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Protecting Businesses and Officials Against Imposition of International Sanctions and Ukraine’s Sanctions
The topic of sanctions is one of the most discussed topics in the world. The largest players in global politics, such as the United Nations Security Council, the Parliamentary Assembly of the Council of Europe, the European Council, as well as individual states, apply sanctions and other restrictive measures of a diplomatic, economic and other nature as a mechanism of punishment, containment, and a response to “political challenges”.
The popular grounds for the imposition of sanctions include, for example, actions of individuals or legal entities, and also states, linked to terrorism or the financing of terrorism, proliferation of nuclear weapons or their components, violation of human rights, violation of territorial integrity or destabilization of sovereign states.
The USA and the European Union can be considered the leaders of the application of the sanctions mechanism. Their restrictive measures are also considered the most influential in terms of the economic component and the power of pressure.
For example, in the U.S., nearly 15 government institutions have the power to impose their restrictive measures. Among others, the Office of Foreign Assets Control (OFAC USA) holds a special place in terms of imposition of economic sanctions. This is a special financial intelligence and enforcement agency of the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against states, political regimes, terrorist organizations, individuals and legal entities, imposed in support of U.S. national security and foreign policy.
OFAC also administers the sanction lists of the U.S. For example, the special ‘black list’ or SDN (Specially Designated Nationals List) is regularly updated, and, as of today, includes 1,342 pages of small font, three-column text, containing the list of individuals and organizations, against whom the restrictive measures of the U.S. have been imposed.
The gravity of the threat of these sanction lists for a business lies in the fact that any individual or entity entering into any commercial or other legal relations with an individual on the U.S. sanction list automatically falls within these sanctions.
And this is enough for a business to collapse, as from that moment, it becomes ‘inconvenient’ for all your other contractors, banks or organizations to work with you, because that will automatically lead to imposition of sanctions and restrictive measures against them.
By the way, there are even Ukrainian companies on the U.S. sanction list.
Another challenge, when an individual or entity find themselves in the cross hairs of the OFAC, is that the law envisages a possibility for individuals or entities, against whom the sanctions have been imposed, to appeal to OFAC with a request to review or cancel restrictive measures. However, this kind of request does not obligate OFAC to take any action or consideration and, in reality, we are unlikely to find an example when such request was successful.
The European Council and its member states individually also impose sanctions on a number of other states, including European ones, as well as on their individuals and legal entities, and receive corresponding sanctions in response.
It is noteworthy that the procedure of imposition, extension, alteration and cancellation of sanctions is thoroughly regulated in the European Union. For example, there are clear basic principles of imposition of restrictive measures to ensure targeted and individual application of sanctions (Basic Principles on the Use of Restrictive Measures (Sanctions). The principles enshrine a mandatory procedure for regular revision of the imposed sanctions. Furthermore, the EU clearly stipulates that sanctions may be applied exclusively within strict compliance with the guarantees of protection of human rights and the rule of law.
Moreover, the EU also has a document containing over 50 pages titled Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy. These detailed guidelines contain complete provisions about the sanction policy of the EU, including the possibility of appealing restrictive measures in the European Court of Justice.
Of course, there have been known cases of appeals against the imposition of sanctions by the European Council and cancellation of the corresponding sanctions. Specifically, the sanctions imposed against the 4th President of Ukraine, Viktor Yanukovych, were recognized by the European Court of Justice as ungrounded.
However, it is worth noting that the corresponding regulations of the EU envisage the right to request cancellation or revision of the restrictive measures imposed by the European Council. Nonetheless, there are no examples, when sanctions were lifted solely based on the corresponding request, as, in that case, the EU sanctions authorities would have to confirm their illegal imposition.
In any event, the only effective, albeit labor-intensive, way of solving the issue of EU sanctions is taking it to the judicial plane, something which cannot be said about American sanctions.
In addition, despite the fact that the cases on sanctions require a customized approach and well-built tactics, tireless and methodical work on substantive communication with the government agencies, governments and inter-government organization is essential. Such communication is often conducted with foreign entities. That is why it is vital to have the respective specialists with the required language fluency among one’s own staff or involve such specialists ‘on site’.
When discussing the issue of imposition of sanctions and their cancellation, it is also important to take into consideration the necessity of application of measures for protection against them. Firstly, it is important to bear in mind that the lists of individuals and entities under restrictive measures are publicly available. With regard to business, the minimum measure that will enable minimization of the risk of being put on the sanctions list would be monitoring one’s potential contractors in terms of their being on such lists. If the individual or entity is ‘on the list’, then proceed with caution.
Also, it is important to responsibly treat the requirements of the national and foreign financial monitoring and also the laws which are aimed at fighting money laundering, financing of terrorism, etc.
