Why Should Ukraine Criminalize Sanctions Evasion, and Why Did the Discussion Start Only in the Twelfth Year of the War?

We often discuss sanctions, but their impact and the consequences of violating them are not always clear. Moreover, despite more than 17,000 individuals and companies being subject to Ukrainian sanctions, the effectiveness of these measures remains questionable. Recent decisions by the National Security and Defense Council raise even more questions about how sanctions function in Ukraine and who they truly affect.

First and foremost, it is essential to understand that sanctions are a state’s response to violations of its national interests by hostile states, their citizens, and companies. Therefore, Ukraine’s sanctions policy should now be directed solely at its primary adversary—the Russian Federation—and the Kremlin’s allies who support its full-scale aggression against Ukraine. Amid escalating political battles, it is crucial to maintain this focus and strengthen it. This article will explore ways to intensify sanctions pressure on the aggressor.

On January 14, Volodymyr Zelenskyi submitted an urgent draft law (No. 12406) to parliament, criminalizing the circumvention and violation of sanctions in Ukraine. In other words, Ukraine may finally adopt a regulation that enables the punishment of individuals who attempt to violate or circumvent anti-Russian sanctions.

An effective sanctions policy, by its very nature, should include a range of systemic solutions. The proposed draft law is merely the first step in strengthening this system—even if this step comes in the 12th year of the war. However, drawing on the experience of other countries, this draft law could be made more ambitious by following the example of European legislation.

Next, we will explore why adopting these legislative updates is a crucial step that both national experts and Ukraine’s international partners have long awaited. We will also examine how to take this step—belatedly, yet effectively.

Why is it important to reform the existing approach?

Sanctions are temporary political measures imposed by a state on individuals, companies, and economic sectors of another state that threaten or violate its national interests. Restricting the rights of such violators, particularly in the economic sphere, compels them to cease their unlawful actions. The faster and more effectively these measures are enforced, the less harm the state will suffer.

That is why it is crucial to prevent sanctioned persons from adapting to new restrictions and finding ways to circumvent them—something the Russian Federation continues to do even in the third year of the full-scale invasion and the twelfth year of the Russian-Ukrainian war.

The Law on Sanctions in Ukraine was adopted in 2014 in response to Russia’s military aggression in the eastern Ukrainian regions. Its goal was to safeguard national security, interests, and sovereignty through targeted restrictions on specific individuals and legal entities. Even in its original version, the law outlined the mechanisms for imposing and lifting sanctions, provided a non-exhaustive list of measures, and established the foundation of the country’s sanctions policy.

However, no state policy can be truly effective without enforcement mechanisms to ensure compliance. When sanctions serve as a state’s response to violations of its national interests, enforcing them becomes especially crucial.

Nevertheless, when the law was adopted in 2014, there was no discussion about establishing liability for violating or circumventing sanctions. The law stipulated that the NSDC would decide on the application of sectoral or personal sanctions, with the president enforcing this decision by decree. In the case of sectoral sanctions, parliamentary approval was required through a corresponding resolution. The law also states that once a presidential decree is issued or a Verkhovna Rada resolution is adopted, the decision becomes binding. However, it does not address any consequences for non-compliance, which has severely undermined the effectiveness of sanctions.

After a full-scale Russian invasion in 2022, the Law on Sanctions was amended in accordance with new military challenges. The key update introduced a new type of sanction—asset recovery (confiscation) by court decision, transferring the assets of sanctioned individuals to state ownership. This measure can only be applied during martial law and only after the individual’s assets have been frozen, preventing any use or transfer.

This amendment to the sanctions legislation signaled that Ukrainian authorities were prepared to take more decisive action against the Kremlin’s allies.

However, despite tightening sanctions policy, lawmakers failed to address a broader issue—the risk of sanctioned assets being withdrawn from Ukraine during the blocking stage, before reaching the courts. To grasp the scale of the issue, consider this: as of the end of January 2025, according to the State Register of Sanctions in Ukraine, the assets of more than 14,000 individuals and companies had been blocked. This means that before a sanctioned confiscation case begins, there is a high risk that the sanctioned individual may transfer the property to someone not subject to sanctions or move the assets out of Ukraine.

