Fine or imprisonment: Zelensky's proposal for punishing violations of sanctions.
A portion of Ukrainian businesses, despite a decade of Kremlin aggression and extensive sanctions, continues to collaborate with the aggressor country and its enterprises, adhering to the principle of just business. The domestic court registry contains numerous such cases.
For instance, the well-known Ukrainian furniture manufacturer "Novy Stil" supplied equipment and components to a Russian company via intermediary firms. Additionally, the director of the scientific and production enterprise "Tehpribor" delivered components for hydrometeorological equipment worth $800,000 through a Bulgarian intermediary.
Justice has caught up with the offenders. However, due to the absence of a specific article in the Ukrainian Criminal Code (UCU) regarding sanction violations, they were prosecuted under the article related to collaborationism, which does not account for all the nuances of circumventing the sanctions regime.
In the first case, the furniture manufacturer received a one-year suspended sentence in agreement with the investigation, while in the second case, the perpetrator will pay a fine of 170,000 UAH.
How sanctions violations are punished in the West
Ukraine lags behind partner countries in effectively prosecuting sanction violators and those looking to profit from the war. For example, Germany opened around 2,000 cases for evasion of anti-Russian sanctions, Finland - over 900, Latvia - over 300.
Recently in Germany a local company director was prosecuted for selling machines for manufacturing sniper rifles to a Russian arms manufacturer in violation of established restrictions. The entrepreneur was sentenced to 7 years in prison.
In Lithuania, the cryptocurrency operator Payeer was fined 8.23 million euros for violating international sanctions. The company allowed clients (mostly from the Russian Federation) to conduct transactions in rubles through sanctioned Russian banks.
A Dutch company will pay 195,000 euros, and its director will pay an additional 20,000 euros. The company illegally transferred about 18 million euros in dividends to a Russian company, the beneficiary of which was a sanctioned individual. Furthermore, the Dutch company paid off a loan of 100,000 euros to another sanctioned Russian company.
All these examples demonstrate that Ukraine, as a victim of aggression, proves to be less effective in prosecuting sanction violators compared to its European partners. This dissonance is particularly evident against the backdrop of actions taken by the EU, which is strengthening accountability and sanction compliance in business.
The situation is expected to change with a bill that establishes criminal liability for violating and circumventing sanctions. It has been signed by President Volodymyr Zelensky and is set to be registered shortly.
This document is the result of a year-long work by the Ministry of Justice, over 10 government agencies, and the Analytical Center "Institute of Legislative Ideas." It incorporates the best global approaches to combating sanction violations and is capable of significantly enhancing the effectiveness of the state’s sanction policy.
What will be punished
Intentional or negligent violation (failure to comply or obstruction of compliance) of sanction restrictions applied under the relevant law will be subject to criminal penalties. This specifically concerns sectoral sanctions and certain types of personal restrictions, the list of which is included in the note to the article of the UCU.
Intentional circumvention of sanctions will also be punishable, particularly the acquisition and other actions with blocked assets. Additionally, there are proposals to impose penalties for bankrupting or fictitious bankrupting of sanctioned legal entities or companies with a sanctioned ultimate beneficial owner.
It is important to note that minor violations will not be penalized, as criminal liability requires reaching a value threshold of over 3,000 euros. An exception applies to military or dual-use goods.
Who will be punished
According to the bill, both sanctioned individuals and other parties, including officials and those providing public services, will be held accountable.
For instance, a notary who re-registered a business share to another individual in defiance of sanctions or a company director who fulfilled a financial obligation or conducted a trade operation benefiting a sanctioned entity will face criminal liability.
"The effectiveness of imposed sanctions directly depends on the mechanism of their implementation. Currently, the absence of criminal liability for circumventing or violating sanctions creates numerous schemes for evading sanctions," noted Inna Bohatyh, Deputy Minister of Justice.
How will they be punished
The potential punishment for violating and/or circumventing sanctions includes fines (from 425,000 UAH to 2.04 million UAH) or imprisonment for a term of 2 to 10 years. It also includes mandatory disqualification from holding certain positions or engaging in specific activities for a period of 10 to 15 years, and in certain cases, confiscation of property.
What businesses should do
The criminalization of violations and circumventions of sanctions will serve as an effective tool against unscrupulous business entities and will strengthen the effectiveness of sanction policies. Timely implementation of an effective sanction compliance system will allow businesses not only to minimize the risk of violations and avoid criminal liability but also contribute to increasing economic pressure on Russia.
Ukrainian entrepreneurs must become accustomed to adhering to rules that have already become commonplace for businesses in partner countries. These include:
- thorough vetting of counterparties - screening through national and foreign (for example, EU Sanctions Map, CSL Search, OpenSanctions) registries and sanction lists;
- checking ultimate beneficiaries, owners, and related parties;
- in the case of conducting foreign economic activities - analyzing geographical risk (whether counterparties operate in countries with sanction restrictions);
- implementing a sanction compliance policy - clear rules for operating under the risks of sanction violations;
- refusing to cooperate with potentially risky counterparties: if there are any doubts or suspicions, it is better to withdraw from the deal.
Future prospects
The criminalization of violations and circumventions of sanctions is an important step in developing sanction policy and countering cooperation with the enemy and those who facilitate aggression. Such changes should lead to strengthening the corporate culture of Ukrainian businesses, and sanction compliance should become an integral part of responsible business conduct.
"A simple yet effective bill aimed at preventing the circumvention of sanctions. As in many other countries, we propose introducing criminal liability for sanction violations. This will significantly enhance the effectiveness of sanction restrictions and strengthen their impact," believes the President's Commissioner for Sanction Policy Vladislav Vasyuk.
Zelensky has indeed proposed a solid foundation for initiating responsibility for sanction violations. At the same time, the parliament could go further and bring Ukrainian law closer to the best foreign practices of sanction coalition leaders.
Firstly, the introduction of strict restrictive norms is usually balanced in exceptional cases by granting permits for actions prohibited by sanctions, such as payment for medical treatment or conducting business activities to prevent environmental damage.
Secondly, there will be mandatory declaration of assets by sanctioned individuals. This will facilitate the control over their circumvention and significantly contribute to the effectiveness of criminal prosecution of violators.
The introduction of real responsibility for evading sanctions in Ukraine is not beneficial for everyone. However, the need for this bill has already become overdue. Moreover, the newly adopted EU directive requires all member states to criminalize such acts by May 2025..