Speech by ILI Project Manager Andrii Klymosiuk at the conference “Ukrainian Business with Russian and Sanctioned Owners: Status, Challenges, Solutions”
Ukraine has significant legislative gaps in regulating the activities of companies with sanctioned ultimate beneficial owners, leading to economic losses and legal uncertainty. This was stated by ILI Project Manager Andrii Klymosiuk during the third annual sanctions conference “Ukrainian Business with Russian and Sanctioned Owners: Status, Challenges, Solutions.”
“The current sanctions system is inconsistent and creates imbalances for both the state and businesses. In particular, restrictions are already in place in the subsoil use sector: companies with sanctioned owners are not granted or have not renewed special permits. At the same time, the practice of applying these restrictions is selective, and the legislation contains contradictions. As a result of such decisions, the state has already lost billions of hryvnias – both in the form of unpaid taxes and due to halted extraction and job losses,” the expert said.
He noted that, on the other hand, the Law “On Sanctions” does not prohibit sanctioned individuals from acquiring new assets. They can continue to generate income from their companies. Additionally, restrictions for such companies in bankruptcy or enforcement proceedings remain unregulated.
“As a result, an imbalance emerges. On the one hand, there are non-systemic blockages of enterprise operations and other obstacles for legal entities, a lack of mechanisms for certain actions and continued operations, and unpredictability of sanctions. On the other hand, sanctioned owners retain the ability to influence companies, withdraw assets, and operate without proper oversight,” said Andrii Klymosiuk.
The ILI expert recalled that Ukraine has committed to implementing EU approaches in sanctions policy. According to him, in the European Union, the assets of companies with sanctioned owners are generally subject to freezing, even if such companies are not formally included in sanctions lists.
“This applies in cases of ownership of 50% or more (including aggregated ownership) or actual control – through influence over decision-making, appointment of management, or actions via affiliated persons or arrangements,” explained Andrii Klymosiuk.
He added that EU requirements provide for the possibility of rebutting control and establishing firewalls. A company can demonstrate that its assets are not under the control of a sanctioned owner and that no funds will be made available to them. In addition, such firewalls block the owner’s control and allow the company to continue operating, provided that appropriate reporting is submitted to the competent authority.
“Determining whether companies are controlled is the responsibility of compliance and due diligence units within EU financial institutions. The Court of Justice of the EU, in case C-84/24, established that a company whose assets are frozen by an operator must have the right to challenge this decision before national authorities and courts. At the same time, the party imposing the freeze is obliged to inform the company of the reasons for its decision,” said the ILI expert.
Among the key steps to ensure effective sanctions and a balance of interests in Ukraine, Andrii Klymosiuk proposes: improving the mechanism for applying asset-freezing sanctions by extending their effects to controlled companies; introducing procedures to rebut control and establish firewalls; implementing a mandatory reporting mechanism; introducing a system of permits for actions prohibited by sanctions; and creating or designating a national competent authority in the field of sanctions.
