Sanctions 2024

Last Updated August 13, 2023

Ukraine

Law and Practice

Authors



VB Partners is the leading white-collar crime boutique law firm in Ukraine, with a strong presence in dispute resolution. For 19 years, VB Partners has maintained high standards of legal service in the national market, and its attorneys are experts in sanctions law. The firm’s unrivalled ability to successfully handle intricate sanctions cases is exemplified by a string of successful results. After an exhaustive examination of the grounds for sanctions against a business, VB Partners meticulously devises an effective strategy of appeal either on merits or procedural nuances. The firm specialises in lifting sanctions against foreign companies and non-residents in court. Notably, in 2020, VB Partners secured a landmark Supreme Court decision to lift sanctions against a well-known EU company. The firm handles property confiscation and nationalisation disputes, and safeguards the business interests of companies inadvertently included in sanctions lists that do not support the armed aggression of the Russian Federation.

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 Law of Ukraine “On Sanctions” provides for the possibility of imposing both personal and sectoral sanctions. Personal sanctions are imposed on specific individuals, while sectoral sanctions are imposed on a foreign state or undefined group of persons carrying out a certain type of activity.

Types of Sanctions Until 22 May 2022

  • The initial version of the above Law provided 24 types of clear sanctions (blocking of assets, restriction of trade operations, prevention of withdrawal of capital outside the borders of Ukraine, suspension of the performance of economic and financial obligations, etc.). In the period to 22 May 2022, this list has been slightly amended, and a new type of sanction in the form of a “ban on acquiring ownership of land plots” was added.
  • Moreover, legislation determined the possibility of imposing “other sanctions which correspond to the principles of their imposition”, actually rendering the list sanctions inexhaustible.

Types of Sanctions After 22 May 2022

Due to the full-scale invasion of the Russian Federation into Ukraine in February 2022, the list of sanctions has been significantly expanded.

In particular, new sanctions were added:

  • prohibition of media distribution on the territory of Ukraine;
  • prohibition of activities on the territory of Ukraine;
  • refusal to grant or cancel an immigration permit, permits for permanent or temporary residence in Ukraine;
  • forced return or forced deportation outside Ukraine; and
  • prohibition of demonstration and use of symbols of terrorist organisations and groups, promotion of the ideas and programme goals of such organisations, blocking of access to information resources used for these purposes.

The special new sanction for confiscation of assets of the Russian Federation and their transferral to state income can only be imposed during the period of the war and under special conditions.

The scope of Ukrainian sanctions is broad, and every individual, state body or other legal entity must comply with them. At the same time, the legislation of Ukraine does not yet envisage any liability for violation of sanctions, and/or their circumvention.

Sanctions in Ukraine are imposed at domestic level. Supranational measures also have an effect on the country’s sanctions policy. Thus, according to the Law of Ukraine “On Sanctions”, the decisions and regulations of the Council of the European Union, resolutions of the General Assembly and the Security Council of the United Nations are the grounds for the imposition of sanctions in Ukraine.

Moreover, applying mirror sanctions – in other words, imposing sanctions on persons against whom US, EU, and UK sanctions have been applied, is typical in Ukraine.

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.

Given the diverse range of sanctions that can be imposed in accordance with the Law of Ukraine “On Sanctions”, the list of the entities responsible for their enforcement is also wide, and includes the state authorities, banks and non-banking institutions, among others.

For example, for cancelling a licence to carry out a certain type of activity (eg, in the field of producing and distributing alcoholic beverages), the state tax authorities would be responsible for compliance with the relevant sanction. For terminating economic and other financial transactions, banks and other financial institutions would be responsible for sanctions compliance.

General control over implementation of the decision taken by the National Security and Defense Council of Ukraine on imposing sanctions is entrusted to the Secretary of the National Security and Defense Council of Ukraine.

