The EU and US have both recently taken steps to respond to recent events in Ukraine. On 5 March 2014, the EU introduced an asset freeze applying to former President Yanukovych and other former government officials and persons associated with the former government. The UK has introduced domestic legislation criminalising breaches of this asset freeze. The EU also held an emergency Heads of State meeting on 6 March. The conclusions from that meeting indicate that there is a possibility of EU sanctions being imposed on Russia in the absence of negotiations between Russia and Ukraine which produce results within a limited timeframe. Also on 6 March the US introduced an Executive Order which would permit the imposition of an asset freeze and visa bans although no companies or individuals have yet been designated.
EU asset freeze regarding Ukraine
EU Regulation 208/2014 of 5 March 2014 (the "EU Regulation") was published in the Official Journal and came into force on 6 March. The EU Regulation imposes an asset freeze on 18 individuals, mostly former senior officials in the government of Ukraine, who are said to be subject to criminal proceedings or investigation in Ukraine relating to the embezzling of state funds. The full list of individuals subject to the asset freeze appears in Annex I to the EU Regulation.
The EU Regulation provides that all funds and economic resources belonging to, owned, held, or controlled by the listed persons must be frozen and that no funds or economic resources may be made available, directly or indirectly, to them or for their benefit. The EU Regulation applies within the territory of the EU and to nationals of EU member states and companies incorporated in EU member states.
The EU Regulation follows the usual format for EU asset freezes and contains various grounds on which the authorities in member states may license the release of frozen funds/economic resources or making funds/economic resources available to listed persons. These include payments under pre-existing contracts (under certain circumstances) and the crediting of interest etc. to frozen accounts, as well as payments in respect of basic needs (food, medical care, rent/mortgage payments etc.) and legal expenses. The EU Regulation also prohibits participation in activities the object or effect of which is to circumvent the asset freeze.
Whilst the EU Regulation is directly effective in EU member states without further action, the penalties to be imposed for breach are a matter of domestic member state law. In this regard, the UK (on 6 March 2014) introduced the Ukraine (European Union Financial Sanctions) Regulations 2014 which impose criminal penalties for breach of the EU asset freeze.
HM Treasury have issued an advisory notice in respect of these developments.
US asset freeze regarding Ukraine
On 6 March 2014, the US issued an Executive Order in respect of the situation in Ukraine. This permits the freezing of assets of persons designated by the Secretary of the Treasury, in consultation with the Secretary of State (referred to as "specially designated nationals" or "SDNs"). The Executive Order blocks all property and interests of the SDNs that are in the US or the possession of any US person, such that this property cannot be dealt with. It also prohibits making any contribution of funds, goods or services to or for the benefit of any SDNs and imposes a visa ban on them.
Persons may be designated as SDNs under the Executive Order if they are determined to:
- Be responsible or complicit in, or have engaged in (a) actions or policies that undermine democratic process or institutions in Ukraine, (b) actions or policies that threaten the peace, security, stability, sovereignty or territorial integrity of Ukraine, or (c) misappropriation of state assets;
- Have asserted governmental authority over any part or region of Ukraine without the authorisation of the government of Ukraine;
- Be a leader of an entity that has, or whose members have, engaged in any of the above activity;
- Have materially assisted, sponsored or provided financial, material or technological support for, or goods and services to or in support of, any of the above activities; or
- Be owned or controlled by or have acted for or on behalf of another SDN designated pursuant to the Executive Order.
The Executive Order also prohibits any transactions that evade or avoid, have the purpose of evading or avoiding, cause a violation of, or attempt to violate, the prohibitions described above.
The Secretary of Treasury has not yet designated any SDNs under this Executive Order. However, the scope of the categories under which SDNs may be designated is relatively wide.
Possibility of EU sanctions against Russia
The EU held an emergency Heads of State meeting on 6 March 2014 to discuss the situation in Ukraine. The conclusions of that meeting condemn recent actions by Russia and announce that the EU will suspend talks on visa issues and a new trade agreement with Russia.
The EU also announced that it will make a decision on the imposition of sanctions (such as travel bans and asset freezes) in the absence of negotiations between Russia and Ukraine in the coming days, which produce results within a "limited timeframe". The EU has stated that it will take forward preparatory work on these measures. It is therefore possible that there will be further developments in the coming days.