Following the inaugural post for the new Sanctions Enforcement Around the World blog series focused on enforcement trends in Australia, we now turn our attention to the sanctions enforcement trends in Ukraine.
1. What are recent sanctions enforcement trends in Ukraine?
In response to the full-scale Russian military invasion of Ukraine in February 2022, Ukraine has significantly enhanced both its sanctions legislation and enforcement practice.
To recap, the following are the key legislative developments aiming at enhancing the enforcement of restrictive measures against Russia:
- Broadening the grounds for imposing personal sanctions (in particular, payment of tax or providing financing in Russia may be considered facilitation of Russian aggression against Ukraine and meet the eligibility criteria both for sanctioning and expropriation of property).
- Introducing legislation allowing the expropriation of property of persons sanctioned in Ukraine.
- Declaring Russia a terrorist state and introducing a number of new criminal offenses criminalizing business and other activities in Russia. In particular, Ukrainian criminal proceedings for terrorism financing and collaboration have extra-territorial effect and may apply both to foreign individuals and legal entities.
On the enforcement side, the Ukrainian authorities actively continue to enforce both sanctions and other restrictive measures. Since 24 February 2022, more than 5,715 individuals and 3,153 legal entities have been added to the Ukrainian sanctions list, many of whom were sanctioned for facilitation of circumvention of the existing sanctions and other restrictive measures on doing business in Russia. More than 2,300 criminal cases were reported to be commenced in Ukraine regarding collaboration alone (not to mention criminal cases under other related qualifications, e.g., financing terrorism, facilitation of the aggressor state, etc.) within a year following the full-scale Russian invasion of Ukraine. More than 16 cases involving the expropriation of assets of various persons somehow related to Russia and facilitating war against Ukraine were made publicly visible and many more are pending.
The National Security and Defense Council of Ukraine, the Security Service of Ukraine and Prosecutor’s offices have central roles in the enforcement of sanctions and other restrictions against Russia.
2. What are the maximum penalties for violations?
The major penalties for violating the sanctions or other restrictive measures against Russia include being added to the sanctions list in Ukraine and/or criminal liability.
Depending on the particular circumstances, violations of sanctions may qualify as various criminal offenses such as collaboration, facilitation of the aggressor state, financing terrorism and/or financing the violent overthrow of the legal regime.
Depending on the severity of the crime and other conditions, individuals may be subject to the following criminal penalties:
- For collaboration — a monetary penalty or imprisonment for a period of three to five years
- For financing the violent overthrow of the legal regime — imprisonment for a period of three to 10 years
- For facilitation of the aggressor state — imprisonment for a period of 10 to 12 years
- For financing terrorism — imprisonment for a period of five to 12 years, with a prohibition on holding certain positions or engaging in certain activities for a defined period, plus in certain cases, confiscation of assets
Legal entities may be subject to criminal liability measures such as a penalty up to twice the illegal profit amount, compulsory liquidation where applicable, confiscation of assets as an additional measure and the obligation to reimburse the damages in full.
Recently, the Ukrainian Parliament registered a new draft law criminalizing violation and circumvention of Ukrainian sanctions. The draft law provides for a monetary penalty or imprisonment for up to 12 years with a prohibition on holding certain positions or engaging in certain activities for up to 15 years, plus in certain cases, confiscation of assets. The draft law is currently being reviewed by the Parliamentary Committee and is expected to be included in the Parliament’s agenda soon.
3. Is there a mechanism by which companies can submit a voluntary self-disclosure of possible violations to mitigate penalties?
No, there is no mechanism by which companies can submit a voluntary self-disclosure of possible violations to mitigate penalties in Ukraine.
4. Do you anticipate increased coordination on enforcement matters with allies?
Yes, Ukraine is determined to increase sanctions pressure on Russia and is making significant efforts to ensure effective cooperation with its global partners, both with respect to approving new economic sanctions against Russia and their enforcement worldwide.
Right after the full-scale military invasion of Ukraine by Russia, an independent working group known as the International Working Group on Russian Sanctions was created under the initiative of President Volodymyr Zelensky (“Working Group“). The Working Group aims to strengthen international sanctions against Russia by proposing new sanctions strategies to be approved worldwide in a coordinated manner (in particular in the US, EU and UK) and mechanisms aiming at preventing sanction circumvention. The sanctions and enforcement recommendations proposed by the Working Group are used by the Ukrainian authorities in communication with their international partners for proposing new sanctions packages in the EU and US.
The Working Group claims that more than half of the measures proposed by the Working Group have been partially or fully implemented. At the moment, the Working Group is focused on developing new formats for monitoring compliance with international sanctions and a new plan to strengthen sanctions restrictions against Russia, with a particular focus on enforcement.
Ukrainian investigative and enforcement authorities exchange information on sanctions violations and circumventions with their international partners on a regular basis with the aim of enhancing international enforcement.
5. What is one thing that you would recommend companies do now to get ready for increased enforcement?
Often international companies lack understanding of the Ukrainian sanctions and other restrictive measures approved against Russia. In particular, international companies may not understand that certain Ukrainian law restrictions against Russia and Belarus may apply without a direct Ukrainian nexus. Companies may also lack understanding of the potential risks, turning their attention to the Ukrainian perspective only after either being recommended for sanctioning, added to the Ukrainian sanctions list, or investigated for criminal offenses in Ukraine. This is a very late stage to ensure compliance and avoid potential liability in Ukraine, which may apply extra-territorially.
We recommend that foreign companies that still have business ties with Russia (either directly or via business partners) assess their compliance with the Ukrainian sanctions and other restrictions against Russia and the potential risks of such cooperation, as well as incorporate screening/assessment in regard to the Ukrainian restrictions into their global and local compliance policies.