In light of the recent political crisis in Ukraine and the presence of Russian troops in the Ukrainian region of Crimea, a number of jurisdictions -- the EU, United States, Switzerland, Austria, Lichtenstein, and Canada -- have issued sanctions targeting key senior figures in the former Ukrainian Government and others involved in the unrest. The UK Department for Business, Innovation and Skills ("BIS") has also taken steps to restrict the supply of equipment that may be used for internal repression. A brief overview of these measures follows. As the situation on the ground develops, it is possible that additional sanctions could be imposed.
Sanctions Against Individuals and Entities
On 5 March 2014, the EU Foreign Affairs Council decided to adopt sanctions targeted at freezing and recovering misappropriated Ukrainian state funds. On this basis, Council Regulation (EU) No 208/2014 designated 18 individuals whose assets within the EU will be frozen and with whom further dealings are restricted. The designated individuals include the former president, Yanukovych, his family and people connected to him. These type of measures are generally aimed at punishing the political class that contributed to the violence in the Ukraine (akin to EU sanctions issued in 2011 against Egypt, Libya and Tunisia). It is possible that the EU may designate additional individuals and entities in due course. A consolidated list of all EU and UK designated persons is published by HM Treasury (but note that designations are subject to changes in light of new political developments).
Yesterday, Canada enacted regulations prohibiting persons in Canada and Canadians outside Canada from dealing, directly or indirectly, in any property, wherever situated, of any of the 18 individuals named under the regulations (which are the same individuals as those sanctioned by the EU). The new regulations prohibit entering into or facilitating, directly or indirectly, any financial transaction related to such dealings, or providing financial services or other related services in respect of such property.
Last month, Switzerland, Austria and Lichtenstein issued similar freezing orders.
In February, the United States imposed a visa ban on 20 Ukrainian officials deemed to be complicit in the violence that month in Kiev. Yesterday, President Obama expanded the visa ban and also signed a Presidential Executive Order authorising the US Treasury Department to designate individuals and entities who, among other things, have been involved in efforts to undermine the security or territorial integrity of Ukraine or have asserted control over any part of Ukraine (including Crimea) without authorisation of the Government of Ukraine. Although this Executive Order lays the foundation for potential future sanctions, no specific individuals or entities have been designated yet under this new authority.
EU/UK Suspension of Licenses
On 20 February 2014, the EU Council announced that EU Member States agreed to suspend export licences on equipment which might be used for internal repression and reassess export licences in connection with military goods and technology.
Accordingly, on 24 February, BIS issued a notice that it was reviewing extant licences to determine which are for equipment which might be used for internal repression and would therefore be subject to suspension. BIS is also assessing which exports would provoke or prolong armed conflicts or aggravate existing tensions. Exporters will be notified by BIS directly if a licence is to be suspended.
Potential for Additional Sanctions
Press reports speculate that the US and EU may issue further sanctions if the situation in Ukraine does not improve. Indeed, the US White House press secretary was quoted as stating: “Depending on how the situation develops, the United States is prepared to consider additional steps and sanctions as necessary”.
Although the earliest sanctions were a reaction to the political violence in Kiev and generally targeted Ukrainian persons, the focus is now turning to Russia's military intervention in Crimea. The EU formally stated yesterday that it will suspend bilateral talks with Russia on visa matters and the participation of the EU institutions in the G8 Summit. The EU has stated that if Russia does not negotiate with Ukraine, it may adopt other measures at a later date.
In light of the constantly changing facts on the ground, it is difficult to speculate the form additional sanctions would take. We are closely monitoring this situation.
Given the current uncertainty regarding events in Ukraine, companies should closely monitor further developments in order to ensure compliance with the current measures. Companies should exercise diligence when conducting transactions involving Ukraine and Russia, including by taking the following steps:
- screen (and regularly re-screen) counterparties, end-users, banks and other third parties potentially benefiting from the transaction to verify that they are not a designated person (and are not owned or controlled by a designated person);
- assess whether any products or technology being sold or supplied might be used for internal repression. In this context, we note that the EU or national authorities could potentially take a wide interpretation of the type of equipment which might be used for internal repression. Indeed, this has happened in the past in respect of sanctions against Libya (e.g., where protective equipment and simulators for training in the use of firearms, were in-scope).
- exercise caution in the negotiation of contracts with parties that could be the target of any US and/or EU sanctions against Russia (including the State-owned financial and energy sectors). This would include supplementary contractual language addressing sanctions risks and export control compliance, for example.
The foregoing is intended only to provide a general overview of the new sanctions imposed against Ukraine.