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Sanctions Policy in Ukraine
The sanctions policy in Ukraine under martial law has gained considerable resonance and publicity and, therefore, its development and implementation are currently one of the main tasks of the Ukrainian government.
The procedure for applying special economic and other restrictive measures is regulated by the Law of Ukraine On Sanctions (hereinafter – the Law). The purpose of applying sanctions is to protect national interests, national security, sovereignty, and territorial integrity of Ukraine, counteract terrorist activities, prevent violations, restore violated rights, freedoms, and legitimate interests of Ukrainian citizens, society, and the state.
However, the practice of applying types of sanctions provided by the Law indicates the unlimited nature of their impact and creates risks not only for sanctioned persons but also for those to whom sanctions do not apply through the introduction of new forms of sanctions implementation policy.
Pre-sanctions lists
Not limited to the use of “traditional” sanctions measures, Ukraine has become an innovator in the formation and implementation of new forms of sanctions policy. One of the innovations was the launch by the National Agency on Corruption Prevention of the portal “War and Sanctions,” which became the most creative and effective mechanism for implementing state sanctions policy, but later suffered precisely for this reason.
The list “International sponsors of war” caused the greatest amount of resonance in the international community. Although the inclusion of companies in this list led only to reputational losses and did not threaten any legal consequences, the NACP’s media pressure on foreign companies using this list turned into reverse pressure exerted by Western partners on the Ukrainian government. The presence of large Western corporations in the list was the reason for blocking by individual countries of decisions at EU level on new packages of sanctions against Russia and military support for Ukraine. The realization of the complexity of continuing such methods led to a decision at the level of the Cabinet of Ministers of Ukraine on the actual suspension of the activities of not only one section, but the entire portal.
However, the Ukrainian government decided that the functioning of one of the largest databases of sanctions imposed since the onset of the full-scale war is an integral element of sanctions policy, so it was decided to restart and update the portal “War and Sanctions,” but now under the administration of the Defence Intelligence of the Ministry of Defence of Ukraine. At present there are only two sections on the Portal: “Child abductors” and “Foreign components in weapons.” The regulatory framework for the operation of the Portal is currently absent, but its publication can be expected after the full launch of all sections and an official statement from the DIU. As for the “International sponsors of war” list, it is currently absent on the updated platform of the Portal, but the Portal’s interface itself does indicate the launch of new lists. Although we do not yet which ones, we cannot exclude that among them there will be a list of foreign businesses that continue to operate on the territory of the aggressor state.
Appealing Against Decrees of the President of Ukraine on the application of sanctions
Given that the Presidential Decree is an individual legal act, the 6-month period for submitting an appeal to the administrative court, as established by Article 122 of the Code of Administrative Procedure of Ukraine, applies to the resolution of disputed legal relations.
Exclusive jurisdiction in this category of cases is exercised by the Cassation Administrative Court within the Supreme Court of Ukraine. Accordingly, the court of appeal is the Grand Chamber of the Supreme Court of Ukraine.
The Sanctions Act defines the general principles for applying sanctions. In conditions of limited information about the grounds for applying sanctions (as the Presidential Decrees and the NSDC decisions do not contain such information at all), the most common grounds for the claim are: application of sanctions to an improper subject (1), lack of grounds and violation of the principles of applying sanctions (2), application of sanctions for indefinite period (3).
The process of applying sanctions takes place without the participation of a person. The exception is the initiation of sanctions by the Parliament of Ukraine, when it is possible to track the progress of the relevant resolution and participate in the consideration of its draft (correspondence, provision of objections, explanations of evidence to the committee that is considering it, etc.).
Access to information regarding the grounds for applying sanctions, evidence on which decisions were made, is typically restricted. This is particularly true for sanctions initiated by the Security Service of Ukraine (SBU). The level of restriction ranges from “for official use” to state secrets.
