UPDATE: Developments in the Ukraine and Impact on Investments

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Explore:  EU Russia Sanctions Ukraine

On Sunday, Crimea voted to secede from Ukraine. The EU and U.S., which consider Sunday’s referendum in Crimea to be illegal, retaliated with sanctions. The nature of these is set out below as a further update to the Alert circulated on 10 March 2014.

EU Sanctions

Yesterday, on 17 March, the Ministers of Foreign Affairs from 28 EU Member States agreed to impose sanctions against 21 officials (politicians and army officers) from Russia and Ukraine, following Sunday's referendum in Crimea and the lack of negotiations between Ukraine and Russia. A few hours after the EU Ministers’ meeting, Council Regulation 269/2014 and Council Decision 2014/145/CFSP were published to make the EU sanctions binding with effect from the same day. The EU sanctions include travel restrictions, an asset freeze and a prohibition against making funds or economic resources available, affecting persons responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine and also persons having played a key role in the referendum regarding the territory’s future status.

It is expected that further sanctions will be imposed against more officials in the following days as the initial list included over 100 names. In particular, the Council of the EU has stated that any further step by Russia to destabilise the situation in Ukraine would lead to additional and far-reaching consequences for relations in a broad range of economic areas between the EU and Russia.

The list of individuals subject to the EU restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine is set out below, together with the reasons for their inclusion in the list as described in the EU legislation:

