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Five years of EU sanctions against Ukrainian kleptocrats: tango that needs two

On 4 March 2019, the EU Council extended the asset freezing sanctions against Yanukovych and his associates for another year until 6 March 2020. However, only 12 persons left under sanctions out of the initial sanction list of 22 persons of March 2014. The main reason for a gradual lifting of the sanctions from certain Ukrainian ex-officials was lack of investigations of misappropriation of funds by the Ukrainian Prosecutor General’s Office and poor cooperation between Ukrainian and EU authorities. This raises the questions whether the EU sanctioning mechanism is a sustainable measure for guaranteeing prosecution of kleptocrats and what should be done to make the sanctions effective in the long run.

How the sanctions were imposed

During the events of Euromaidan in November 2013 – February 2014, there was a wide call for imposing targeted sanctions over Yanukovych and his associates (so-called “Family”) to stop the kleptocratic regime from police brutality and massive human rights violations. Viktor Yanukovych and the “Family” were known for notorious corruption schemes aimed at personal enrichment and lavish lifestyle. The exact amount of stolen by Yanukovych was unknown. The estimated damage to the state budget varied up to 40 billion USD. Although some of their assets were in Ukraine, it was widely believed that most of the money is hidden in the foreign jurisdictions. Thus, civil activists, including AntAC, were purposefully uncovering the assets of top Ukrainian officials and demanding worldwide asset freeze.

As a result, in March 2014, in response to the situation in Ukraine several countries imposed personal sanctions and asset freezing orders over Yanukovych and his associates, namely by the EU, the US, Switzerland, and Canada. The EU sanctions were of particular importance taking into consideration how the Ukrainian kleptocrats tend to hide the assets and spend money in European jurisdictions as well as overall European orientation of Ukraine.

What are asset freezing sanctions

EU sanctions is a temporary, extraordinary measure on the part of the EU, designed to help new Ukrainian pro-democratic government to perform a proper investigation of corruption crimes of ousted officials and not lose the money stolen from the state and Ukrainian people. “Ukrainian sanctions” are in a way unique as it has been the very first time when the EU has imposed the sanctions over former officials and not the ones still in power. This has been also the very first time when Ukrainian officials have been designated under foreign sanctions for corruption.

The initial restrictive measures considered 22 former Ukrainian high-ranking officials including former president Victor Yanukovych (see Annex 1 for the full list). The initial list consisted of 14 individuals on 6 March 2014 (see Council Regulation (EU) 208/2014), it was later extended by another 8 officials on April 2014 (see Council Implementing Regulation (EU) 381/2014). The criteria for the inclusion into sanction list was stated as “persons being responsible for the misappropriation of Ukrainian State funds, and persons responsible for human rights violations in Ukraine”. As this criteria was later challenged in the Court of Justice of the European Union (CJEU), the Council amended designation so that persons identified as responsible for the misappropriation of Ukrainian State funds include persons subject to investigation by the Ukrainian authorities:

(a) for the misappropriation of Ukrainian public funds or assets or being an accomplice thereto; or

(b) for abuse of office as a public office-holder in order to procure an unjustified advantage for him- or herself or for a third party and thereby causing a loss to Ukrainian public funds or assets, or being an accomplice thereto.’ (see Council Regulation (EU) 2015/138)

The idea of sanctions was to show support to the new government of Ukraine, secure assets, give chance to timely and fully conduct criminal investigations, and later recover the stolen assets for the benefit of the people of Ukraine. In practice, sanctions meant temporary freeze of all assets directly or indirectly associated with listed individuals or related legal entities. The EU and the Member States had to employ all necessary resources to immediately trace and froze the targeted funds, assets, and companies on the EU territory or under control of the EU financial institutions. Unfortunately, the EU never discloses the information on particular assets frozen under the sanction regime or associated with the sanctioned individual. It is only available to the EU financial intelligence units and law enforcement agencies. It also has been disclosed to the General Prosecutor’s Office of Ukraine (GPO).