Ensuring the compliance with, and monitoring of, the effectiveness of sanctions is usually entrusted to the Cabinet of Ministers of Ukraine, together with the Security Service of Ukraine and the National Bank of Ukraine. This is directly stated in the Decision of the National Security and Defense Council of Ukraine.

Currently, there is no legal liability, including criminal liability, for breaching sanctions.

However, the Verkhovna Rada of Ukraine is considering two draft laws that provide for the establishment of criminal liability for sanctions violation and circumvention.

In March 2021, the Verkhovna Rada of Ukraine registered draft law No 5193, which provides for the addition of two types of crimes to the Criminal Code of Ukraine, as follows:

  • violation of restrictions and prohibitions established in relation to sanctioned entities, if such actions threaten the independence of Ukraine, the sovereignty and territorial integrity of the state, national security, or are aimed at changing the constitutional order by violent means or illegal seizure of state power;
  • deliberate violation of the requirements of the legislation on sanctions.

In January 2023, draft law No 8384 was registered by the Verkhovna Rada of Ukraine. The draft law provided for the amendments to the Law of Ukraine “On Sanctions” by specifying the prosecution of persons for violating the legislation on sanctions. In addition, the Criminal Code was to be amended by adding a new type of crime – violation of the requirements of the legislation on sanctions.

Given EU trends regarding criminalisation of the violation and circumvention of sanctions (Directive 2024/1226 dated 24 April 2024), criminal liability for such actions is expected to be established in Ukraine soon.

Given the absence of legal liability for violation of sanctions, there is no provision for mitigating steps which can be taken to avoid or lessen penalties.

As indicated, Ukraine currently does not provide for legal liability for sanctions violations.

Unlike the sanctions regimes of the US, EU and UK, the sanctions policy of Ukraine does not provide for the possibility for interested entities to obtain permission from a state authority to carry out a certain type of activity that is subject to sanctions restrictions.

The Constitution of Ukraine guarantees everyone the absolute right to professional legal assistance. Imposing a sanction on a person is neither an exception nor results in limitation of the above right. Accordingly, obtaining any licences or permits for providing legal assistance is not required.

However, this does not exclude the fact that lawyers and advocates face difficulties in representing/protecting sanctioned persons. This is due to difficulties receiving fees for the services provided, – eg, if an asset block is imposed on a sanctioned person. 

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).

The provisions prohibiting the circumvention of sanction restrictions are not provided for by law.

In Ukraine, legal liability, including of a criminal nature, for the circumvention of sanctions, is not provided for.

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Trends and Developments


Authors



VB Partners is the leading white-collar crime boutique law firm in Ukraine, with a strong presence in dispute resolution. For 19 years, VB Partners has maintained high standards of legal service in the national market, and its attorneys are experts in sanctions law. The firm’s unrivalled ability to successfully handle intricate sanctions cases is exemplified by a string of successful results. After an exhaustive examination of the grounds for sanctions against a business, VB Partners meticulously devises an effective strategy of appeal either on merits or procedural nuances. The firm specialises in lifting sanctions against foreign companies and non-residents in court. Notably, in 2020, VB Partners secured a landmark Supreme Court decision to lift sanctions against a well-known EU company. The firm handles property confiscation and nationalisation disputes, and safeguards the business interests of companies inadvertently included in sanctions lists that do not support the armed aggression of the Russian Federation.

The institution of sanctions was introduced in Ukraine in August 2014 through the adoption of the Law of Ukraine “On Sanctions” that entered into force in September of the same year in response to Russia’s annexation of Crimea and armed conflict in the East.

The 2014 legislation provided for two groups of sanctions, as follows:

  • sectoral, affecting areas of the economy; and
  • personal (regarding a specific individual or legal entity).

The procedure for imposing personal sanctions provides for the following:

  • submission of proposals on imposing sanctions by the Verkhovna Rada of Ukraine, President of Ukraine, Cabinet of Ministers of Ukraine, National Bank of Ukraine, Security Service of Ukraine to the National Security, and Defense Council of Ukraine; 
  • adoption by the National Security and Defense Council of Ukraine of a decision on imposing sanctions; and
  • adoption by the President of Ukraine of a decree to enact the decision of the National Security and Defense Council of Ukraine on imposing sanctions.

