, Ukraine and other countries where such actions are criminalised. In particular, it will make it possible to search for and extradite persons who violate sanctions legislation.
Denys Shkarovsky: A separate, small but significant layer is the claims of the Ministry of Justice to recover assets for the state. Such claims are possible only during martial law, so their existence will depend on their duration.
Privatisation of nationalized assets will also continue. I think it will be most active after the war ends and the business situation in Ukraine stabilises. Finally, sanctions will continue to be applied, including to reduce Russia’s influence on Ukrainian business and to force it to compensate for losses. There will also be cases of erroneous inclusion of bona fide Ukrainian companies in the sanctions lists, which will give rise to new appeals.
