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.
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:
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.
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.