Sanctions 2024 Comparisons

The sanctions sector in Ukraine has been rapidly developing since 2014 due to of Russia’s annexation of Crimea and armed conflict in the East. Each year, the number of sanctions imposed increases, and the last 12 months have proved no exception.

During 2023, sanctions were imposed on more than 7,000 individuals and legal entities, compared with 5,000 in 2022. Moreover, the number of claims filed by the Ministry of Justice of Ukraine to impose newly introduced sanctions – such as for the confiscation of assets of the Russian Federation and their transferral into state income – has increased. In 2022, the Ministry of Justice of Ukraine filed 9 claims versus 30 in 2023.

In Ukraine, COVID-19 does not affect the Sanctions sector at all. An increase in the number of imposed sanctions is caused by the full-scale invasion of the Russian Federation in Ukraine.

The last 12 months the Ukraine sanctions sector has seen various major trends.

• An increase in the number of sanctions imposed.
• Efforts to consolidate information on the imposition of sanctions. Due to the increased number of sanctions imposed, the demand for a portal/register where information on persons subject to sanctions could be collected became crucial. The National Agency for Corruption Prevention and several non-governmental organisations created the lists and, in 2023, the State Register of Sanctioned Persons finally was launched.
• An improvement in procedures for imposing sanctions– eg, the confiscation of assets of the Russian Federation and their transferral into state income. Although the procedure for imposition of this sanction is not perfect, several steps have been taken to improve it, with extension for the court of the period of case consideration, possibility to confiscate the assets once seized.

The institution of sanctions was introduced in August 2014 in Ukraine in response to Russia’s annexation of Crimea and armed conflict in the East.

The purpose of sanctions imposition in Ukraine is to protect the country’s national interests, national security, sovereignty and territorial integrity, as well as to counter terrorist activity, prevent violations, and restore the violated rights, freedoms, and legitimate interests of Ukrainian citizens, society, and state.

Taking the above into account, sanctions have primarily been imposed on Russian individuals and legal entities, or those affiliated with them.

Sanctions have also been imposed on several Ukrainian individuals and legal entities (not related to the Russian Federation) who may pose a threat to the national security, sovereignty and territorial integrity of Ukraine.

From the analysis of the entities upon which sanctions have been imposed, it follows that the industries, logistics, communications, energy, science and education, as well as the field of public and military groups and government structures, were most affected by sanctions.

The procedure for imposing sanctions in Ukraine involves the joint work of the bodies of various branches of government, and key bodies vary depending on the type of sanctions.

For typical sanctions – sanctions of the National Security and Defense Council of Ukraine (eg, blocking assets, banning entry into the territory of Ukraine, etc.) – the key bodies are as follows.

• The Cabinet of Ministers of Ukraine, National Bank of Ukraine, Security Service of Ukraine, President of Ukraine and Verkhovna Rada of Ukraine, which are all entitled to make proposals for imposing sanctions.

• The National Security and Defense Council of Ukraine, which directly decides on imposing sanctions.
• The President of Ukraine, who, by decree, brings into effect decisions taken by the National Security and Defense Council of Ukraine.

For special sanctions – eg, confiscation of assets of the Russian Federation and their transferral into state income, the main bodies are as follows.

• The Ministry of Justice of Ukraine, which can initiate the imposition of the above sanction.
• The High Anti-Corruption Court, which decision on whether this sanction can be imposed.

The Law of Ukraine “On Sanctions” does not establish an obligation for the entities implementing sanctions to report on their activities in the area of sanctions. However, such obligations are established at the sub-legal level, and they regulate the sanctions policy in specific fields.

For example, banks and non-banking institutions are required to provide the National Bank of Ukraine with monthly statistical reports on:

• sanctioned persons (clients of the bank/other participants in financial transactions, and/or other sanctioned persons, whose/of which funds are recorded on bank accounts, and/or sanctioned persons, whose/of which controlled persons are bank clients), on whom/on which at least one of the following personal sanctions, such as blocking of assets, suspension of financial transactions (operations), etc. is imposed;
• bank accounts where the funds of sanctioned persons are recorded;
• financial operations of sanctioned persons, on behalf of/for the benefit of such sanctioned persons, which were refused or stopped due to imposing personal sanctions;
• controlled persons and financial transactions (operations) of controlled persons/on behalf of controlled persons, which were refused or stopped due to imposing personal sanctions on sanctioned persons; and
• financial transactions that contribute or may contribute to the violation/avoidance of restrictions established by personal sanctions (including the cases involving third parties), which have been stopped or refused.

