18 March 2014
Practice Group(s):
International
Arbitration
International Trade
European Regulatory
/ UK Regulatory
UPDATE: Developments in the Ukraine and Impact
on Investments
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
UPDATE: Developments in the Ukraine and Impact on
Investments
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.
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UPDATE: Developments in the Ukraine and Impact on
Investments
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.
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UPDATE: Developments in the Ukraine and Impact on
Investments
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
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UPDATE: Developments in the Ukraine and Impact on
Investments
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
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UPDATE: Developments in the Ukraine and Impact on
Investments
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.
Should you have any questions regarding the latest sanctions, and/or protection of
investments, including possibilities for restructuring your business operations to secure
BIT protection, please do not hesitate to contact the authors.
Authors:
London
Vanessa 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
+7.495.643.1700
Washington D.C.
Daniel Gerkin
daniel.gerkin@klgates.com
+1.202.778.9168
Frank Schweitzer
frank.schweitzer@klgates.com
+1.202.778.9488
Donald Smith
donald.smith@klgates.com
+1.202.778.9079
Jerome Zaucha
jeromez.zaucha@klgates.com
+1.202.778.9013
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UPDATE: Developments in the Ukraine and Impact on
Investments
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