Personal sanctions were imposed in Ukraine for the first time in 2015. At that time, Russian and Russia-related politicians, artists, banks, companies, and mass media became subject to restrictions.

In February 2022, after the start of the full-scale invasion of the Russian Federation into Ukraine, the sanctions policy underwent significant changes.

A new sanction has now been introduced in the legislation of Ukraine – that of confiscation of the assets of the Russian Federation’s accomplices and their transferral into the state income. This type of sanction can be imposed only on the persons against whom, starting from 24 May 2022, the President of Ukraine and the National Security and Defense Council of Ukraine imposed a sanction in the form of blocking assets.

The decision to confiscate assets and transfer them to state income must be taken by the High Anti-Corruption Court, at the decision of the Ministry of Justice of Ukraine.

The assets which are directly owned or controlled by a person who, by their actions, created a significant threat to the national security, sovereignty or the territorial integrity of Ukraine and/or contributed to the commission of such actions, will be confiscated and transferred into state income.

The assets of the Russian Federation’s accomplices may be confiscated into state income under martial law to be extended every three months by relevant decree of the President of Ukraine.

It is clear that, as long as the war against Ukraine endures, the sanctions policy of both the Ukraine and its foreign partners will gain momentum. Meanwhile, steps will be taken to achieve maximum effectiveness from the sanctions imposed.

In this regard, key trends and developments include the following:

  • an increase in the number of imposed sanctions;
  • strengthening of the role of sanctions compliance;
  • increased liability for violation/circumvention of sanctions or cooperation with sanctioned persons;
  • harmonisation of Ukrainian and foreign sanctions; and
  • protection of the interests of virtuous business when imposing a sanction in the form of confiscation of the assets of the Russian Federation’s accomplices and transferring them into the state income.

An Increase in the Number of Imposed Sanctions

The Law of Ukraine “On Sanctions” defines that the purpose of imposing restrictive measures is to protect national interests, national security, sovereignty and the territorial integrity of Ukraine; countering terrorist activity; and prevention of violations, restoration of violated rights, freedoms, and legitimate interests of Ukrainian citizens, society, and the state.

Taking into account the fact that the threat to the national security of Ukraine, its sovereignty and territorial integrity has not yet been eliminated, and that the war started by the Russian Federation continues, the imposition of sanctions will go on.

At the same time, the policy of imposing sanctions will become more systematic. Thus, in 2022, an International Working Group of Independent Experts on Sanctions Regarding the Russian Federation (hereinafter referred to as the “Working Group”) was created.

The Working Group is developing a list of documents, strategies and road maps that contain plans and recommendations for implementing sanctions against the Russian Federation and the Republic of Belarus, as well as for monitoring their effectiveness.

In 2022, the Working Group identified the priorities by developing (1) a Roadmap of Individual Sanctions; (2) an Action Plan on Strengthening Sanctions against the Russian Federation and others. All attempts are being made to follow these priorities.

The number of impositions of the new confiscation sanction are set to increase.

As indicated above, this new sanction may be applied to those upon whom the President of Ukraine and the National Security and Defense Council of Ukraine have imposed a sanction in the form of an asset block since 24 May 2022.

Since that date, the more than 10,000 persons (individuals and legal entities) have been subject to asset-blocking and are citizens and residents of Ukraine and foreign countries. As of June 2024, the High Anti-Corruption Court had considered only 45 lawsuits regarding confiscation of hundreds of assets for transferral into the state income.

Meanwhile, a systematic increase in the number of such claims has been observed.

