Date of publication: 16 July 2018
Olena Omelchenko, Head of International Trade Practice
Source: European Pravda
In the course of recent years, the topic of sanctions has been widely discussed not only within a narrow circle of experts, but on the public level as well. It is mostly related to the situation in Ukraine which resulted in the wave of limitations and personal sanctions introduced by the USA, EU, Canada, Australia against the Russian Federation, and later in introduction of Russian retaliatory sanctions in the form of food embargo. The discussions are mainly coming to the effectiveness of the current sanctions and their influence onto the economy of a certain country.
The recent announcement made by the President that Ukraine will align its sanctions with the sanctions introduced by the USA has stirred the new interest towards this subject.
In this article we are not planning to consider the economic and political expedience but are willing to draw attention to the particularities of the legal aspects of application of sanctions in Ukraine.
An outline about the sanctions
Sanctions may take various shapes and forms and may be full-scale – i.e. fully block any types of trade or financial operations with the whole countries, sectoral – introduced regarding certain spheres of economy and groups of people, and targeted – limit operations with certain persons or companies including the prohibition for certain person to enter a country, freezing of their assets, introduction of financial limitations etc.
For the violation of the international law by the Russian Federation the western countries are mostly introducing the targeted – so-called “smart” – sanctions, which are based on the lists allowing to more precisely focus on the certain persons and groups posing threat to the national security, foreign policy or economy.
Sanctions regimes in the EU and the USA
The European Union introduces sanctions within the frames of the joint foreign security policy under the unanimous decision of the member countries. Administration and enforcement of EU sanctions is ensured by each country according to the national laws.
The EU sanctions are subject to be adhered to by individual persons and legal entities of the EU countries within the territory of the European Union, as well as outside its borders including planes, ships etc.
In the USA the sanctions programs are realized via several bodies, including via the President’s decrees. But, the key regulator of the sanctions programs are the US Department of the Treasury and the Office of Foreign Assets Control (OFAC), which is responsible for the announcement and implementation of the sanctional measures.
In the USA the state authorities have a wide range of authorities as for the application of sanctions, supervision over their enforcement and bringing the guilty parties to the responsibility.
Sanctional regimes of Ukraine
If the aforementioned countries have long had the legal base for imposing sanctions, Ukraine needed some time to draft and adopt it. In 2014 the Verkhovna Rada of Ukraine made the first step and adopted the Law of Ukraine On Sanctions according to which adoption and cancellation are initiated by the President, the Parliament, the National Bank of Ukraine, the Cabinet of Ministers of Ukraine and the Security Service of Ukraine. The sanctions are adopted by the National Security Council of Ukraine (NSCU) and are carried out into effect by the Decree of the President of Ukraine, and in case of introduction of sectoral sanctions – additional approval of the Parliament is required.
In practice, this law served as a basis for adoption of only personal sanctions for separate legal entities and individual persons. The published decision of the NSCU lists only the names of persons, types of sanctions and the term of their application. It is worthy of note that the decision does not mention the authority responsible for the enforcement of a certain type of sanctions. But this does not rule out the existence of the plan of actions on the enforcement of the NSCU’s decision which is a limited access document.
The law contains as little as six articles and is of a framework nature. Last year it was amended for the first time in the part where the Anti-monopoly committee of Ukraine was banned from issuing permits for the concentration of companies. Also, the State Service of Special Communication and Information Protection of Ukraine tried to initiate introduction of amendments to the Law by stipulating one more additional type of sanctions.
An outstanding example of the necessity to improve the Ukrainian legislation is a big number of pending suits lodged to the Ukrainian courts and the legal compliance practice of sanctions adopted against a number of Russian companies, in particular the social networks VKontakte and Odnoklassniki, as well as Yandex, which have never been fully implemented.
The problem with the regulatory compliance is directly related to the imperfect legal regulation, absence of proper additional powers of the state authorities for exercising the supervision over the implementation and circumvention, as well as the absence of the express provision stipulating for the obligation of legal entities and individual persons in Ukraine to abide by the sanctions regime and bear direct responsibility for their violation. The Ukrainian legal practice has not witnessed any instance of bringing any company or individual to substantial financial responsibility (as it is practiced in other countries) for the violation of the sanctions regime.
The laws of many developed countries, including the USA and the EU countries, contain provisions which caution against circumvention of sanctions, including the possibility to use the controllable companies registered in other countries.
Undoubtedly, for a variety of reasons the Ukrainian sanctions cannot be compared by importance to the mentioned sanctions and, considering for the fact that the decisions of the NSCU are based on the American and European sanctions, it has long become necessary to create a coordinated model for imposing and cancelling sanctions, if only to properly ensure exterritoriality of the decisions upheld by the USA.
In addition, the Law requires improvement of formulations related to the grounds for imposing and cancelling sanctions and the procedure of launching new initiatives, as well as clarification and specification of certain types of sanctions.
For example, it is totally unclear what such type of sanctions as “Limitation of the trade operations” means and which particular state agency will implement it and how, i.e. they may be represented by licensing, fixing quotas or imposing a prohibition for execution of contracts. The said results in the situation when Ukrainian companies and individual persons cannot evaluate their own risks being unaware of the nature of the limitation in the operation with the contractors to whom the sanctions were imposed and, as a result, this may lead to the violation of the sanctions regime.
At the same time, everybody knows that Ukraine has adopted a number of restrictive measures to wards the Russian Federation in the sphere of trade, such as imposing embargo onto imports of certain goods from Russia, as well as raising the amount of duties to the level of “bound rates” of WTO. Characteristic aspects of such limitations are represented, firstly, by adoption of such measures by the Government independently according to the Law of Ukraine On Foreign Economic Activities, and not according to the procedure stipulated by the Law of Ukraine On Sanctions. Secondly, they are represented by the necessity of expedient adoption of measures in response to the actions of the Russian Federation in view of introduction of food embargo and unilateral suspension of the CIS treaty as of October 18, 2011. The conclusion which o0ffers itself is that the special-purpose Law On sanctions does not guarantee the expedient reaction using the procedure stipulated by it.
An imperfect legal framework also has its influence onto the difficulty of protection of persons who came under sanctions by accident, as well as onto the cancellation of such measures. For example, the persons who have the same surnames with the persons towards whom the sanctions were imposed, the persons who were blacklisted by mistake or on the basis of the false information.
Many law firms in the USA and countries of the EU specialize in the areas related to the national security and sanctions by verifying their clients’ counterparts for their presence in the “black lists” of various jurisdictions and by providing consultations regarding the sanctions regimes and legal grounds of working with the companies which found themselves in the high-risk zone. Such sphere is not very well developed in Ukraine and is limited by certain contractual provisions, which may be explained by the absence of special responsibility for such violations and of the clients’ demand for such services within the Ukrainian jurisdiction.
Of course, four years ago Ukraine did not have an experience of defending its national security through adoption of sanctions regimes. The Law On Sanctions was giving at least some possibility to react to the external circumstances and aggression. After the expiration of the four-year period, being aware of all the difficulties of working within the current legal field, the experience of realization of the sanctions regimes has accumulated, which makes it possible to improve the legislation for the achievement of the prompt reaction, transparency and decrease of the risks related to court appeals.