Non-banking institutions are also required to submit monthly statistical reports to the National Bank of Ukraine on applying, lifting and amending personal sanctions against the non-banking institution, ultimate beneficial owners/owners of significant share (participatory interest), managers and clients of non-banking institution.

Notaries are obliged to notify the territorial administration of the Ministry of Justice of Ukraine of any individual and legal entity on whom/which sanctions have been imposed and for whom/which notarial acts have been refused, giving information on the notarial act, type of sanction, and, in the case of imposing a sanction in the form of asset blocking, the asset in respect of which the person made an application.

Ukrainian sanctions is a fairly new field, launched in 2014 in response to Russian hybrid aggression. Accordingly, this new institution has not been significantly changed.

The most significant legislative changes are the introduction in May 2022 of a new sanction on the confiscation of assets and their transferral into state income. This sanction is special with respect to both the terms and the grounds of its imposition, and in the imposition procedure. It is imposed by the High Anti-Corruption Court, following the suit of the Ministry of Justice of Ukraine. The assets of the persons who have created a threat to the national security of Ukraine or contributed to its creation through their actions, are subject to confiscation into state income.

The Law of Ukraine “On Sanctions” provides a fairly broad, but not exhaustive, list of grounds for imposing the above sanction.

These grounds can be divided into three groups, political, economic and ideological, as follows.

Political:

• Decision-making or lobbying regarding armed aggression against Ukraine; creation of illegal authorities of the Russian Federation; holding elections and/or referendums on the temporarily occupied territory of Ukraine; planning; leadership; coordination and personal participation in Russian Federation aggression. This can conditionally be politicians, government officials, collaborators, and military personnel.

Economic:

• Financing the Russian Federation’s activities by paying taxes; providing charitable assistance; or investing in military bonds; the Law also establishes the minimum indicators under which the provision of economic resources to the Russian Federation will be the basis for imposing the sanction. For payment of taxes and fees to the Russian Federation’s state income, the total amount of payments (excluding customs payments) for the last four consecutive tax (reporting) quarters should exceed the equivalent of UAH40 million for a legal entity and UAH3 million for an individual, determined at the weighted-average official exchange rate of the National Bank of Ukraine for the same period. For donations, charitable assistance and free transfer of property, the total amount of funds or the value of property during the year should be at least UAH750,000 at the official exchange rate of the National Bank of Ukraine. For investing in government bonds of the Russian Federation, the total amount of investment during the year should be at least UAH3 million at the official rate of the National Bank of Ukraine. 
• Military support in the form of supply of weapons; transfer of property.

Ideological:

• Public support, approval of armed aggression against Ukraine and the genocide of the Ukrainian people. This refers to the mass-media sector, bloggers, and anyone else who is engaged in propaganda of Russian directives.

So far, the High Anti-Corruption Court has considered 45 suits.

The sanction for confiscation of assets was imposed on public and political figures of the Russian Federation, business representatives of the Russian Federation, collaborators, university rectors of the aggressor state, Russian state companies, a blogger-propagandist, and the Ministry of Defense of the Republic of Belarus.

Mining and metallurgical enterprises, banks, corporate rights in 65 companies, real estate, cultural and material values worth EUR18.7 million, cash of at least USD7.5 million and other assets were all confiscated and transferred to state income.

This sanction is a fairly effective mechanism, and can be quickly and easily applied. However, there is a risk that the speed and ease of the procedure, dictated by political expediency, may be adversely evaluated when challenging related decisions in international institutions.

It is worth noting that most key court cases challenging the sanctions of the National Security and Defense Council of Ukraine have included classified documents. Therefore, it is practically impossible to consider such cases generally, since court decisions are not subject to publication.

Since Ukraine legislation introduced the “confiscation of assets into state income” sanction in May 2022, clearly, subsequent legislative changes will largely concern the improvement of the procedure for imposing this sanction. This is underscored by the fact that, as soon as the state faces difficulties in the process for imposing this sanction, changes have to be made to the legislation manually.

At present, a mechanism for protecting third parties’ property rights is being developed when settling the issue of confiscation and transferral into state income of the share in a Ukrainian company indirectly owned by a sanctioned person.

Draft law No 11195 was developed for this purpose, and provides for the possibility of confiscating 100% of a group of shares or other securities directly owned by a legal entity whose ownership structure includes a person upon whom an asset-blocking sanction has been imposed.