Strengthening the Role of Sanctions Compliance

Sanctions compliance has already become an integral part of business processes, and the Know Your Customer (KYC) procedure has gained special importance. We expect sanctions compliance to deepen, as demonstrated by the fact that:

  • the sanction lists of Ukraine and foreign partners are constantly updated and expanded, requiring businesses to regularly update systems and procedures for monitoring sanctions;
  • given the joint efforts of the world community to impose sanctions, the price of co-operating with a sanctioned person is high. Such co-operation in Ukraine can result in direct imposition of sanctions on a co-operating person; restriction (blocking) of banking operations; reputational losses; criminal prosecution; and confiscation of assets and their transferral into state income; and
  • monitoring and analysis technologies are improving. The introduction of the State Register of Persons Subject to Sanctions, and the launch by the Main Intelligence Directorate of the Ministry of Defense of Ukraine of its Main Portal on Sponsors and Accomplices of Aggression make it possible to automate and improve the sanctions compliance process, enhancing its efficiency and accuracy.

Strengthening Liability for Violation/Circumvention of Sanctions, Cooperation with Sanctioned Persons

Liability – both reputational and criminal – for violation of sanctions, their circumvention or cooperation with sanctioned persons will increase.

Reputational liability in Ukraine

The National Agency on Corruption Prevention launched the War and Sanctions Portal at the beginning of the full-scale Russian invasion, publishing the following lists:

  • persons on whom sanctions were imposed;
  • candidates for Ukraine sanctions;
  • foreigners in Russian companies; and
  • international sponsors of war.

The Portal was a powerful reputational tool for ensuring the exit of international business from the Russian Federation and termination of any relations with residents of the state.

However, in March 2024, the War and Sanctions Portal was closed by the Cabinet of Ministers of Ukraine.

In June 2024, the Main Intelligence Directorate of the Ministry of Defense of Ukraine then launched the Main Portal on Sponsors and Accomplices of Aggression.

Information on those involved in the deportation of Ukrainian children and foreign components in Russian weapons is already available on the updated platform. The register of sanctioned persons, lists of candidates, and the database of industrial equipment for Russian weapons are currently unavailable.

After the launch of all sections, the new portal will become an effective tool for compliance.

Given that the portal will function under the auspices of the Main Intelligence Directorate of the Ministry of Defense of Ukraine, we expect it to be filled fast and effectively used to bring sanctions violators to reputational liability.

Liability for violation of sanctions in the EU

The recognition by the European Union of the need to provide for liability for violation/circumvention of sanctions at legislative level is already evident.

In April 2024, the Council of the European Union approved a directive, aimed at strengthening member state control over the effectiveness of EU sanctions.

The directive provides for the minimum rules for defining the crimes related to violation of sanctions and implementation of consequences for them, proposing to define as crimes the following actions:

  • direct violation or failure to comply with certain sanction prohibitions and restrictions;
  • circumvention of the EU’s sanctions;
  • violation or non-fulfilment of the conditions of the permits granted by the relevant authorities for carrying out the activities subject to sanction restrictions; and
  • inciting, aiding and abetting the above actions.

Exceptions will be applied to:

  • lawyers, who are not required to disclose information they receive from clients when providing legal assistance; and
  • carrying out the above actions for the purpose of humanitarian assistance to the persons who need it, or activities in support of basic human needs.

The Council of the European Union has proposed minimum penalties:

  • for individuals – deprivation of liberty from one to five years, a fine (approximate amounts not established); and
  • for legal entities – fines in the amount of 1% to 5% of the total global turnover for the previous financial year or in the amount of EUR8 million/EUR40 million (depending on the chosen method of calculation).

The member states of the EU have one year to incorporate the directive’s provisions into national legislation.

By 12 May 2025, member states should provide for criminal liability at national level for violating certain sanctions, circumventing sanctions, and aiding or abetting the commission of the above actions.

Liability for violation of sanctions in Ukraine

Despite the fact that the sanctions policy of Ukraine is fairly strict, the country’s legislation does not yet provide for liability for violation of sanctions and/or their circumvention.

