10 March 2014
Practice Group(s):
International
Arbitration
European Regulatory/
UK Regulatory
International Trade
Global Government
Solutions
Developments in the Ukraine and Impact on
Investments
As the tension in the Ukraine continues, particularly in relation to Crimea, foreign
investors in the region will be monitoring developments with some concern.
In addition to unrest on the ground in the Ukraine, both the US and the EU have made
reference to the threat of sanctions against Russia. This is in response to the deployment
by Russia of thousands of its troops across Crimea. On 5 March, the EU adopted
legislation (which came into force on 6 March) freezing the funds and economic
resources of, and prohibiting making available funds or economic resources to, 18 listed
persons, including ex-President Yanukovych. Further, with regard to the EU, at an
emergency meeting on 6 March the European Council decided to suspend talks with
Russia on visa and other matters. While stopping short of traditional sanctions for the
moment, the European Council stated that it would decide on additional measures, such
as travel bans, asset freezes and the cancellation of the EU-Russia summit, if there is no
negotiated solution with a limited timeframe.
Also on 6 March, President Obama issued an Executive Order in direct response to
events in Ukraine ordering the blocking of the property of any individual or entity
determined to be responsible for or complicit in actions or policies that undermine
democratic processes or institutions in Ukraine or that threaten the peace, security,
stability, sovereignty, or territorial integrity of Ukraine, or to be involved in the
misappropriation of state assets of Ukraine, or to have asserted governmental authority
over any part or region of Ukraine without the authorization of the Government of
Ukraine. Also, under the Executive Order and a visa policy being implemented at the
U.S. Department of State, designated individuals will be denied a visa to enter the United
States. K&L Gates lawyers are monitoring the implementation of the Executive Order
and related developments, including the listing of persons whose property will be subject
to blocking or who will be denied a visa.
In response, it has been reported that Russia is preparing a draft law that will permit the
confiscation of US and EU assets if such sanctions are imposed. Our Moscow office is
monitoring progress of this draft law.
While it is too early to predict to what extent investors in the Ukraine and Russia may be
affected, investors concerned by these latest developments 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 1
Developments in the Ukraine and Impact on Investments
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) would violate the provisions
of any particular BIT would depend on the nature of the measures and the specific terms
of the relevant BIT. Some BITs include an exemption for measures necessary to
preserve a party’s security interests. Sometimes these provisions are drafted to be “selfjudging” so that each party decides for itself whether it considers a measure to fall within
the exception. Such provisions may be found to cover economic sanctions, for example.
In any event, investors are well advised to consider whether their assets in the region are
adequately protected.
Should you have any questions regarding the described situation including possibilities
for restructuring your business operations to secure BIT protection, please do not
hesitate to contact the authors.
Authors:
London
Vanessa C. Edwards
vanessa.edwards@klgates.com
+44.(0)20.7360.8293
Ania Farren
ania.farren@klgates.com
+44.(0)20.7360.8175
Ian Meredith
ian.meredith@klgates.com
+44.(0)20.7360.8171
Moscow
William M. Reichert
william.reichert@klgates.com
+7.495.643.1712
Washington D.C.
Daniel J. Gerkin
daniel.gerkin@klgates.com
+1.202.778.9168
Frank J. Schweitzer
frank.schweitzer@klgates.com
+1.202.778.9488
Donald W. Smith
donald.smith@klgates.com
+1.202.778.9079
Jerome J. Zaucha
jerome.zaucha@klgates.com
+1.202.778.9013
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Developments in the Ukraine and Impact on Investments
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