On March 3, 2014, the Council of the European Union (Council) published its “conclusions on Ukraine” in which “recalling its conclusions of 20 February 2014, the Council agreed to swiftly work on the adoption of restrictive measures for the freezing and recovery of assets of persons identified as responsible for the misappropriation of State funds, and the freezing of assets of persons responsible for human rights violations.” The Council “strongly condemns the clear violation of Ukrainian sovereignty and territorial integrity by acts of aggression by the Russian armed forces” and calls for a “a peaceful solution.”
On March 5, 2014, the Council adopted Decision 2014/119/CFSP, which provides for the freezing of funds and economic resources of former President Viktor Yanukovych and 17 other prominent former government ministers, senior officials and businessmen. The listed individuals are “identified as responsible for the misappropriation of Ukrainian State funds and persons responsible for human rights violations in Ukraine, and natural or legal persons, entities or bodies associated with them, with a view to consolidating and supporting the rule of law and respect for human rights in Ukraine.” The Decision alleges in respect of the listed individuals that they are “subject to investigation in Ukraine for involvement in crimes in connection with the embezzlement of Ukrainian State funds and their illegal transfer outside Ukraine.”
The Decision sets out the framework of the restrictions. In summary:
- All funds and economic resources belonging to, owned, held or controlled by the listed individuals shall be frozen.
- No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities or bodies listed.
- The relevant authorities of Member States may authorize the release of certain frozen funds or economic resources, or the making available of certain funds or economic resources, under such conditions as it deems appropriate, after having determined that the funds or economic resources concerned are necessary to satisfy basic needs, intended exclusively for the payment of reasonable professional fees including legal fees, intended exclusively for the payment of fees or service charges for the routine holding or maintenance of frozen funds or economic resources; or necessary for extraordinary expenses, subject to notification of other Member States and the European Commission.
- The relevant authorities of Member States may also authorize the release of certain frozen funds or economic resources, provided that the funds or economic resources are the subject of an arbitral decision rendered before March 6, 2014, a judicial or administrative decision rendered before or after March 6, 2014, that the funds or economic resources will be used exclusively to satisfy claims secured by such a decision, that the decision is not made for the benefit of the sanctions person or entity, and that recognition of the decision is not contrary to public policy in the Member State concerned.
- The Decision does not prevent a listed individual from making a payment due under a contract entered into prior to March 6, 2014, provided that the Member State concerned has determined that the payment is not, directly or indirectly, received by a listed individual.
This Decision shall apply until March 6, 2015. This Decision shall be kept under constant review. It shall be renewed, or amended as appropriate, if the Council deems that its objectives have not been met.
On March 5, 2014, the Council published Council Regulation (EU) No. 208/2014, which reiterates the framework set out in the Decision and provides further definition on the scope of restrictions. A Regulation is a binding legislative act that must be applied in its entirety across the European Union, with no need for any implementing legislation save for the penalties applicable to infringements of the Regulation. The Regulation provides, for example:
- “economic resources” means assets of every kind, whether tangible or intangible, movable or immovable, which are not funds, but may be used to obtain funds, goods or services;
- “freezing of economic resources” means preventing the use of economic resources to obtain funds, goods or services in any way, including, but not limited to, by selling, hiring or mortgaging them;
- “freezing of funds” means preventing any move, transfer, alteration, use of, access to, or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or other change that would enable the funds to be used, including portfolio management;
- “funds” means financial assets and benefits of every kind, including, but not limited to:
- cash, cheques, claims on money, drafts, money orders and other payment instruments;
- deposits with financial institutions or other entities, balances on accounts, debts and debt obligations;
- publicly- and privately-traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures and derivatives contracts;
- interest, dividends or other income on or value accruing from or generated by assets;
- credit, right of set-off, guarantees, performance bonds or other financial commitments;
- letters of credit, bills of lading, bills of sale; and
- documents showing evidence of an interest in funds or financial resources.
On March 6, 2014, the US Department of Treasury announced that President Obama has signed a newExecutive Order (the Order) in response to recent developments in Ukraine. The Order allows the United States to sanction any individual or entity that is responsible for or complicit in actions or policies that undermine democratic processes or institutions in Ukraine or that threaten the peace, security, stability, sovereignty, or territorial integrity of Ukraine. It further allows the United States to sanction individuals involved in the misappropriation of state assets of Ukraine or have asserted governmental authority over any part or region of Ukraine without the authorization of the Government of Ukraine. The US State Department has also imposed a ban on visas for officials and other people, both Russian and Ukrainian, who are deemed to have taken steps to undermine the territorial integrity of Ukraine.
The Order provides that all property and interests in property in the United States, that come within the United States, or that are or come within the possession or control of any US person (including any foreign branch) of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. The restrictions apply to persons deemed:
- to be responsible for or complicit in, or to have engaged in, directly or indirectly, any of the following:
- actions or policies that undermine democratic processes or institutions in Ukraine;
- actions or policies that threaten the peace, security, stability, sovereignty, or territorial integrity of Ukraine; or
- misappropriation of state assets of Ukraine or of an economically significant entity in Ukraine;
- to have asserted governmental authority over any part or region of Ukraine without the authorization of the Government of Ukraine;
- to be a leader of an entity that has, or whose members have, engaged in any activity described above or of an entity whose property and interests in property are blocked pursuant to this order;
- to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity described above or any person whose property and interests in property are blocked pursuant to this order; or
- to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order.
Following a written request from Ukraine, on March 5, 2014, the Freezing Assets of Corrupt Foreign Officials (Ukraine) Regulations, SOR/2014-44, came into effect. These regulations provide for the freezing of funds and economic resources of former President Viktor Yanukovych and 17 other prominent former government ministers, senior officials and businessmen. Foreign Affairs, Trade, and Development Canada stated that the 18 individuals are “former leaders and senior officials or their associates and family members suspected of having misappropriated state funds, or obtained property inappropriately as a result of their office or family, business or personal connections.”
The regulations act to freeze the assets of the 18 individuals by prohibiting the following actions by any person in Canada, or by any Canadian outside of Canada:
- dealing, directly or indirectly, in any property, wherever situated, of a politically exposed foreign person;
- entering into or facilitating, directly or indirectly, any financial transaction related to a dealing with any property of a politically exposed foreign person; or
- providing financial or other related services in respect of any property of a politically exposed foreign person.
There is also an obligation under the Freezing Assets of Corrupt Foreign Officials Act to disclose to the Commissioner of the Royal Canadian Mounted Police any property, or information about a transaction in relation to property, that is believed to be the property of a politically exposed foreign person. The Minister of Foreign Affairs may issue a permit to carry out an activity or transaction that would otherwise be prohibited.
The Canadian regulations will continue to apply until they are amended or repealed, and additional individuals can be added to the list of politically exposed foreign persons.
The implementation of a sanctions framework in connection with Ukraine hinges on an extremely delicate political situation. Corporations and financial institutions doing business in Ukraine or with Ukrainian businesses or individuals should tread carefully in this fast-moving environment.