On May 14, 2018, Decree No. 126/2018 appeared on the Ukrainian President’s official website, without any accompanying lists of sanctioned entities. On May 25, the National Bank of Ukraine canceled the registration of the domestic payment system WebMoney.UA. However, the publication of the Ukrainian President’s Decree, a National Security and Defense Council decision, and the associated lists only occurred in the President’s Official Bulletin issued on June 5.
Lack of transparency is a common theme in the field of sanctions. While the OFAC publishes official press releases, the initiators and reasons for the application of sanctions in Ukraine often remain in the shadows. In addition, this primarily refers not to Russian persons, but to sanctions against European companies. The reasons for their sanctioning are sometimes extremely vague. This gives cause for reasonable doubt about the legitimacy of their objectives.
Ukraine’s Law on Sanctions confirms the National Security and Defense Council’s right to apply any sanctions at its own discretion. However, the most common sanctions for companies tend to involve the blocking of assets and the suspension of financial transactions.
The actions of Ukrainian state bodies often conceal the interests of particular “favorite friends” and financial groups that have nothing to do with issues of national security. Therefore, a portion of the decisions taken on the issue of sanctions may be either a means of applying pressure on business, or a means of redistributing the market (for example, the gambling business), or a means of indirect expropriation of assets.
According to updated procedural law, disputes regarding the legality of the Ukrainian president’s decrees shall be subject to consideration in simplified litigation by a panel of judges of the Cassation Administrative Court. The Grand Chamber of the Supreme Court is the appellate court. Meanwhile, as the European Court of Human Rights (ECHR) has established, the right of ownership may be restricted only if the law provides for its restriction, if the restriction is in the public interest, or if the restriction would comply with the principle of proportionality of the interests of the state and the individual in question. The restriction of property rights should reflect a fair balance of public interests and fundamental rights, and may not impose an “excessive burden” on the owner.
Subject to the above requirements, the Ukrainian authorities should determine in each particular case whether the country’s national interests require precisely such a level of interference with the rights and freedoms of any individual or company. Nevertheless, due to the current position of the Ukrainian Supreme Court, the use of sanctions by the state does not constitute a violation of rights and freedoms. In Supreme Court’s opinion the possibility of imposing sanctions is provided for by the law and has a legitimate aim, namely the need to immediately and effectively respond to threats to the national security of Ukraine.
Taking into account this formal approach, achieving a positive outcome in any sanctions disputes with the state is unlikely. To date, business appellants have lost all disputes.
In addition, foreign investors may also apply for international arbitration with regard to the direct and indirect expropriation of assets. This is applicable because some decisions of the authorities on the procedure for applying sanctions deprive an investor of the ability to manage and control assets. As an example, the National Securities and Stock Market Commission’s Decision No. 1707 dated Oct. 13, 2015 declared the shares of sanctioned shareholders as being non-voting ones.
There is a need for the Ukrainian authorities to explain the reasons for imposing sanctions on businesses. It is also important to establish the legitimacy of the aims behind sanctions measures. This could be subject to verification by the Supreme Court with respect to the compliance of any decision with the basic criteria of reasonableness, objectivity, good faith and proportionality.