The presentation of the above draft law in its initial version caused fair and sharp criticism from both the legal community and business representatives, and has subsequently been sent for revision.

However, in the near future, changes to the legislation can likely be expected. The introduction of criminal liability for violation and circumvention of sanctions restrictions is also likely.

The procedures for both imposing and lifting sanctions are not sufficiently transparent. There are two mechanisms for lifting sanctions imposed by the National Security and Defense Council of Ukraine: 1) in court proceedings; and 2) administratively.

Judicial Procedure for Lifting Sanctions

Administrative cases regarding the appeal of the Decrees of the President of Ukraine on imposing sanctions are considered by the Supreme Court as part of the panel of the Administrative Cassation Court, consisting of at least five judges (court of first instance). Appellate review is carried out by the Grand Chamber of the Supreme Court.

Currently, about 250 cases are pending before the Supreme Court, of which 131 cases have been under consideration since 2021; 8 since 2022; 96 since 2023; and 19 since the beginning of 2024.

Consideration and resolution of cases in administrative courts are carried out on the basis of competition between the parties and their free provision to the court of evidence and in proving their persuasiveness before the court. A number of problems with respect to competitiveness in sanctions disputes can be identified, as follows.

• Before the start of legal proceedings, the person who has suffered restrictions generally lacks information about the initiator and the reasons for imposing sanctions. This is a clear violation of the principle of transparency.
• As a result of the principle of official investigation of the circumstances existing only in administrative proceedings, the court not only takes the measures required by law to clarify all the circumstances in the case but should also offer to submit evidence or require, on its own initiative, any evidence that is lacking. This results in state participants not facing the adverse consequences related to the non-performance of procedural obligations with respect to submission of documents and information, or mandatory participation in court sessions.
• Clarification of primary information about the reasons for sanctions only at the stage of judicial review leads to the unjustified involvement as third parties of the initiators of sanctions impositions (Cabinet of Ministers of Ukraine, Security Service of Ukraine, etc.) and subordinate ministries, agencies and departments.
• Involved state bodies actively provide the documents, which were not examined and taken into account by the National Security and Defense Council of Ukraine when making decisions on imposing sanctions, and are improper and inadmissible evidence. In particular, by providing the materials of unfinished criminal proceedings, pre-trial investigation bodies try to put pressure on the internal conviction of judges, and in fact to entrust the Supreme Court with the tasks of criminal justice and criminal process.
• It is also common to provide documents marked “For official use”, or “Confidential”, which leads to the limitation of the rights of other participants in the process to get acquainted, as well as to the prolongation of the terms of case consideration.

Quite often, documents marked “For official use” do not actually contain any “special” information. They might contain extracts from the registers of foreign jurisdictions, or general certificates. However, familiarisation with the above documents is carried out in a special order: representatives cannot copy these documents, only read them and note down certain information. It is clear that familiarisation with them takes time.

In order to gain access to documents marked “Confidential”, access to state secrets is required. This involves passing a special check by the Security Service of Ukraine, and this process alone takes from six to nine months.

In addition, the examination of the documents marked “For official use” and “Confidential” is carried out in specially equipped courtrooms, which also leads to the prolongation of consideration periods in view of the significant number of sanction cases.

As a result of consideration of administrative case, the Supreme Court may declare the Decree of the President of Ukraine illegal and invalid, or dismiss the claim.

Administrative Procedure for Lifting Sanctions

First of all, it should be noted that the procedure for lifting sanctions in an administrative manner is not regulated in detail by law.

The decision to lift sanctions is made by the National Security and Defense Council of Ukraine, and is put into effect by the Decree of the President of Ukraine. The proposal to lift sanctions can be made by the same entities that initiated their imposition (Verkhovna Rada of Ukraine, President of Ukraine, Cabinet of Ministers of Ukraine, National Bank of Ukraine, Security Service of Ukraine).

In view of the lack of legislative regulation of the mechanism for lifting sanctions in the event of their erroneous imposition, the administrative procedure is also lengthy.

The result of the procedures for lifting sanctions (judicial or administrative procedure) is the exclusion of a person from the sanctions list.

This can be the basis for compensation for damages. However, it is a separate legal process, during which plaintiff has the burden of proving the existence of a direct causal link between the damages suffered and the sanctions imposed. There are no such precedents in Ukraine as yet.