Therefore, a person does not have the opportunity to form a stance regarding the grounds for imposing sanctions until the claim is filed. Review with these documents takes place in the trial, including after the lawyer receives access to state secrets.
The claim for recognition as unlawful and invalid concerns a Decree of the President of Ukraine, as he is the one who introduces the decision of the National Security and Defense Council into force and from that moment the restriction and violation of individual rights begins.
Application of materials from criminal proceedings in cases of sanctions collection
It is worth noting the effectiveness of the practice of applying sanctions against subjects of criminal cases.
In practical terms, the confiscation of assets, which, as a general rule, is recognized as material evidence and has significant value in criminal proceedings, is realized only on condition of mandatory preliminary application against their owners of blocking assets.
However, the use of materials of criminal proceedings as grounds for applying sanctions in the form of recovery of assets to state income is not proper evidence if the individual has not been notified of suspicion in criminal proceedings. Article 62 of the Constitution of Ukraine, the International Covenant on Civil and Political Rights, the Universal Declaration of Human Rights establish that a person shall be presumed innocent of committing a crime and shall not be subjected to criminal punishment until his/her guilt is proved through a legal procedure and established by a court verdict of guilty.
Nevertheless, according to the current judicial practice in cases regarding recovery of assets in state income, the court, in evaluating evidence, adheres to the requirements of Article 74 of the Code of Administrative Procedure of Ukraine, according to which the evidence obtained in accordance with the law to be admissible. The case circumstances, which by law must be confirmed by certain means of proof, may not be confirmed by other means of proof. Additionally, during consideration of such a case, the court does not establish the presence/absence of violations of the legally-established procedure for obtaining and collecting evidence.
The term reliable evidence shall mean the evidence allowing establishment of the true case circumstances (Article 75 of the Code of Administrative Procedure of Ukraine). The general rule for evaluating evidence in administrative proceedings is that the court shall evaluate the evidence on the basis of its internal conviction, based on a comprehensive, complete, objective and direct examination of case evidence. Mandatory for an administrative court is a court verdict in criminal proceedings, the court’s ruling to close criminal proceedings and the relief of a person from criminal liability, which have come into force. The availability of relevant court decisions releases participants from the obligation to prove whether these actions (or inactions) did take place and whether they were committed by this person.
At the same time, during the pre-trial investigation of criminal proceedings, evidence is collected, which is recorded according to the procedure established by law. Accordingly, information obtained during the pre-trial investigation can be recognized as evidence during the consideration of an administrative case and is subject to evaluation along with other evidence. The collection of documents that record information established during pre-trial investigations that have significance for the consideration of this category of administrative cases is examined and evaluated by the court, regardless of whether final court decisions are made in criminal proceedings.
Improving current sanctions legislation
As the Ukraine’s sanctions policy plays one of the key roles in confronting and limiting the actions of the aggressor state, improving the legal norms regulating sanction-related legal relations is an integral part of ensuring the effective functioning of sanctions legislation.
As of today, the main judicial practice in sanctions cases has been formed in connection with the application of the sanctions provided by cl. 1-1 of p. 1 of art. 4 of the Law of Ukraine On Sanctions (recovery of assets belonging to an individual or legal entity, as well as assets in respect of which such a person may directly or indirectly perform actions identical in content to the exercise of the right to dispose of them), in accordance with the Code of Administrative Procedure. However, the most significant clashes in the current legislation of Ukraine arise during the consideration of cases within this category.
Currently, the Parliament of Ukraine has registered a draft bill amending certain laws of Ukraine regarding the mechanism for protecting the property rights of third parties. The draft aims to establish a legal mechanism to restore the rights of third parties in cases where these rights are violated during proceedings involving the application of sanctions provided for by cl. 1-1 of p. 1 of art. 4 of the Law of Ukraine On Sanctions.