An example of this scenario is the asset recovery case involving Russian oligarch Mikhail Shelkov. Until March 2023, he controlled Demurinsky Mining and Processing Plant LLC, which exported titanium-containing raw materials to Russia and Belarus in 2020–2021. Although the Law on Sanctions had been in force for several years by then, before the full-scale Russian invasion, it was still possible to operate in ways that circumvented its restrictions.

When the High Anti-Corruption Court began reviewing the case, it was revealed that just days before February 24, 2022, Shelkov sold his share in the Ukrainian enterprise—owned through the Cyprus-based company Limpieza Limited—to a Ukrainian citizen, Svitlana Iltio. At that time, Shelkov was already under indefinite sanctions imposed by the NSDC, which included, among other measures, asset blocking and a total or partial ban on transactions involving securities of his companies.

Such actions constitute a direct violation of sanctions, and those responsible should be held accountable. However, in Ukraine, the only current legal avenue for prosecuting violators of anti-Russian sanctions is to charge them with collaboration. Yet, this offense only partially covers actions related to evading or breaching sanctions. This approach is ineffective because it defines the crime based on cooperation with the enemy rather than the act of circumventing sanctions itself.

Moreover, the article on collaboration was only added to the Criminal Code in April 2022, whereas Ukraine began imposing anti-Russian sanctions eight years earlier. This means that despite the existence of sanctions, they had little real impact and did not effectively restrict the ability of enemies of the state to own and conduct operations with their property in Ukraine.

For example, the NSDC imposed asset-blocking sanctions on Russian oligarch Oleg Deripaska in 2018. However, this did not prevent him from continuing to own and manage assets in Ukraine, which he had acquired in the early 2000s. Among these assets, Deripaska owns Mykolaiv Alumina Plant, the largest producer of metallurgical alumina and aluminum hydroxide in Ukraine, along with 11 other enterprises and their industrial complex. These assets were recovered from the Russian oligarch’s ownership and confiscated through a new sanctions mechanism in 2023. However, until then—even after the war began in 2014—they continued to operate under Deripaska’s control. 

One can only speculate how much weaker Russia’s influence on the Ukrainian economy would be if Ukraine’s sanctions policy—particularly the enforcement of penalties for violations and circumvention—had matched the scale of Russian aggression. However, the draft law on liability for circumventing sanctions has finally been submitted to parliament for consideration, making it a case of better late than never.

How do other countries punish violations and circumvention of sanctions? 

Another key argument for adopting this draft law in Ukraine is that our Western partners are already actively enforcing or beginning to enforce the criminalization of sanctions violations and circumvention.

For example, after Brexit, the United Kingdom passed the Sanctions and Anti-Money Laundering Act (SAMLA). Based on this law, in September 2024, the UK’s Office of Financial Sanctions Implementation imposed a £15,000 fine on Integral Concierge Services for violating financial sanctions against the Russian Federation.

The EU’s approach to criminalizing sanctions circumvention is particularly relevant for Ukraine. This is logical, as Ukraine is actively moving toward EU membership and must align its national legislation with European law.

Notably, some EU countries, such as Latvia, Lithuania, and Estonia, have had national legislation criminalizing sanctions violations and circumvention since 2016–2018. These changes enabled the Baltic states to respond swiftly to Russian aggression. For example, as of August 2024, Lithuania had already launched investigations into 50 cases of sanctions violations against Russia and Belarus. The penalties for these crimes can include fines, property confiscation, or imprisonment for up to eight years. 

But, unlike the Baltic states, not all EU members had a legal basis for punishing Kremlin henchmen for violating and circumventing sanctions imposed after the full-scale invasion. This led to the unification of the process in April 2024 through the adoption of a special EU Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures. This directive establishes minimum rules defining which acts constitute violations and circumvention of EU restrictive measures, while also setting thresholds for punishment.

 For example, it proposes a maximum penalty of at least five years’ imprisonment for individuals who violate EU sanctions, provided the offense involves goods, services, operations, or activities valued at €100,000 or more at the time of commission. The directive also urges EU countries to confiscate both assets involved in the crime and any proceeds derived from it.

Of course, when discussing global practices of criminalizing the circumvention of sanctions, it is essential to mention the United States. The country criminalized the violation and circumvention of sanctions as early as 1977 through the International Emergency Economic Powers Act (IEEPA).