  1. Sergey Valeryevich Aksyonov (d.o.b. 26.11.1972). Aksyonov was elected “Prime Minister of Crimea” in the Crimean Verkhovna Rada on 27 February 2014 in the presence of pro-Russian gunmen. His “election” was decreed unconstitutional by Oleksandr Turchynov on 1 March. He actively lobbied for the “referendum” of 16 March 2014. 
  2. Vladimir Andreevich Konstantinov (d.o.b. 19.03.1967). As speaker of the Supreme Council of the Autonomous Republic of Crimea, Konstantinov played a relevant role in the decisions taken by the Verkhovna Rada concerning the “referendum” against territorial integrity of Ukraine and called on voters to cast votes in favour of Crimean Independence. 
  3. Rustam Ilmirovich Temirgaliev (d.o.b. 15.08.1976). As Deputy Chairman of the Council of Ministers of Crimea, Temirgaliev played a relevant role in the decisions taken by the Verkhovna Rada concerning the “referendum” against territorial integrity of Ukraine. He lobbied actively for integration of Crimea into the Russian Federation. 
  4. Deniz Valentinovich Berezovskiy (d.o.b. 15.07.1974). Berezovskiy was appointed commander of the Ukrainian Navy on 1 March 2014 and swore an oath to the Crimean armed force, thereby breaking his oath. The Prosecutor-General’s Office of Ukraine launched an investigation against him for high treason. 
  5. Aleksei Mikhailovich Chaliy (d.o.b. 13.06.1961). Chaliy became “Mayor of Sevastopol” by popular acclamation on 23 February 2014 and accepted this “vote”. He actively campaigned for Sevastopol to become a separate entity of the Russian Federation following a referendum on 16 March 2014. 
  6. Pyotr Anatoliyovych Zima. Zima was appointed as the new head of the Crimean Security Service (SBU) on 3 March 2014 by “Prime Minister” Aksyonov and accepted this appointment. He has given relevant information including a database to the Russian Intelligence Service (SBU). This included information on Euro- Maidan activists and human rights defenders of Crimea. He played a relevant role in preventing Ukraine’s authorities from controlling the territory of Crimea. On 11 March 2014 the formation of an independent Security Service of Crimea has been proclaimed by former SBU officers of Crimea. 
  7. Yuriy Zherebtsov. Counsellor of the Speaker of the Verkhovna Rada of Crimea, one of the leading organizers of the 16 March 2014 “referendum” against Ukraine’s territorial integrity. 
  8. Sergey Pavlovych Tsekov (d.o.b. 28.03.1953). Vice Speaker of the Verkhovna Rada; Tsekov initiated together with Sergey Aksyonov the unlawful dismissal of the government of the Autonomous Republic of Crimea (ARC). He drew into this endeavour Vladimir Konstantinov, threatening him with his dismissal. He publicly recognised that the MPs from Crimea were the initiators of inviting Russian soldiers to take over Verkhovna Rada of Crimea. He was one of the first Crimean Leaders to ask in public for annexation of Crimea to Russia. 
  9. Viktor Alekseevich Ozerov (d.o.b. 05.01.1958 in Abakan, Khakassia). Chairman of the Security and Defence Committee of the Federation Council of the Russian Federation. On 1 March 2014 Ozerov, on behalf of the Security and Defence Committee of the Federation Council, publicly supported in the Federation Council the deployment of Russian forces in Ukraine. 
  10. Vladimir Michailovich Dzhabarov (d.o.b. 29.09.1952). First Deputy-Chairman of the International Affairs Committee of the Federation Council of the Russian Federation. On 1 March 2014 Dzhabarov, on behalf of the International Affairs Committee of the Federation Council, publicly supported in the Federation Council the deployment of Russian forces in Ukraine. 
  11. Andrei Aleksandrovich Klishas (d.o.b. 09.11.1972 in Sverdlovsk). Chairman of the Committee on Constitutional Law of the Federation Council of the Russian Federation. On 1 March 2014 Klishas publicly supported in the Federation Council the deployment of Russian forces in Ukraine. In public statements Klishas sought to justify a Russian military intervention in Ukraine by claiming that “the Ukrainian President supports the appeal of the Crimean authorities to the President of the Russian Federation on landing an all-encompassing assistance in defense of the citizens of Crimea”. 
  12. Nikolai Ivanovich Ryzhkov (d.o.b. 28.09.1929 in Duleevka, Donetsk region, Ukrainian SSR). Member of the Committee for federal issues, regional politics and the North of the Federation Council of the Russian Federation. On 1 March 2014 Ryzhkov publicly supported in the Federation Council the deployment of Russian forces in Ukraine. 
  13. Evgeni Viktorovich Bushmin (d.o.b. 04.10.1958 in Lopatino, Sergachiisky region, RSFSR). Deputy Speaker of the Federation Council of the Russian Federation. On 1 March 2014 Bushmin publicly supported in the Federation Council the deployment of Russian forces in Ukraine. 
  14. Aleksandr Borisovich Totoonov (d.o.b. 03.03.1957 in Ordzhonikidze, North Ossetia). Member of the Committee on culture, science, and information of the Federation Council of the Russian Federation. On 1 March 2014 Totoonov publicly supported in the Federation Council the deployment of Russian forces in Ukraine. 
  15. Oleg Evgenevich Panteleev (d.o.b. 21.07.1952 in Zhitnikovskoe, Kurgan region). First Deputy Chairman of the Committee on Parliamentary Issues. On 1 March 2014 Panteleev publicly supported in the Federation Council the deployment of Russian forces in Ukraine. 
  16. Sergei Mikhailovich Mironov (d.o.b. 14.02.1953 in Pushkin, Leningrad region). Member of the Council of the State Duma; Leader of Fair Russia faction in the Duma of the Russian Federation. Initiator of the bill allowing Russian Federation to admit in its composition, under the pretext of protection of Russian citizens, territories of a foreign country without consent of that country or of an international treaty. 
  17. Sergei Vladimirovich Zheleznyak (d.o.b. 30.07.1970 in St Petersburg (former Leningrad)). Deputy Speaker of the State Duma of the Russian Federation. Actively supporting use of Russian Armed Forces in Ukraine and annexation of Crimea. He led personally the demonstration in support of the use of Russian Armed Forces in Ukraine. 
  18. Leonid Eduardovich Slutski (d.o.b. 04.01.1968 in Моscow). Chairman of the Commonwealth of Independent States (CIS) Committee of the State Duma of the Russian Federation (member of the LDPR). Actively supporting use of Russian Armed Forces in Ukraine and annexation of Crimea. 
  19. Aleksandr Viktorovich Vitko (d.o.b. 13.09.1961 in Vitebsk (Belarusian SSR)). Commander of the Black Sea Fleet, Vice-Admiral. Responsible for commanding Russian forces that have occupied Ukrainian sovereign territory. 
  20. Anatoliy Alekseevich Sidorov. Commander, Russia's Western Military District, units of which are deployed in Crimea. Commander of Russia's Western Military District, units of which are deployed in Crimea. He is responsible for part of the Russian military presence in Crimea which is undermining the sovereignty of the Ukraine and assisted the Crimean authorities in preventing public demonstrations against moves towards a referendum and incorporation into Russia. 
  21. Aleksandr GalkinI. Russia's Southern Military District, forces of which are in Crimea; the Black Sea Fleet comes under Galkin's command; much of the force movement into Crimea has come through the Southern Military District. Commander of Russia's Southern Military District ("SMD"). SMD forces are deployed in Crimea. He is responsible for part of the Russian military presence in Crimea which is undermining the sovereignty of the Ukraine and assisted the Crimean authorities in preventing public demonstrations against moves towards a referendum and incorporation into Russia. Additionally the Black Sea Fleet falls within the District's control.

