Date of publication: 4 June 2014
Roman Marchenko, Senior Partner
Source: Kyiv Post
Russia’s impudent annexation of Crimea continues to buzz Ukraine and the world. No matter how patriotically-minded most of us may be, we must face that Ukraine has lost control over Crimea, with Russian laws de facto applying all over its territory.
In these circumstances, the government had to take steps to defend its interests and protect its citizens living in territories annexed by Russia. As part of those steps, on 15 April 2014 the Supreme Council passed the Occupied Territories Act aimed at protecting our compatriots in Crimea.
It is noteworthy that certain provisions of the Act will be virtually impossible to implement. Restoring the rights of Ukrainian citizens violated by the breakaway pro-Russian authorities will not be possible until, and unless, Ukraine retakes Crimea to its jurisdiction. However, the Act was a wise and well-timed move to take by the Ukrainian parliament.
The thing is that under international law, a country facing military aggression must protest against any acts of intruders in its land even if it did not respond by use of force. Failure to do so may be interpreted as silent acquiescence. As Ukraine will never consent with Russian annexation of Crimea, the adoption of the Occupied Territories Act and a number of other regulations was therefore absolutely logical and necessary. Therefore, Ukrainian government reaffirms its stance towards the illegal Russian presence in Crimea, which was almost unanimously recognized by the international community – suffice it to recall the notorious resolution of UN General Assembly on Ukraine, voted in affirmative by the majority of member states, with only 11 pariah states against, Russia included.
The Act was signed into law on 15 April 2014 but not yet become effective. The reason for this that in order to be enacted, is has to be published in the official gazette, which so far did not happen.
However, some of its provisions are widely discussed by experts and the general public. We can therefore try to forecast the implications which the Act, as soon as it takes effect, can have on average Ukrainians, Crimeans in the first place.
The occupation of Crimea will force local business owners to review their business strategies in the annexed territories. They will face a hard choice – to continue as Ukrainian residents or to submit to the jurisdiction of Russian law. Both options are far from being perfect.
Business owner who will choose to continue under Ukrainian laws will be able to reregister their businesses on the mainland under a simplified procedure. This will enable them to preserve Ukrainian nationality of their assets, and their sites in Crimea will be treated as foreign branches by the central government. This option is beneficial for medium and large businesses. In this case, however, “patriot” enterprises may enjoy close attention and face obstacles, discrimination and harassment from Russian authorities in Crimea.
Those owners who will opt to do business as Russian subjects should, before doing so, terminate as Ukrainian businesses to avoid double taxation. This procedure is time-consuming and will require a number of procedures to be completed in the mainland Ukraine. In addition, Ukrainian businesses that transfer to Russia may lose their business partners on the mainland.
Another provision of the Act is that the Ukrainian government will not recognize any real estate transactions made in Crimea during occupation. Crimeans who sell their dwellings under Russian laws must remember that no such deal will be recognized in Ukraine. Besides, there is no clear mechanism under which transactions must take place. The thing is in order to sell anything, Crimean homeowners must register legal ownership in the property. It is therefore not unlikely that local residents and absentee landlords will have to reregister their ownership under Russian laws. There are calls in Russia that locals who deny Russian citizenship should be charges as much as possible for such registration.
Another buzzer is the possible default of Crimean-base banks on obligations before their customers. There is no reason to panic, for the overwhelming majority of Crimean banks are branches of Ukrainian financial institutions headquartered on the mainland. To withdraw their deposits, Crimean customers are advised to apply to head offices of their respective banks.
In turn, banks face challenges with collecting loans. Enforcing credits in an occupied territory from those who possibly changed their citizenship is way too problematic. From over 10 banks advised by Ilyashev & Partners, some have already launched talks to sell their credit portfolios to Russian-based financial institutions.
The Act will prepare some uncomfortable surprises for tourists. If it becomes effective, anyone willing to take a tour to Crimea and coming from the mainland, whether by car or by rail, will have to apply for a special permit with Ukrainian police. This will surely affect the number of tourists willing to spend their vacations in Crimea.