Since the beginning of the full-scale invasion, the United States has led efforts to hold Russian oligarchs criminally accountable, even confiscating several of their assets. This includes more than $5 million from the sanctioned Konstantin Malofeev and a $300 million yacht belonging to Suleiman Kerimov, a close associate of Putin. However, a month after the new presidential administration took office, the US sanctions policy toward Russia appeared to stall, and its future direction may radically change. That is why Ukraine must immediately strengthen its cooperation with the EU on this issue.

How should the violation and circumvention of sanctions be criminalized in Ukraine?

Given our active efforts toward European integration, we should implement the directive’s minimum requirements now to save time. Otherwise, these changes will still be necessary later during negotiations with the EU.

Moreover, Ukraine has already significantly delayed the criminalization of sanctions circumvention, while such violations remain critically harmful to us today. It is time to take the lead in holding the Kremlin’s henchmen accountable. 

The introduction of an article in the Criminal Code, as proposed by draft law No. 12406, which defines the violation or circumvention of sanctions as a crime, will allow:

• in addition to confiscating the assets of Putin’s henchmen, also bringing them to criminal responsibility in the form of imprisonment;
• impose fines from UAH 425,000 to UAH 2.04 million on violators of sanctions. These amounts will go to the state budget.
• strengthen the sanctions policy of Ukraine as a whole and prevent new potential violations. 

It is important to note that, for the effective application of the new article on the criminalization of violations and circumvention of sanctions, legislators should retain the negligent form of guilt for this crime.

Currently, the explicit mention that criminal liability for violating and circumventing sanctions includes a negligent form of guilt appears only in the explanatory note to the draft law. Meanwhile, the EU Directive mandates the criminalization of activities such as trade, import, export, sale, purchase, transfer, transit, or transportation of sanctioned goods, as well as the provision of services related to such goods—even if committed out of negligence—at least when these goods are military or dual-use.

It is crucial to implement this provision, at least due to the current martial law, and to ensure that violators cannot evade responsibility by claiming ignorance of the imposed sanctions.

For example, state registrars and notaries are required to comply with financial sanctions imposed on individuals or companies. This means they must not draft or register any transactions involving the assets of sanctioned persons, as such property is officially blocked. However, a common scenario is when a registrar, driven by personal interest, enables a sanctioned person to sell an asset to someone not under sanctions. In their defense, the registrar might cite external factors—such as loss of access to state registers or system failures due to martial law. This makes it extremely difficult to prove the registrar’s intent to violate the sanction.

Another element of European sanctions legislation, which is unfortunately not mentioned at all in draft law No. 12406, is the provision of temporary licenses allowing the disposal of sanctioned assets. In the EU, this mechanism allows an authorized body of an EU member state to grant temporary permission to a sanctioned person, their relatives, etc., to use a frozen asset—for example, funds to cover basic needs, court fees and payments, or fulfill contractual obligations. Companies can also obtain such a license to avoid bankruptcy or other serious financial consequences associated with sanctions.

Each country establishes the procedure for such licensing through its national legislation. In most cases, this mechanism requires submitting a license application through a designated state platform, along with documents justifying the need to use a frozen asset, specifying how it will be used and for what period. The authorized body reviews such applications within a few months and either grants or denies the license. Any violation of the issued license’s terms is treated as a breach or circumvention of the sanction.

Implementing such a mechanism in Ukraine would offer additional opportunities to maintain the financial stability of Ukrainian enterprises, as companies affected by sanctions can suffer significant losses. Consequently, after these companies are confiscated, the State Property Fund may face greater challenges in selling them.

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Criminalizing the violation and circumvention of sanctions in Ukraine is a long-overdue step for a state that has been resisting Russian military aggression since 2014. Recent political events only reinforce the urgency of a united effort to counter the enemy effectively.

Due to the absence of penalties for violating sanctions, Russian businesses continued to operate and expand within Ukraine’s economy until the full-scale invasion by the Russian Federation in 2022. And there are still significant risks of “losing” Russian assets that could otherwise be confiscated in Ukraine’s favor.

After such a difficult struggle at the front, we cannot afford to shift focus away from sanctions or continue lagging behind our partners in sanctioning the Russian Federation. That is why we must implement the best European practices now, demonstrating our firm commitment to countering Russian economic intervention and reinforcing our intent to join Europe’s joint sanctions regime against the Kremlin.