U.S. Sanctions

Following the initial Executive Order issued by President Obama on March 6, which authorized the blocking of the property of certain persons and reportedly resulted in certain persons being denied entry into the U.S., President Obama issued a further Executive Order on March 17, in response to “the actions and policies of the Government of the Russian Federation with respect to Ukraine,” that blocks the property and interests in property of certain individuals designated in an Annex to the Order. As a result of the Order, any property or property interests of the designated persons “that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person (including any foreign branch)” are blocked and transactions by U.S. persons or from the U.S. involving such persons generally are prohibited. The Executive Order also would block the property of additional persons subsequently “determined by the Secretary of the Treasury, in consultation with the Secretary of State:” (i) to be an official of the Government of the Russian Federation; (ii) to operate in the arms and related materiel sector in the Russian Federation; (iii) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, a senior official of the Government of the Russian Federation or a person whose property and interests in property are blocked pursuant to the Order; or (iv) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a senior official of the Government of the Russian Federation or a person whose property and interests in property are blocked pursuant to the Order. Entry into the U.S. also is suspended for any person determined to be subject to the Order. Reports suggest the U.S. may determine additional persons to be subject to the Executive Orders depending on the course of further developments in Ukraine and Crimea.

As a result of the Executive Orders, eleven persons have been added to the U.S. Office of Foreign Assets Control Specially Designated Nationals and Blocked Persons (“SDN”) list. Persons identified on the SDN list by the reference UKRAINE are designated under the March 6 Order and those identified as UKRAINE2 are designated under the March 17 Order. The White House Fact Sheet released with the most recent Executive Order notes the following about the persons listed from Russia: “We recognize that the Russian leadership derives significant support from, and takes action through, individuals who do not themselves serve in any official capacity. Our current focus is to identify these individuals and target their personal assets, but not companies that they may manage on behalf of the Russian state.” The Fact Sheet provides the following explanations for each of the listings.

