March 2023 – Since the outbreak of war in Ukraine, the world faces an ever-increasing number of restrictive measures and sanctions introduced in various jurisdictions. While the global sanctions landscape has been long established, it has developed rapidly after February 24, 2022.
Ukraine introduced its first sanctions law in 2014 after Russia annexed Crimea (the Law of Ukraine on Sanctions No. 1644-VII, dated August 14, 2014 – Law on Sanctions). Since then, Ukraine implemented further autonomous sanctions and introduced various restrictive measures similar to sanctions in nature.
Following the full-scale Russian invasion, the Ukrainian authorities have been closely monitoring and synchronizing Ukrainian sanctions with those introduced abroad, with the reverse happening as well.
Ukrainian sanctions regime
As a general rule, personal sanctions are introduced by a decision of the National Security and Defense Council of Ukraine (NSDC). These decisions become effective upon approval through the Decree of the President of Ukraine. Sectoral sanctions are introduced in the same manner and subject to additional approval by the Parliament of Ukraine.
The Law on Sanctions includes a non-exhaustive list of more than twenty types of restrictive measures that Ukraine may impose against sanctioned individuals or entities. When introducing these sanctions, the NSDC defines in its decision the names of the individuals/entities targeted by the measures as well as one or several specific types of restrictive measures used (e.g., asset freezing, restrictions on trade transactions, the prevention of capital outflow from Ukraine, etc.).
When issuing decisions on the imposition, amendment, or cancellation of sanctions, the NSDC takes into consideration recommendations from the Parliament of Ukraine, the President of Ukraine, the Cabinet of Ministers of Ukraine, the National Bank of Ukraine, the Security Service of Ukraine, and the Asset Recovery and Management Agency of Ukraine. The NSDC has discretionary authority to consider the above recommendations.
Since the outbreak of the war, Ukrainian lawmakers have been working to establish additional mechanisms to respond to Russia’s aggression.
As an example, in May 2022 the Parliament of Ukraine adopted a new law amending existing sanction legislation. The new law enacts a new type of sanction that results in the foreclosure of assets in the state’s favor. This new sanction may be imposed on both companies and individuals that cause significant damage to the national security of Ukraine. This new legislation may set an example to other jurisdictions of a response aimed at protecting national security and making Russia accountable.
Additional restrictive measures
On March 3, 2022, the Cabinet of Ministers of Ukraine imposed a moratorium on certain activities that could be performed by any individual or legal entity that might financially benefit the Russian Federation or its affiliates (Decree No. 187).
As per Decree No. 187, affiliated persons are defined as citizens of the Russian Federation (except those legally residing in Ukraine – owners of a residency permit or its equivalent); legal entities incorporated under the laws of the Russian Federation; or legal entities incorporated under the laws of Ukraine where the Russian Federation, its nationals, or legal entities incorporated under the laws of the Russian Federation have a stake of 10% or higher.
Prohibited actions include a performance of monetary and other obligations in favor of the Russian Federation or affiliated persons; the alienation, pledge, or any other action performed with real estate, securities, corporate rights, and certain types of movable property for the benefit of the Russian Federation or its affiliated persons; or performance of those acts by affiliated persons. If performed, these actions are deemed void.
Although Decree No. 187 directly covers only Ukraine-registered legal entities with Russian shareholding of more than 10%, in practice some Ukrainian banks and other companies in Ukraine refrain from doing business with legal entities that have Russian shareholders (regardless of whether such legal entities are registered in Ukraine or abroad) due to enhanced compliance and risk policies.
Nationalization of Russia-related property
An additional piece of legislation introduced in Ukraine is the Law of Ukraine on the Basic Principles of the Forcible Seizure of Objects of Property Rights of the Russian Federation and its Residents in Ukraine No. 2116-IX, dated March 3, 2022 (dubbed the Nationalization Law). While this law raises serious concerns in terms of its impact on businesses and potential investment-treaty claims, its implementation in practice is yet to be developed.
This article was originally published in Issue 9.12 of the CEE Legal Matters Magazine.