Since Ukraine is steadily moving towards membership of the EU, we believe that amendments will soon be made to the country’s legislation and that liability will covered.

Progress has already been made. In March 2021, in Verkhovna Rada Draft Law No 5193 was registered and proposed to add two types of crimes to the Criminal Code of Ukraine, as follows.

  • Violation of restrictions and prohibitions established in relation to sanctioned subjects, if such actions threaten the independence of Ukraine, the sovereignty and territorial integrity of the state and national security, or are aimed at changing the constitutional order through violence or illegal seizure of state power. Depending on the qualification, it was proposed to establish a minimum punishment of three years of imprisonment, and a maximum of ten years.
  • Deliberate violation of the requirements of the sanction’s legislation.

Depending on the qualification, it was proposed that a minimum penalty in the form of a fine of UAH85,000.00 be established, with a maximum penalty of UAH1.7 million, with deprivation of the right to hold certain positions or to be engaged in certain activities for a period of up to three years.

In January 2023, Draft Law No 8384 was registered in the Verkhovna Rada.

This Draft Law provided for amendments to the Law of Ukraine “On Sanctions” by including the prosecution of persons for violating sanctions legislation.

The Criminal Code was also to be amended by the addition of a new type of crime, violation of the requirements of sanction legislation.

This Draft Law provided for a minimum fine of UAH255,000.00, and a maximum penalty of imprisonment for a term of up to 12 years with or without confiscation of property.

Given the steps taken by the EU to criminalise violations of the sanction legislation, we expect appropriate amendments to be made to the legislation of Ukraine.

Harmonising Ukrainian and Foreign Sanctions

Under the conditions of martial law, international solidarity in the fight against an aggressor is extremely important. The President of Ukraine has repeatedly pointed out the need to harmonise the sanctions of Ukraine and its foreign partners.

The Working Group’s experts also emphasise the need for joint coordination of efforts to impose sanctions among all states in the Action Plan on Strengthening Sanctions against the Russian Federation dated 9 May 2024.

The Law of Ukraine “On Sanctions” links the imposition of sanctions with the decisions and regulations of the Council of the European Union, resolutions of the General Assembly and the Security Council of the United Nations.

Moreover, in January 2024, the Verkhovna Rada registered Draft Law No 10434, which provides for supplementing the grounds for imposing sanctions by Ukraine with the decisions of the authorised bodies of the United Kingdom of Great Britain and Northern Ireland, the United States of America, Canada, and Japan.

We believe that the respective actions will be taken in the international arena to mirror the Ukrainian sanctions by foreign partners.

Protection of the Interests of Virtuous Business When Imposing a Sanction in the Form of Confiscation of the Assets of the Russian Federation’s Accomplices and Their Transferral into State Income

The sanction for confiscation of the assets of the Russian Federation’s accomplices into state income has been imposed for two years now. In the course of its work, the state has faced difficulties confiscating assets in which a share is owned by persons not related to the Russian Federation.

For example, in the case of confiscating Shell’s assets, the High Anti-Corruption Court (court of the first instance) refused to confiscate a share in a Ukrainian company indirectly owned by a sanctioned person because it would violate the property rights of a Dutch bona fide co-owner.

This decision was subsequently overturned by the Appeal Chamber of the High Anti-Corruption Court. However, the conclusions of the High Anti-Corruption Court in this case became the basis for the development of Draft Law No 11195 regarding the mechanism of protecting the property rights of the persons not related to the Russian Federation.

The Draft Law provides for confiscating 100% of a group of stocks (shares) or other securities directly owned by a legal entity whose ownership structure includes a person subject to an asset-blocking sanction.

Meanwhile, depending on the size of the holding, two procedures are offered:

  • for 25% or more, the decision is taken by the court, and
  • for less than 25%, the decision is taken by the Cabinet of Ministers of Ukraine.