Most of the sanctioned individuals fled Ukraine and moved to Russia. However, some of them moved to Europe (like Yuriy Ivaniushchenko who is allegedly residing in Monaco) as restrictive measures did not include visa bans or any other travel restrictions.

Gradual lift of sanctions

From the moment of introduction, the sanctions were subject to legal and political challenge by the listed officials. They have contracted the best in the field lobbyists and lawyers to represent them before European institutions and claim that their fundamental rights are violated and there are no grounds for the asset freeze as well as for the criminal prosecution.

10 of 22 sanctioned former officials managed to get rid of sanctions. The first to successfully challenge the sanctions was former Yanukovych’s advisor, Andriy Portnov. The CJEU found that the sole basis for his listings was a letter from March 2014 from the office of Ukraine’s Prosecutor General stating that investigations concerning them had made it possible to establish the misappropriation of large amounts of public funds.  The Court held that the letter provided no details of the matters specifically alleged against the 5 people or the nature of their responsibility, and so the designation criteria were not satisfied. As a result, Andriy Portnov was effectively cleared from sanctions since 26 October 2015.

After that decision, the sanctions were lifted from the following individuals:

The assets of those individuals primarily blocked in the EU were released from the freeze. For instance, due to the absence of a proper investigation, the EU had to lift sanctions from close Yanukovych ally Yuriy Ivaniushchenko; although there were credible and convincing reports of his involvement in the appropriation of state funds.

Now all the released former officials can freely use their assets in the EU. The criminal investigations against them in Ukraine either are closed or would be closed in the nearest future due to the expiration of procedural terms.

Problems with investigations in Ukraine

It is the Prosecutor General’s Office which is tasked to investigate crimes committed by Yanukovych and his associates.

Sanctions against most of the individuals were lifted due to the lack of effective investigation of corruption offences in Ukraine. Although the issue of the EU sanctions was the matter of high public attention during those years in Ukraine, it did not guarantee the necessary quality and speed of criminal proceedings. Even more, the failure to deliver the effective result of investigations became the reason of the resignation of two Prosecutors General appointed after 2014, Vitaliy Yarema and Viktor Shokin.

In the intervening five years since 2014, the hopes and illusions for immediate reform and effective investigations of corruption faded. The old regime has gone, but the same system of governance remains in place. Since the old law enforcement and judicial system has largely been retained, there is an absence of prompt and effective investigation of the criminal cases relating to Yanukovych and his associates. The reform of the General Prosecutor’s Office failed and the Office remained politically dependent, opaque and ineffective. The reform of the judiciary was delayed until the end of 2016, and the results of purifying the system from corrupt judges are disappointing.

None of the investigations of corruption has yet led to a conviction. The evidence is being lost; the investigations are stuck with procedural protractions or frozen due to the absence of suspects. The Special Investigative Department entrusted with the investigation of officials from the EU sanction is understaffed, has limited powers and resources, and even has been threatened with liquidation. Some of the cases were transferred between investigative units for no obvious reasons. Moreover, Parliament refuses to adopt necessary legislation that would unblock the trials in absentia.

All of the above indicates the lack of political will in Ukraine to investigate and prosecute the corruption offences conducted by Yanukovych and his associates. Thus, each year the prolongation of sanctions becomes harder for the EU.

Weaknesses of the EU sanction regime

On the other side, the EU itself is limited in the enforcement of the sanctions over kleptocrats due to the limitation of its sanctioning regime and institutional weaknesses.