Cancellation (Lifting) of Sanctions in Court

Cases on lifting sanctions are subject to consideration in the order of simplified proceedings. The legislation sets the time limit for case consideration, which is 60 days from the day of opening proceedings in the case.

However, in practice, the legal process for challenging sanctions lasts an average of two to three years. At the same time, cases of decision-making on merits (lifting or refusal to lift sanctions) are rare. In most cases, legal proceedings last even longer than the validity period of the sanctions themselves.

Cancellation (Lifting) of Sanctions in an Administrative Procedure

The deadline for lifting sanctions in this manner is not regulated by legislation. The procedure itself is not public. Accordingly, it is impossible to monitor the terms of consideration of lifting cases in an administrative procedure. It follows from practice that, in general, the administrative procedure lasts at least a year.

As part of the sanction mechanisms, bans on trade transactions with certain countries are introduced through imposing sectoral sanctions. It is worth noting that, unlike personal sanctions, the imposition of sectoral sanctions is not widespread. Since sanctions mechanisms have been in existence (ie, from 2014), the National Security and Defense Council has made only five decisions on imposing sectoral sanctions. Bans on the export-import transactions apply to Iran, the Russian Federation, Belarus, and Nicaragua.

For example, in May 2023, the NSDC (National Security and Defense Council) adopted a Decision on the prohibition of trade transactions with Iran regarding the services related to the supply, sale, transfer, production or use of goods, the international transfers of which are regulated by the Law of Ukraine “On State Control over International Transfers of Military and Dual-Use Goods”.

With respect to trade transactions regarding certain goods, it is worth noting the following.

• The NSDC’s February 2021 decision prohibiting export-import transactions from the Republic of Nicaragua for the following groups of goods for a period of five years: 1) edible fruits and nuts, citrus or melon peels; 2) coffee, tea, mate or Paraguayan tea, spices; (3) tobacco and manufactured tobacco substitutes.
• The NSDC’s May 2023 decision prohibiting for 50 years of trade transactions with the Islamic Republic of Iran on goods over which international transfers are regulated by the Law of Ukraine “On State Control over International Transfers of Military and Dual-Use Goods”.
• The NSDC’s November 2023 decision prohibiting trade transactions with the Russian Federation and Belarus in the defence/industrial segment for a period of 50 years on goods for which international transfers are regulated by the Law of Ukraine “On State Control over International Transfers of Military and Dual-Use Goods”.

In addition, in December 2015, the Cabinet of Ministers of Ukraine introduced by its Resolution a ban on importing the goods originating from the Russian Federation into the customs territory of Ukraine. The terms of validity of the above Resolution were constantly extended, and the list of goods subject to the ban was expanded.

Ukraine sanctions legislation imposes the obligation to comply with sanctions imposed on any person. There are no exceptions to this (such as obtaining a special permit, licence, etc). The position of the courts regarding the impossibility of fulfilling contractual obligations with respect to imposition of sanctions on a certain person is reflected in the cases relating to claims filed by sanctioned persons against banks, where the latter refused to carry out transactions, and stopped providing banking services, based on the agreement on banking services with the clients in question, on whom sanctions were later imposed.

The courts of Ukraine actually concluded that the obligation to comply with the requirements of the legislation and apply sanction restrictions prevails over the obligation to comply with contractual obligations.

The position of the Ukrainian courts regarding the possibility of enforcing decisions in favour of persons subject to sanctions was formed based on the results of consideration of the applications for permission to recognise and enforce decisions of international arbitrations made in favour of sanctioned persons.

In particular, the question was repeatedly raised as to possible implementation of the decision taken by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation in favour of the persons on whom sanctions were imposed in Ukraine.

The Courts of Ukraine, including the Supreme Court, take the position that granting permission to enforce decisions in favour of the persons on whom sanctions have been imposed would be contrary to the public order of Ukraine. This is explained by the fact that the grounds for imposing sanctions based on the Law of Ukraine “On Sanctions” are, first of all, the protection of national interests, national security, Ukraine’s sovereignty and territorial integrity. The fact of imposing a sanction on a person on the basis of the Law of Ukraine “On Sanctions” indicates that the person has created a threat to these values. Therefore, granting permission to implement the decision of the international arbitration in favour of such a sanctioned person roughly violates the fundamental political interests of the state in ensuring national security, including the security of people living on the territory of Ukraine.

The procedure for imposing sanctions involves several stages and various state authorities.