After confiscation, the State Property Fund of Ukraine should implement a number of measures aimed at restoring the rights of unsanctioned co-owners, in particular:

  • to open escrow accounts, and to credit the rights to securities/shares thereto; and
  • to inform investors about the need to take action to formalise their acquisition of ownership rights to stocks/shares in a Ukrainian company that have been credited to escrow accounts.

In turn, the bona fide owner should take the necessary steps to ensure the transfer of rights to stocks/shares from the escrow accounts to their own account.

If, within five years, the owner does not take action to restore their rights, they will be considered to be the person renouncing right of ownership, and the corporate rights will be confiscated to state income.

The Draft Law has already received sharp criticism from lawyers and the business community, evoking violation of the property rights of unsanctioned beneficial owners. Moreover, the state does not provide a tool for automatic restoration of these rights. On the contrary, owners will be required to take active steps to restore their previous position.

Despite the obvious flaws of the mechanism proposed, the legislator is correct and justified in its aim to resolve at regulatory level the issue of protecting the rights of beneficial owners who indirectly co-own assets with sanctioned persons.

The above Draft Law is only the first step in solving this issue.

We expect that the work in this direction will continue, and the issue of protecting the interests of virtuous business when imposing the sanction in the form of confiscation of the assets of the Russian Federation’s accomplices into the state income will be resolved at legislative level.

Conclusion

Ukrainian sanctions are a relatively new field, having existed for less than ten years, and the full-scale war initiated by the Russian Federation became a catalyst for their more recent development.

Today, the issue of sanctions is particularly relevant. Yet there is much work involved at present, and the analysis of historical events is required.

Thus, before the start of the full-scale invasion, given the country’s geographical location, the presence of representatives of the aggressor state in the economy of Ukraine was significant.

Investments were made both independently and in partnership with the representatives of Ukraine and foreign countries through international companies.

The strengthening of sanctions against the Russian Federation requires a detailed analysis of the historical connection with the representatives of the aggressor state, assets restructuring, and so on.

We expect that the sanctions practice will continue to develop for at least several decades.

VB Partners

Porch 13, BC Bashta 5
Rybalska Str., 22
Kyiv, Ukraine, 01011
Ukraine

+38 044 581 1633

office@vbpartners.ua www.vbpartners.ua/en/
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Law and Practice

Authors



VB Partners is the leading white-collar crime boutique law firm in Ukraine, with a strong presence in dispute resolution. For 19 years, VB Partners has maintained high standards of legal service in the national market, and its attorneys are experts in sanctions law. The firm’s unrivalled ability to successfully handle intricate sanctions cases is exemplified by a string of successful results. After an exhaustive examination of the grounds for sanctions against a business, VB Partners meticulously devises an effective strategy of appeal either on merits or procedural nuances. The firm specialises in lifting sanctions against foreign companies and non-residents in court. Notably, in 2020, VB Partners secured a landmark Supreme Court decision to lift sanctions against a well-known EU company. The firm handles property confiscation and nationalisation disputes, and safeguards the business interests of companies inadvertently included in sanctions lists that do not support the armed aggression of the Russian Federation.

Trends and Developments

Authors



VB Partners is the leading white-collar crime boutique law firm in Ukraine, with a strong presence in dispute resolution. For 19 years, VB Partners has maintained high standards of legal service in the national market, and its attorneys are experts in sanctions law. The firm’s unrivalled ability to successfully handle intricate sanctions cases is exemplified by a string of successful results. After an exhaustive examination of the grounds for sanctions against a business, VB Partners meticulously devises an effective strategy of appeal either on merits or procedural nuances. The firm specialises in lifting sanctions against foreign companies and non-residents in court. Notably, in 2020, VB Partners secured a landmark Supreme Court decision to lift sanctions against a well-known EU company. The firm handles property confiscation and nationalisation disputes, and safeguards the business interests of companies inadvertently included in sanctions lists that do not support the armed aggression of the Russian Federation.

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