From the very beginning, the EU considered sanctioning Ukrainian kleptocrats as a temporary political move. However, in case of preventing of kleptocracy and its spread to the EU countries freezing assets is not enough. Proper prosecution and confiscation of illicit assets in destination countries is crucial. However, as it was known from the public domain, most of the EU Member States were reluctant to perform their separate criminal investigations into the conducts of Yanukovych and his associates, specifically money laundering on the territory of the EU. They were waiting for the criminal proceedings to finish in Ukraine to receive evidence of crimes and illicit origin of funds, something that may never happen in a country, which is in transition from kleptocracy towards rule of law.  However, although verdicts in origin state are important, they are not exclusive to prove the money laundering in receiving state. For instance, Latvia did not wait for proceedings to finish in Ukraine and confiscated illicit funds on its own.

The other problem with the EU sanctions is challenge from the Court of Justice of the European Union. The Court is constantly reviewing the grounds for sanctioning and precondition the EU Council to conduct the thorough investigation of the subjects of sanctions, this way limiting the political powers and flexibility of the EU Council. Ironically, the kleptocrats are the ones who are in the most favourable position to use the Court to lift the sanctions. Unlike the other subjects of (terrorists, war criminals, nuclear weapons developers, etc) they are most vulnerable to asset freeze in the EU. At the same time, they have enough resources to access the Court and pay the leading lawyers for the services. The most recent example is ruling in the case of former Prime Minister of Ukraine, Mykola Azarov. According to the Court’s decision, the Council is required to verify whether the grounds for sanctions, like criminal investigation in Ukraine, correspond European standards of human rights. Meaning that the Council must separately obtain special evidence confirming that Ukraine does not violate, for instance, Yanukovych’s or Azarov’s rights to fair trial. It is hard to predict, how it really shall be done in practice and what type of evidence would be sufficient for the Court. As a consequence of this ruling, the sanctions are almost impossible to upheld in consideration of the countries of the weak democracies. Taking into the account that the EU Council has to bear the costs of proceedings and in some cases, Ukrainian sanctions become not only political but also a financial burden for the EU.

Lessons learnt

The sanctions played great role in supporting the Ukrainian government in transition period and helping Ukrainian civil society to keep focus of its government on fight against corruption. However, it was wrong to believe that country in transition with weak institutions and corrupt judiciary is able to properly prosecute former corrupt high officials. In order to make sanctions against kleptocrats further work, the EU needs to be more proactive and open in investigating foreign money laundering on its territory either through independent investigations or establishment of joint investigative units with law enforcement agencies from origin states.

Given the recent calls for the EU Magnitsky Act, in order to make it effective instrument in fighting corruption and human rights abuse, the EU needs to review powers of the EU Council  giving it more discretion on sanction designation and not limiting it with a review judicial proceedings in the third countries.

Annex 1

List of officials sanctioned by the EU

  1. Viktor Yanukovych, former president
  2. Viktor Vikotorovych Yanukovych, son of former president (no longer under sanctions)
  3. Oleksandr Yanukovych, son of former president
  4.   Vitalii Zakharchenko, former Minister of Interior
  5. Viktor Pshonka, former Prosecutor General
  6. Olena Lukash, former Minister of Justice
  7. Andriy Kluyev, former Head of Presidential Administration
  8. Serhiy Kluyev, former MP
  9. Viktor Ratushniak, former Deputy Minister of Interior
  10. Artem Pshonka, former MP
  11. Mykola Azarov, former Prime Minister
  12. Serhiy Kurchenko, Businessman
  13. Oleksandr Klymenko, former Minister of Income and Revenues
  14. Serhiy Arbuzov, former  Head of National Bank of Ukraine
  15. Yuriy Ivanyushchenko, former MP
  16. Edward Stavytskyi, former Minister of Energy and Coal Industry
  17. Raisa Bohatyriova, former Minister of Health
  18. Andriy Portnov, former Deputy Head of Presidential Administration
  19. Ihor Kalinin, advisor to Viktor Yanukovych
  20. Oleksandr Yakymenko, former Head of Security Service of Ukraine
  21. Oleksiy Azarov, former MP

22.   Dmytro Tabachnyk, former Minister of Education   

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