In response to the full-scale invasion of the russian federation, the civilized world applies sanctions against the aggressor, its residents and accomplices. The main goal of such a tool is to isolate the state and increase pressure on it.
Ukraine began an active sanctions policy in 2014 as a response to the annexation of Crimea and the beginning of the russian military operation in Donbas. Current sanctions instruments are sufficiently effective and efficient from the point of view of the state. But at the same time somewhat simplified. This is due to the fact that there is no detailed regulation of the order of application of the procedure.
Given that sanctions lists are usually drawn up at a rapid pace as an immediate response to a threat to national security, cases of misapplication of sanctions are not uncommon, creating challenges for honest business.
Challenges related to the sanctions procedure
The procedure for applying sanctions is not transparent. A person learns that a restriction has been applied to him or her from insider sources, or post factum, when the decision of the National Security and Defence Council of Ukraine and of the President of Ukraine are adopted. In fact, there is no possibility to prove the groundlessness of rights restrictions before the final decision is made.
Quite often there are cases of automatic application of sanctions — without a detailed verification of the existence of grounds, based on unverified information about the activities of persons in the media.
The question of the motivation for the application of sanctions is very important. For example, in the USA, this process is accompanied by substantial reports, which justify the application of the procedure to a specific person. In Ukraine, this data is completely closed. Even when receiving documents with official information, we do not see detailed arguments.
Challenges related to the lifting of sanctions
In more developed countries, the procedure for applying sanctions is not strictly tied to the country’s leadership. In the USA, a special body is clearly defined, which promptly applies and reviews decisions on the application of restrictions.
In Ukraine, it is possible to cancel erroneously applied sanctions in two ways:
- In the judicial procedure as a result of appealing the Decree of the President of Ukraine to the Supreme Court. However, consideration of this category of cases continues for years. There is no immediate restoration of rights.
- In an administrative procedure — as a result of an appeal to the initiator of the application of sanctions (NSDC, the President of Ukraine) and proof of the absence of grounds for the application of sanctions. But this procedure is not regulated in detail by legislation and also takes a lot of time.
Challenges related to the lack of system information
Despite the active application of sanctions, Ukraine, unfortunately, still lacks a single register of sanctioned persons. Verification of counterparties must be carried out manually by checking decrees of the President of Ukraine, acquiring access to specialized databases, such as LexisNexis, etc.
This problem is already on the way to a solution. In July 2023, a law was adopted providing for the creation of the State Register of Sanctions. However, at the moment, the sanctions registry has not yet started to work, which requires additional efforts from the business in terms of checking counterparties and partners.
Challenges associated with the introduction of a new type of sanctions
In May 2022, a new sanction was introduced into the legislation of Ukraine — confiscation of assets into state income. According to the legislation, the new type of sanctions is applied to persons who:
- by their actions created a significant threat to the national security, sovereignty or territorial integrity of Ukraine, in particular through armed aggression or terrorist activity, or
- contributed to a significant extent, in particular through financing, payment of taxes, acquisition of state securities, the commission of such actions by other persons.
The confiscation of assets of the russian federation’s accomplices is actively used and already has real results. The list of assets is different: from transport and apartments to large enterprises.
Mining enterprises, banks, real estate, shares in the authorized capital of 40 legal entities, funds in bank accounts in the amount of at least $2.1 million and other assets were confiscated. Consideration of four more lawsuits is ongoing.
Nationalized property is transferred to the State Property Fund for management. The exception is historical, cultural and material values, which are transferred to the Ministry of Culture. Funds from their implementation will be directed to the Fund for Liquidation of the Consequences of Armed Aggression and will be used for the reconstruction of Ukraine.
Assets subject to nationalization
Two groups of assets are subject to confiscation:
1) those that directly belong to sanctioned persons — accomplices of the russian federation;
2) those controlled by such persons.
That is, a person can perform actions identical to the right of disposition.
At the same time, the possibility of a sanctioned person to take actions to dispose of assets can be evidenced by:
- use of the asset, in particular without formalizing the legal relationship between the owner and the sanctioned person;
- systematicity, duration, method, scope and content of asset use by the sanctioned person;
- the existence of direct and indirect family, friendship, corporate and other ties between the asset owner and the sanctioned person, from means of subordination, employment, etc.;
- expenses incurred by the sanctioned person related to the maintenance of assets;
- the presence of a sub-sanctioned person with a claim on the asset, for example, as a result of granting a loan;
- the possibility for the sanctioned person to determine the use of the asset by other persons related to him, etc.
The asset confiscation procedure takes place in two stages:
- Application of sanctions by the President of Ukraine to a person after May 24, 2022.
- Filing by the Ministry of Justice of Ukraine of a lawsuit on the application of a sanction — recovery of assets into state revenue. Such cases are considered by the High Anti-Corruption Court in a special, accelerated manner. At the same time, during the review of the lawsuit against the Ministry of Justice, the High Anti-Corruption Court does not check the validity of the use of sanctions by the President of Ukraine.
It should be noted that the application of the new type of sanctions is limited in time – exclusively during the martial law.
The introduction of this type of restrictions creates risks for Ukrainian business, whose representatives:
- own assets jointly with residents of the russian federation — sanctioned persons or persons to whom sanctions may potentially be applied;
- acquired assets from residents of russia (i.e. have a historical connection);
- had close economic ties with residents of the russian federation (lending, supply of specific goods, related supply chains).
The risks concern two aspects. First of all, any cooperation with russian accomplices (joint ownership of assets, acquisition of assets in the past, existence of economic ties) may become grounds for the President of Ukraine to apply sanctions. Based on the above, the Ministry of Justice has appealed to the High Anti-Corruption Court with a demand for confiscation of assets.
Secondly, quite often representatives of the Ministry of Justice of Ukraine have doubts about the real ownership of the asset (its share) to a person who is not an accomplice of the russian federation. In such a case, in order to preserve its own assets, the business has the obligation to prove that the assets actually belong to a person who is not under the control of a sanctioned person.
Instead of a conclusion
Sanctions are an extremely important tool for fighting an external enemy. At the same time, taking into account the circumstances in which the sanctions lists are drawn up, the state is obliged to ensure a transparent procedure for the application of sanctions and an effective procedure for their cancellation.