With regard to the European Union, the key document in this area is the Directive (EU) 2015/849 (Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or financing terrorists …).
As for the USA, the corresponding chapters and sections of the United States Code (the United States Statutes at Large) need to be taken into consideration.
In our country, the Law of Ukraine On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction (Law 1702-VII) is the basic document that regulates these issues.
As regards the restrictive measures within the Ukrainian jurisdiction, it is worth noting that compared to the European Union and the U.S., the Ukrainian sanctions policy is regulated quite weakly, imprecisely and dangerously for individuals who could potentially fall under the restrictive measures of Ukraine.
In particular, the sanctions and related procedures in Ukraine are regulated by one Law, On Sanctions, No. 1644-VII, which consists of the preamble and six articles, and also the resolution of the Cabinet of Ministers No. 888 of 30 November 2016 titled Several Issues of Preparations of Proposals of the Cabinet of Ministers of Ukraine Regarding the Imposition, Cancellation of, and Amendments, to Sanctions.
The law envisages that the proposals on imposition, cancellation and introduction of changes to sanctions are to be submitted for consideration by the National Security and Defense Council of Ukraine, Parliament, the Cabinet of Ministers of Ukraine, National Bank and Security Service of Ukraine.
The decisions of the NSDC of Ukraine on the imposition, cancellation or introduction of amendments to the sanctions against a foreign state or a set of individuals are put into force by the issue of a Ukrainian presidential decree and are subject to approval by a Resolution of the Parliament of Ukraine within 48 hours. However, decisions adopted by the NSDC of Ukraine on the imposition of individual sanctions against non-residents and terrorist organizations are put into force by a Ukrainian presidential decree and are not subject to approval by the Parliament.
In terms of imposition of sanctions against an individual or entity involved in terrorist activity, such individual or entity can be, from the NSDC’s standpoint, a non-resident or a resident.
Several points of concern, causing doubts regarding fairness and justification of the imposition of sanctions in some cases, need to be taken into consideration.
In particular, the grounds for the imposition of sanctions under the Law include:
1) actions of a foreign state, foreign legal entity or individual, other entities, which create real and/or potential threats to the national interests, national security, sovereignty and territorial integrity of Ukraine, facilitate terrorist activities and/or violate human rights and freedoms and rights and freedoms of a citizen, interests of society and state, lead to invasion of the territory, expropriation or restriction of property rights, infliction of property losses, creation of obstacles for sustainable economic development, exercising of rights and freedoms by citizens of Ukraine;
2) resolutions issued by the United National General Assembly and UN Security Council;
3) decisions and regulations of the European Council;
4) facts of violation of the Universal Declaration of Human Rights, UN Charter.
While resolutions, decisions and regulations provide some documentary grounds for restrictive measures, the provisions of the Law do not impose a requirement for the availability of some evidence, criminal proceedings, a court judgment, confirming that the individual or entity subject to sanctions did commit the actions under the first and fourth points on the above list. This means that if somebody “thinks” that a legal entity, whether resident or non-resident, is complicit in financing terrorist activity, such entity or individual can fully be placed on the sanctions list.
The other danger of the Ukrainian sanctions policy that we have come across in our work is imposition of restrictive measures without the grounds, enshrined in the Law On Sanctions. In particular, we learned, as part of providing legal assistance, that the grounds for including an individual in the sanctions list was “synchronization with U.S. sanctions (OFAC)”.
The specifics of defending clients against such ungrounded actions is also complex. The nature of these legal relations is administrative-legal, which is why unlawful decisions on the imposition of sanctions must be appealed within the administrative judicial procedure.
One should not forget, however, that the decisions of the NSDC on imposition of sanctions are put into force by decrees issued by the head of state, which is why such decisions cannot be a subject of consideration in court separately from the corresponding presidential decrees. At the same time, the decisions made by the president are not subject to appeal in the court of the first instance, only in the Supreme Court (Administrative Cassation Court of the Supreme Court).
To prepare a claim and defend a legal position, it is also necessary to form the fullest possible package of evidence, refuting the grounds for putting an individual on the sanctions list, expert findings, collect information about absence of criminal proceedings/or (if there is a criminal case) develop the position of the defense in the criminal proceedings and attach the procedural documents obtained to the claim.
All the information mentioned above shows that both Ukrainian and foreign business may, in the event of interfering with somebody’s interests, fall into the risk zone. Even with successful fight and defense, the losses incurred until the moment justice is reestablished are extremely painful and unpleasant. That is why it would good practice to carry out additional checks of contractors, monitor sanctions lists, and get legal assistance from lawyers who are qualified in this field.