As the situation in Ukraine continues to develop rapidly, there have been further legal and political developments. These include steps by both the EU and the US to sanction more individuals, the agreement of the 'Geneva Accord' on 17 April 2014 between representatives of the EU, Russia, Ukraine and the US, and a more recent indication by the US that further sanctions may nonetheless be imposed.
This e-bulletin analyses the most recent events and provides a summary of sanctions developments since our last briefing.
Ukraine sanctions background
EU sanctions in response to the situation in Ukraine first came into force on 5 March 2014, when 18 individuals, mostly former members of the government of Ukraine, were targeted by asset freezing measures. The basis for the designation of these individuals was that the EU had identified them as being persons allegedly responsible for misappropriation of Ukrainian state funds.
A further EU Regulation of 17 March 2014 created an additional basis for asset freezing measures, namely responsibility for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. Thirty-three individuals were listed on 14 and 21 March pursuant to this latter Regulation.
Three US Executive Orders have been passed to date, the first on 6 March 2014, the second on 17 March 2014 and the latest on 20 March 2014, enabling the US to make designations onto the list of Specially Designated Nationals ("SDNs"), who are subject to an asset freeze. The most recent Executive Order, in particular, provides scope for designations in a number of very broadly defined sectors of the Russian economy – but does not restrict business with those sectors until and unless such designations are made. Prior to the developments referred to below, 34 individuals and one entity (Bank Rossiya) had been designated under the Executive Orders.
Recent EU developments
With effect from 14 April 2014, the EU imposed an asset freeze on four new individuals on the basis that they are under investigation in Ukraine in relation to the alleged embezzlement of state funds. This brings the total number of individuals sanctioned by the EU for this reason to 22. The additions were effected by Council Implementing Regulation (EU) No 381/2014.
More significantly, the EU Foreign Affairs Council ("Council") met on 14 April 2014 to consider the current situation in Ukraine. The Council's Conclusions welcomed the then forthcoming meeting (see below) between the EU, Ukraine, Russia and the US as a possible start of a substantial de-escalation process. At the same time, the Conclusions make clear that "any further steps by the Russian Federation to destabilise the situation in Ukraine would lead to additional and far-reaching consequences in a broad range of economic areas… the Council notes that the preparatory work by the Commission and Member States is underway on possible targeted measures… should events so require". The Council reiterated the importance of Russia's and Ukraine's engagement in a meaningful dialogue.
No further official detail has been provided on the nature of the targeted measures which are under preparation. Press reports suggest that several categories of sanctions (including in the energy and finance sectors) are under consideration, that member states have been circularised with possible measures and asked to respond to the Commission with information about how the sanctions would affect their economies, but that there remains a significant level of disagreement as to the shape that any broader sanctions package would take. The agreement of trade sanctions of this type would require unanimity among member states.
Recent US developments
On 11 April 2014, the US Department of the Treasury's Office of Foreign Assets Control ("OFAC") announced that it had listed as SDNs seven Crimean-based individuals and also one entity, Chernomorneftegaz, for contributing to the situation in Ukraine. The names of the SDNs are listed here.
More recently, President Obama indicated at a press conference on 24 April 2014 that further sanctions targeting Russia had been "teed up". President Obama expressed the view that spirit and the letter of the Geneva Agreement (see below) had not been complied with, noting the continued occupation by pro-Russian paramilitaries of some government buildings in Ukraine.
The President did not indicate what the additional sanctions would be, nor when they would be applied, but said that this would be a matter of days rather than weeks, if the situation continued to escalate. He emphasised his preference for a diplomatic solution, and noted the importance of international coordination, which the US was said to be working to facilitate.
Geneva Statement on Ukraine
As noted above, the EU High Representative, Catherine Ashton, and the Foreign Ministers of Ukraine, Russia and the US met in Geneva on 17 April 2014 in order to agree steps to de-escalate tensions and help restore security in the region. The agreed actions included the disarming of illegally armed groups and a commitment from all sides to refrain from violence, intimidation and provocative actions. It was also agreed that the OSCE Special Monitoring Mission would play a leading role in assisting Ukrainian authorities and local communities in the immediate implementation of these steps. A joint statement is available here.
Whilst it was hoped that the 'Geneva Accord' would lead to de-escalation, further violence over the weekend and early this week have called this into doubt.
Recognition of EU sanctions under other unilateral regimes
A number of countries have introduced unilateral/domestic sanctions to address the situation in Ukraine. On 2 April 2014, for example, Switzerland passed measures to reflect certain EU sanctions. The Federal Council imposed restrictions on financial intermediaries entering into new business relationships with the 33 individuals already sanctioned by the EU Regulations of 17 March 2014 and 21 March 2014. Meanwhile, the EU has confirmed that Albania, Iceland, Montenegro, Norway and Ukraine have decided to "ensure that their national policies conform" to both of these measures (the EU announcements are available here and here).
Whilst the legal position has not changed dramatically over the past month, the EU and US sanctions remain in a state of flux and may change rapidly in response to further developments – and in particular in response to any further escalation of tensions in Ukraine. Businesses with exposure to relevant jurisdictions should continue to monitor the situation closely, and take appropriate steps to protect themselves in relation to any new business which may be affected by the imposition of sanctions. We will continue to issue updates as the situation develops.