Ukraine’s inconsistent sanctions policy towards Russia

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In April 2018, Petro Poroshenko, Ukraine’s president, welcomed the new round of US sanctions, targeting Russian tycoons and officials close to the Kremlin. Poroshenko announced that Ukraine’s sanctions will be synchronised with the US measures and encouraged the EU to follow suit. International support has been crucial for Ukraine to bring about sanctions against Russia. “Only through a united front will we be able to change Russia’s behaviour and to restore the sovereignty and territorial integrity in Ukraine,” Poroshenko claimed.

Ukraine is expected to be a driving force behind sanctions against Russia, given that the goal of sanctions is to pressure Russia into ending its hybrid war in Ukraine. Yet, the country is not a major player in this matter, and its response to Russian aggression tends to be less hawkish than the rhetoric of its politicians would suggest. Ukraine’s sanctions policy does not follow the logic, timeline and scope of US and EU policies. Even by comparison with third countries such as Canada, Australia, Norway and Switzerland, Ukraine’s sanctions are less systematic.

A sanctions regime with exemptions

Whereas by September 2014 the US and EU imposed sweeping sectoral sanctions as a third phase after the diplomatic and restrictive measures, Ukraine’s government had only just adopted the legislative framework for its own measures. The Law “On Sanctions” specified the measures which can be imposed on individuals and entities that threaten Ukraine’s national interests, security, sovereignty and territorial integrity. The measures included personal and sectoral sanctions such as visa bans, asset freezes, limitations on trade operations and on the transit of resources, the prevention of capital flight and the cancellation of license issuing amongst others. But it took until September 2015 for Ukraine’s National Security and Defence Council (NSDC) to introduce a comprehensive list of targets, comprising 400 individuals and 100 entities. Introduced for one year only, the list partially overlapped with US and EU targets and included Valeriy Gerasimov, Sergey Naryshkin, Ramzan Kadyrov as well as Aeroflot, Bank of Moscow, Bank Rossiya and SMP Bank. The list also addressed a wide range of nationalist movements, battalions, elections observers in Crimea, and the media from self-proclaimed LNR, DNR and Russia. Despite its lengthy listing, Ukraine’s list failed to sanction some key individuals and entities involved in Russia’s annexation of Crimea and aggression in Eastern Ukraine, including Kremlin’s cronies and certain state-owned companies. It was not until March 2017 that Ukrainian subsidiaries of key Russian banks such as Sberbank and VTB were banned from continuing financial operations, a key step in preventing capital flight.

In May 2018, the NSDC considerably expanded its sanctions list in an effort to align with US measures from April. The list included the unprecedented number of 1748 individuals and 756 entities. However, there is no clear pattern to how sanctions are implemented: some individuals received visa bans, others were additionally subjected to asset freezes; for some, the sanctions were imposed for 5 years, while for others — permanently. Although the Ukrainian leaders did synchronise their sanctions list with the US’ Kremlin list, it still omitted significant targets from the previous years. For example, being under the US sanctions since 2014, Arkady and Boris Rotenberg were excluded, but Arkady’s son, Igor Rotenberg was listed. After Sergey Leshchenko’s criticism of the selectiveness of sanctions, the list was updated by adding another 11 individuals and 30 companies, including Rotenberg’s family members.

Despite the updates, Ukraine’s sanctions list still remains porous. According to the Center for Investigative Journalism, another 40 entities and 25 individuals are in mismatch with the US list. The latest version fails to include key entities such as Sovfracht-Sovmortrans Group, a Russian shipping and logistics company involved in the delivery of military devices and Siemens’ gas turbines to Crimea; SGM-Most and other subsidiaries of Stroygasmontazh Ltd involved in the construction of Kerch Bridge; Aleksey Mordashov’s Power Machines which were involved in the Siemens scandal; a number of Oleg Deripaska’s and Gennadiy Timchenko’s companies as well as Vnesheconombank, Transneft and Novatek. Ukraine’ sanctions list also ‘forgot’ to target Igor Sechin, Sergey Chemezov, Evgeniy Prigozhyn, Vladislav Surkov, Dmitriy Mansurov, Dmitriy Kozak – all of whom were sanctioned by the US and the EU in previous years.

Vested interests and weak enforcement

Lack of political will and weak law enforcement help explain Ukraine’s inconsistent sanctions policy. Despite a vast number of entities in the banking, transportation, military and defence sectors, Ukraine’s choice of targets lacks consistency. Firstly, the selectiveness of sanctions can be explained by Russia’s vested interests in Ukraine. Due to the longstanding political and economic interdependencies, the share of Russian business in Ukraine has always been significant and the annexation of Crimea and the war in Eastern Ukraine have not changed this radically. Even being under Ukraine’s economic sanctions, Mordashov and Deripaska managed to keep their businesses alive in Ukraine and to acquire new firms. Secondly, Crimea’s free economic regime became a convenient loophole for Ukrainian tycoons to avoid sanctions. In September 2014, the adopted law recognised Crimea as a free economic zone allowing any economic activity under a multi-currency regime free of taxes and fees. By re-registering their assets with Russian subsidiaries, Ukrainian businesses could avoid domestic sanctions. Finally, Ukrainian legislation still lacks provisions in the Criminal Code for sanctions violations, so it is easy for violators to avoid retribution. For example, despite loud rhetoric about the illegal transshipment of ilmenite to Crimea, the Russian ship Nefterudovoz caught in sanctions violation was let free without any criminal charges.

A trust issue

Ukraine’s inconsistent and weak sanctions could damage the country’s credibility and erode trust and support among international partners, especially of those which joined reluctantly. To show its willingness to bear significant costs and to demonstrate the credibility of its commitments, Ukraine should strengthen its sanctions regime. The creation of a sanctions unit, akin to the OFAC in the US, could ensure that better monitoring and enforcement mechanisms are in place. Sanctions law needs to catch up with government policy in other areas to eliminate legal loopholes. Finally, practices combatting money laundering and illicit financing should be incorporated into the sanctions regime.

Maria Shagina is a JSPS Postdoctoral Fellow at Ritsumeikan University, Japan. She was a visiting fellow at the Centre for Russian, European and Eurasian Studies, University of Birmingham and is currently affiliated with the Geneva International Sanctions Network. She is the author of the book Joining a Prestigious Club. She holds a PhD in Political Science from the University of Lucerne, Switzerland.   

annexation of Crimea, sanctions, Ukraine, war in Donbas