  1. Vladislav Surkov (d.o.b. 21.09.1964 in Solntsevo, Lipetsk, Russia). Surkov is being sanctioned for his status as a Presidential Aide to Russian President Vladimir Putin. 
  2. Sergey Glazyev (d.o.b. 01.01.1961 in Zaporozhye, Ukraine). Glazyev is being sanctioned for his status as a Presidential Adviser to Russian President Vladimir Putin.
  3. Leonid Slutsky (d.o.b. 04.01.1968). Slutsky is being sanctioned for his status as a State Duma deputy, where he is Chairman of the Duma Committee on CIS Affairs, Eurasian Integration, and Relations with Compatriots. 
  4. Andrei Klishas (d.o.b. 09.11.1972 in Yekaterinburg, Sverdlovsk, Russia). Klishas is being sanctioned for his status as a Member of the Council of Federation of the Federal Assembly of the Russian Federation and as Chairman of the Federation Council Committee of Constitutional Law, Judicial, and Legal Affairs, and the Development of Civil Society. 
  5. Valentina Matviyenko (d.o.b. 07.04.1949 in Shepetovka, Khmelnitsky, Ukraine). Matviyenko is being sanctioned for her status as Head of the Federation Council. 
  6. Dmitry Rogozin (d.o.b. 21.12.1963 in Moscow, Russia). Rogozin is being sanctioned for his status as the Deputy Prime Minister of the Russian Federation. 
  7. Yelena Mizulina (d.o.b. 09.12.1954 in Bui, Kostroma, Russia). Mizulina is being sanctioned for her status as a State Duma Deputy. 
  8. Sergey Aksyonov (d.o.b. 26.11.1972 in Balti, Moldova (individual), Ukraine. Aksyonov is being designated for threatening the peace, security, stability, sovereignty, or territorial integrity of Ukraine, and for undermining Ukraine’s democratic institutions and processes. Aksyonov claims to be the Prime Minister of Crimea and has rejected the authority of the legitimate government in Kyiv. 
  9. Vladimir Konstantinov (d.o.b. 19.11.1956). Konstantinov is being designated for threatening the peace, security, stability, sovereignty, or territorial integrity of Ukraine, and for undermining Ukraine’s democratic institutions and processes. Konstantinov is the speaker of the Crimean parliament, which on March 11, 2014, declared independence from Ukraine. 
  10. Viktor Medvedchuk (d.o.b. 07.08.1954 in Pochyot, Krasnoyarsk Krai, Russia). Medvedchuk, leader of Ukrainian Choice, is being designated for threatening the peace, security, stability, sovereignty, or territorial integrity of Ukraine, and for undermining Ukraine’s democratic institutions and processes. He is also being designated because he has materially assisted, sponsored, or provided financial, material, or technological support to Yanukovych and because he is a leader of an entity that has, or whose members have, engaged in actions or policies that undermine democratic processes or institutions in Ukraine and actions or policies that threaten the peace, security, stability, sovereignty, or territorial integrity of Ukraine.
  11. Viktor Yanukovych (d.o.b. 09.07.1950 in Yenakiyeve, Donetsk Region, Ukraine). Former Ukrainian President Yanukovych is being designated for threatening the peace, security, stability, sovereignty, or territorial integrity of Ukraine, and for undermining Ukraine’s democratic institutions and processes. After abandoning Kyiv and ultimately fleeing to Russia, Viktor Yanukovych called upon Russian President Vladimir Putin to send Russian troops into Ukraine.

BIT Protection

Investors in both the Ukraine (particularly Crimea) and Russia will rightly be concerned by these latest developments and should consider whether their investments are or can be adequately protected under a bilateral investment treaty ("BIT").

Ukraine and Russia have entered into 29 and 30 BITs respectively that have been ratified. Ukraine is also party to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), which establishes a legal and institutional framework for the resolution of investor-state disputes.
The BITs envisage international law levels of protection for foreign investors, including protection against expropriation or unfair, inequitable or discriminatory treatment. In addition, BITs provide for access to international arbitration for resolution of disputes concerning alleged treaty breaches that harm the investment. In practical terms, the BITs allow foreign investors to obtain compensation for detriment suffered due to state actions that violate BIT obligations, even if those actions are in conformity with domestic laws. Consequently, foreign investors who qualify under one of the relevant BITs could potentially, in the event of future loss, avail themselves of the investment protections and seek compensation for such loss.

Whether any future measures by Russia (and/or the Ukraine) will violate the provisions of any particular BIT will depend on the nature of the measures and the specific terms of the relevant BIT.
In any event, investors are well advised to consider whether their assets in the region are adequately protected.

 

Topics:  EU, Russia, Sanctions, Ukraine

Published In: Criminal Law Updates, Finance & Banking Updates, Immigration Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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