Imposition of “Typical” Sanctions (Those of the National Security and Defense Council)

• The first stage is the initiation of sanction imposition. Five bodies are empowered to propose sanctions, the Verkhovna Rada of Ukraine, the Cabinet of Ministers of Ukraine, the National Bank of Ukraine, the Security Service of Ukraine, and the President of Ukraine. Proposals are submitted to the Council of National Security and Defense of Ukraine, coordinating body on national security and defence at the Ukraine’s Presidency. 
• The second stage is the adoption of a decision on sanction imposition. At its meeting, the National Security and Defense Council of Ukraine considers proposals for sanction imposition, examines the evidence and makes an appropriate decision thereon.
• The third stage is implementation of the decision, taken by the National Security and Defense Council of Ukraine.
• The decision is then implemented by the President of Ukraine, if applicable, by issuing a Decree.
• In the case of sectoral sanctions, a fourth stage is approval of the Decree of the President of Ukraine by a Resolution of the Verkhovna Rada of Ukraine within 48 hours of its adoption.

The decision on imposing sanctions should contain the terms of their application, except for in cases where sanctions are imposed leading to rights termination, and other sanctions that cannot be imposed temporarily from a content perspective.

In general, the procedure for imposing sanctions in Ukraine is not transparent. A person learns that a restriction has been applied to them from inside sources or post factum, when the decisions of the National Security and Defense Council of Ukraine and the Decree of the President of Ukraine have been adopted.

It is not possible, in fact, to prove the groundlessness of rights restrictions before a final decision is made. Quite often there are the cases of automatic sanctions imposition with no detailed verification of the existence of any grounds, based on unverified information on the activities of individuals found in the media.

Imposition of “Special” Sanctions Concerning Confiscation of Assets and Their Transferral to State Income

• The first stage involves the Ministry of Justice of Ukraine preparing and submitting a claim to the High Anti-Corruption Court for confiscation of assets and their transferral into state income. This claim must be filed during the period of martial law. This sanction can be imposed only on the individuals and legal entities:
• who/which created via their actions a significant threat to the national security, sovereignty or territorial integrity of Ukraine (including through armed aggression or terrorist activity);
• who/which significantly facilitated (including through financing) the commission of such actions by other persons; or       
• on whom/which the National Security and Defense Council of Ukraine imposed the asset-blocking sanction after 24 February 2022. 

Two groups of assets are subject to confiscation into state income: 1) assets belonging to a sanctioned person; and 2) assets over which a sanctioned person has control.

• The second stage involves the High Anti-Corruption Court considering the claim for imposition of a sanction. The case is subject to consideration by a panel of three judges in the order of administrative proceedings within 30 days of the date of filing the claim. The persons whose assets are subject to confiscation and transferral into state income must be summoned to the court. However, their non-appearance does not prevent the case from being considered. The court makes a decision in favour of the party with the most convincing evidence.

The grounds for imposing sanctions by the National Security and Defense Council of Ukraine are as follows:

• actions of a foreign state, a foreign individual or legal entity, other entities (subjects) that create real and/or potential threats to national interests, national security, sovereignty and territorial integrity of Ukraine, promote terrorist activities and/or violate the rights and freedoms of a person and citizen, the interests of society and the state, lead to the occupation of territory, expropriation or limitation of property rights, causing property losses, creating obstacles to sustainable economic development, full exercise of rights and freedoms by citizens of Ukraine;
• resolutions of the General Assembly and the Security Council of the United Nations;
• decisions and regulations of the Council of the European Union; and
• violations of the Universal Declaration of Human Rights, the Charter of the United Nations.

The grounds for imposing the special sanction of confiscation of assets with their transferral to state income are:

• committing actions by a person creating a significant threat to the national security, sovereignty or territorial integrity of Ukraine (including via armed aggression or terrorist activity); or
• facilitating to a large extent the commission of such actions.

Establishing as a basis for imposing a sanction the fact that a person is “owned or controlled” by a directly designated person is not directly provided for by law. Sanction imposition on the beneficiary, first and foremost, may result in imposing the sanction on all the companies under his/her control. Moreover, sanction imposition on the beneficiary may prevent a company from functioning, through the revocation of licences, the impossibility of participating in state privatisation of state and communal property.

In addition, the entities controlled by sanctioned persons may be deprived of the opportunity to receive banking services (banks may refuse to conduct banking transactions or even block accounts on the basis of internal acts and compliance policies), or registration services (make changes to information in the Register of Legal Entities).