With the beginning of Russia’s aggression, sanctions became an important tool for deterring the enemy and limiting its influence on the Ukrainian economy. However, despite numerous sanctions violations, there is currently no criminal penalty for their violation or circumvention, and the existing measures do not have a sufficient deterrent effect.
The new one is designed to correct this situation bill No. 12406, submitted by the President at the beginning of the year. The project is the result of a year of work by the Ministry of Justice, the Analytical Center “Institute of Legislative Ideas” and more than ten other bodies and departments. It offers a comprehensive solution and complies with international standards, in particular the EU Directives, on the criminal prosecution of sanctions violators. The Ministry of Justice notes that the draft law was developed taking into account the opinions of various specialists. The very fact of its registration indicates that Ukraine is approaching the completion of the process of creating the main institutional elements of the mechanism for implementing and monitoring the implementation of sanctions. This is an important step for strengthening Ukraine’s sanctions policy and harmonizing legislation with international standards.
What will change?
A new article 114-3 will appear in the Criminal Code of Ukraine, which introduces punishment for violation of sanctions:
- Fines: from 425,000 to 2 million hryvnias, depending on the severity of the violation.
- Imprisonment: from 2 to 10 years with a ban on holding certain positions or engaging in certain activities for a period of up to 15 years.
- Confiscation of property: for violators with special responsibility or organized groups.
Who is under the “sight”?
The law will affect:
- Persons who violate sanctions intentionally.
- Organized groups, high-level employees.
- Legal entities for which it is possible not only to impose fines, but also liquidation or confiscation of property.
Features of the draft law:
- The value threshold for criminal liability is UAH 151,400.
- For goods of military purpose and dual use, the threshold does not apply.
Why is this important? Minister of Justice Olha Stefanishyna emphasizes that a similar practice operates in the EU countries, the USA and Canada. Ukraine implements these standards to increase the effectiveness of sanctions and create a deterrent effect for violators. The draft law is another step towards strengthening national security and strengthening international cooperation.
Resonance and discussion around the sanctions bill
The discussion of draft law No. 12406 is gaining momentum, as it can cause a wide resonance among lawyers and the public. On the one hand, it is considered an important step to introduce criminal liability for sanctions violations, but on the other hand, there are fears about possible abuses and restrictions on the rights of businesses and citizens.
As point out Volodymyr Yenich, lawyer, partner of JSC AVER LEX, and Daryna Artymovets, lawyer of the same law firm, the published version of the draft law differs from the previously discussed one. One of the main differences is the absence of a requirement for sanctioned persons to declare their assets, which could improve control and transparency in compliance with sanctions. However, the introduction of this requirement would create a need to determine the body that would control the declaration.
Also, the draft law does not provide mechanisms for obtaining licenses for actions that can be considered as circumventing sanctions. This is in line with international practice and can be useful for regulating simple cases, for example, when lawyers provide legal aid to sanctioned persons.
It is hoped that the possibility of obtaining licenses for such issues will be included in the final version of the draft law.
Catching up with the practices of the European Union
Ukraine lags behind international partners in prosecuting sanctions violators and war profiteers. For example, in Germany, about 2,000 proceedings have already been initiated to circumvent anti-Russian sanctions, in Finland – more than 900, and in Latvia – more than 300. Such figures testify to the active implementation of the sanctions policy and its strict control in these countries. We will give several examples of decisive actions of the partner states.
In Germany, the director of one of the local companies condemned up to seven years in prison for selling sniper rifle equipment to a Russian arms manufacturer, despite sanctions. In Lithuania, the cryptocurrency platform Payeer received a record fine of 8.23 million euros for facilitating transactions in rubles through Russian sanctioned banks. This case demonstrates a serious attitude towards financial monitoring.
In the Netherlands, a local company fined for 195 thousand euros, and its director – for 20 thousand for transferring 18 million euros of dividends to a Russian company, the beneficiary of which was under sanctions. In addition, they illegally repaid a loan of 100,000 euros to another sanctioned Russian company. IN of France the captain of the Russian ship Baltic Leader, which violated EU sanctions after the start of the war in Ukraine, is on trial. The vessel, owned by the Russian bank PSB Leasing, was detained by the French navy in 2022 after leaving Rouen for St. Petersburg. The ship’s captain is on trial for violating sanctions, with the defense claiming he was only following orders. Prosecutors are demanding a fine of 16 million euros.
Special attention attracts the case of the Lithuanian car export company Biovarda, which was fined EUR 13.6 million by Lithuanian customs for sanctions violations. It turned out that the company exported cars or auto parts to Russia, which is contrary to the current restrictions. The decision underscores the severity with which the Lithuanian authorities approach sanctions violations and serves as a warning to other businesses. Also, this case emphasizes the importance of compliance with international norms and the responsibility of companies in times of global political crises.
Such examples highlight the importance of effective monitoring and prosecution of sanctions violations, which is critical to maintaining international law and order and security.
Harmonization of criminal prosecution of sanctions violators in the EU
In April 2024, the European Union adopted an important Directive, which refers to violations of sanctions. Its purpose is to make the responsibility for the circumvention of sanctions uniform for all EU countries and to improve the effectiveness of combating such violations. What does this Directive provide?
Violation of sanctions is a crime. Now, in all EU countries, such actions as the transfer of funds or resources to sanctioned persons, illegal export or import of goods, as well as financial transactions to circumvent sanctions are considered criminal offenses.
The punishment is severe. Serious violations are punishable by large fines or even imprisonment. Companies can also be prosecuted if they fail to comply with sanctions or facilitate their circumvention.
The same rules for everyone. There are significant contradictions regarding prosecution for violations of EU sanctions by individual member states. In some countries, such as Germany, a violation of sanctions may be classified as a criminal offense, while in other countries it may only result in a fine or administrative penalties. The new rules ensure that violators are treated equally across the EU.
Implementation deadline. EU member states have until 2025 to introduce these rules into their national legislation. This Directive makes the sanctions regime tougher and makes it impossible for someone to avoid punishment due to differences in the legislation of EU countries. This is especially relevant against the background of the war in Ukraine, because the economic pressure on the aggressor must be as effective as possible.
Now anyone who violates the sanctions, regardless of which EU country they are in, will be held accountable by law.