This draft bill proposes the recovery of shares/ equities/other participation rights in Ukrainian legal entities in cases where the sanctioned person owns assets structured through foreign jurisdictions, among the owners of which are foreign legal entities and citizens of other countries to which sanctions have not been applied. The procedure remains unchanged for sanctioned persons — the transfer of a share, proportional participation, to the management of the State Property Fund of Ukraine. For non-sanctioned persons, the draft provides for the opportunity to register their ownership of a smaller share, but without repercussions in the form of sanctions. However, it should be noted that the proceedings under Art. 110-2 of the Criminal Code for those who, together with the sanctioned subject, conducted business, are not canceled in the draft w.
The business community has reacted negatively to the draft bill, and a significant number of civil society organizations have sharply pointed out the main risks posed by the application of the special sanction of recovery. For the sake of justice, the Ministry of Justice of Ukraine, as the developer of the text of the draft, has called on business associations and specialized public organizations to discuss and jointly develop the wording of those draft bill for its voting in the second reading. The aim should be to ensure the protection and restoration of the rights of third parties (investors) who indirectly own a share in the asset recovered as state income, and will help to prevent (reduce the share) such investors from seeking protection of their rights in future at international investment arbitrations against the state of Ukraine. This, in turn, should not lead to an additional burden on the state budget.
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Vitalii Serdyuk
Senior Partner, AVER LEX Attorneys at law
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Volodymyr Yenich
Partner, AVER LEX Attorneys at law
ADDRESS:
2 Khrestovyi Alley, 5th Floor,
Kyiv, 01010, Ukraine
Tel.: +380 44 300 1151
E-mail: info@averlex.com
Web-site: www.averlex.com
AVER LEX is the leading WCC boutique law firm in Ukraine, with a focus on high-profile economic crimes and politically-motivated prosecutions, cases on defence of corporate executives in criminal proceedings and corporate security matters. The firm stands out for its mature highly-specialized team, and commands unrivalled capacities for being the preferred criminal defense counsel in particular compound and complex WCC litigations in Ukraine.
The majority of cases are unique and first hearing cases that set precedents for the criminal judiciary system in Ukraine and established practice for future hearings. These cases are highly public; require massive, regular and open communication with the entire spectrum of media outlets in Ukraine.
The client portfolio includes state officials and high net worth individuals looking for protection from politically-motivated prosecutions, consulting and law firms, big corporate clients from a range of economic sectors. During this period of martial law, significant legal assistance is being provided on a PRO BONO basis to military personnel, including prisoners of war, missing persons, and members of their families in matters related to military service, obtaining financial assistance, facilitating entry into the lists for the exchange of prisoners of war, as well as legal defense during investigation of military criminal offenses, etc.
Complex legal decisions
The firm advises on all aspects of criminal law, providing both the traditional services of legal prosecution and defence, and new requirements of preventive criminal law and corporate compliance. Expertise encompasses:
- White-Collar Crime;
- Business Crime, Fraud;
- Corruption and Bribery;
- International Criminal Law;
- Protection of personal and business data;
- Sanctions;
- Risk Assessment;
- Criminal Due Diligence, etc.
AVER LEX provides for complex legal decisions in corporate security aimed at identifying and minimizing criminal risks in business; defence of legal rights of detained and convicted persons during provisional arrest; measures to release from custody; comprehensive legal defence during operational search activities and pre-trial investigations by law-enforcement bodies; successful advocacy in court hearings within criminal proceedings; legal aid to complainants; judgments on recovery of damages.
International level
AVER LEX was recognized as Chambers Europe (Band 1), Legal 500 EMAE, Best Lawyers, Who is Who Legal, Legal Awards etc. in White-collar crime and Criminal Defense.
To ensure the rights of our clients and to prevent them being violated, the Firm has developed a strong best friends’ network of firms throughout the world, and is well equipped to handle cases with cross-jurisdictional elements. Also, the Firm cooperates with a number of leading worldwide and local human right organizations within the framework of ongoing matters.