Weekly analytics for 15 – 21 January

Criminal Responsibility for Sanctions Violations Is Finally on the Horizon – Perhaps

Event

On January 14, the President of Ukraine submitted to the Verkhovna Rada for urgent extraordinary consideration the draft Law (№ 12406) titled “On amendments to the Criminal Code of Ukraine, the Criminal Procedure Code of Ukraine, and the Law of Ukraine “On Sanctions” regarding the establishment of liability for violations of special economic and other restrictive measures (sanctions)” (hereinafter referred to as the draft Law). The draft Law proposes, in particular the following amendments:

1) in the Criminal Code of Ukraine (hereinafter referred to as the CC), introduce a new Article 114-3 titled “Violation of a special economic or other restrictive measure (sanction) and/or intentional circumvention of sanctions,” along with related amendments.

2) In the Law of Ukraine “On Sanctions,” introduce a new Article 5-5 titled “Liability for violation and/or circumvention of sanctions,” and implement additional amendments to this Law and the Criminal Procedure Code of Ukraine.

The event was preceded by the adoption of Directive (EU) 2024/1226 by the European Parliament and the Council on April 24, 2024 “On the definition of criminal offenses and penalties for violation of Union restrictive measures and amending Directive (EU) 2018/1673” (hereinafter referred to as the Directive). This Directive requires EU member states to incorporate criminal liability for violations and circumvention of sanctions into their national legislation within one year. Considering Ukraine’s status as a candidate for EU membership, the amendments proposed in the draft law will facilitate the alignment of Ukraine’s national legislation with the EU legal system.

CPLR’s assessment

This draft law is not only relevant, but also long-awaited. Back in December 2022, the Centre emphasized the need to introduce liability for failure to comply with sanctions in the Criminal Code, referring to the EU Council’s decision of November 28, 2022, to include violations of restrictive measures to the list of crimes provided in the Treaty on the Functioning of the European Union.

Although the development of the draft law has already been overly delayed and it has been submitted as urgent for extraordinary consideration, it is crucial that the existing shortcomings be addressed during its further refinement. If these issues are not corrected, they could hinder the practical implementation of the law.

1. The proposed Article 114-3 of the CC introduces the term “subject of violation” (“subject”). However, the precise definition of this “subject” is not provided. Additionally, the term “subject” does not appear in the Law “On Sanctions”. An analysis of clauses 2, 3, 4, 5, 6, 7, 10, 12, 16, 19, 24-1, and 25 of part 1 of Article 4 “Types of Sanctions” of this Law referenced in the note to Article 114-3, reveals that some of these restrictions either lack a defined subject or the subject has no value. For example, it is unclear what is meant by the subject of “restrictions on trade operations” (clause 2) or the subject of “other sanctions” (clause 25).

2. Part 4 of the proposed Article 114-3 of the CC suggests that, under certain conditions, not only a participant in an organized group but also a member of a criminal organization (except for the organizer or leader) may be exempt from criminal liability for committing the offense specified in part 3 of this article, particularly if they assist in preventing the activities of the criminal organization. However, the issue of criminal liability for crimes under Article 255 of the CC (“Creation, leadership of a criminal group or criminal organization, as well as participation in it”) is outside the scope of this draft law and cannot be regulated by it, as this would create a conflict with the provision in part 6 of Article 255 of the CC.

Clearly, if a crime specified in Article 114-3 is committed by a criminal organization, the act should be classified as a combination of crimes.

3. Part 4 of Article 114-3 of the CC proposes that a person (excluding the organizer or leader of an organized group or criminal organization) who commits an act specified in parts 1–3 of this article may be exempt from criminal liability if, prior to being notified of suspicion, he/she reports the crime and assists in its investigation or in preventing the activities of the organized group or criminal organization.

However, several points should be clarified. First, it should be specified which exact crime (or crimes) the person is exempt from criminal liability for – only from the offense defined in this article (which would be correct), or, as suggested by structure of the provision, from criminal liability in general.

Second, the phrase “if, prior to being notified of suspicion, they report the crime” implies that the crime report may not be voluntary but coerced. In all other 26 articles of the CC that include similar provisions, the report is required to be voluntary.

Third, according to Article 13 of the Directive, Member States shall use special investigative tools in combating organised crime. In this regard, reference should be made to the specific wording in Framework Decision 2008/841/JHA of the Council of October 24, 2008, on the fight against organized crime. The Decision states that an offender may only be exempt from the penalties if he/she: 1) renounce criminal activity, and 2) provide administrative or judicial authorities with information which they would not otherwise have been able to obtain, helping them to: (i) prevent, end, or mitigate the effects of the criminal offense; (ii) identify or bring to justice the other offenders; (iii) find evidence; (iv) deprive the criminal organisation of illicit resources of of the proceeds of its criminal activities ; or (v) prevent the further relevant offenses from being committed.

4. The proposed definition of sanction circumvention in Article 5-5 of the Law “On Sanctions” which uses the conjunctions “or” and “whether” nine times and includes 24 commas, is overly complex and difficult to interpret and apply. Specifically, it is unclear which actions are considered circumvention of sanctions.

Firstly, to improve clarity, the definition should be simplified by breaking down clause 1 of part 2 of Article 5-5 into subclauses. For example:

“2. Circumvention of sanctions under this Law includes:

• unlawful actions concerning assets: 

– acquisition of assets where the factual circumstances indicate that they belong to a person against whom a sanction in the form of asset freezing has been imposed; 

– transfer of such assets; 

– transformation of such assets; 

– concealment or masking of the origin, ownership, control, or rights to such assets, as well as the source of their origin or location, – 

if these actions are committed by a person…”.

Secondly, the sentence starting with “if these actions are committed by a person who knew or should have known that such assets directly or indirectly, fully or partially, belong to a person against whom a sanction in the form of asset freezing has been applied, or over which such a person may exercise actions equivalent in substance to exercising the right of disposal” needs further clarification. Specifically, the phrase “or over which such a person” creates ambiguity regarding whether it refers to one alternative condition or two separate conditions, and what exactly these conditions entail.

Thirdly, clause 2 of part 2 of Article 5-5 requires stylistic improvement. It would be to reword it as follows: “2) causing the bankruptcy of an economic entity or its ultimate beneficial owner, against whom a sanction in the form of asset freezing has been applied, or submitting a knowingly false statement regarding the inability of such an entity to fulfill its obligations to a creditor, with the aim of altering the ownership of the assets of the economic entity”.

Fourthly, the second sentence of clause 1 of part 2 of Article 5-5 states that circumvention of sanctions, if the total value of assets exceeds a certain threshold, applies solely to the acquisition of assets. However, it is unclear why this value requirement is not extended to other actions, such as the transfer or transformation of assets, etc.

5. According to the fourth paragraph of clause 2 of part 2 of Article 5-5, assets are defined as movable property with a value exceeding fiftysubsistence minimum for non-disabled persons, as established on January 1 of the reporting year. However, no such value threshold is specified for many other categories of assets, regardless of their value. This inconsistency raises questions about why securities, cash, and other items are classified as assets subject to sanction circumvention regardless of their relatively low value (below UAH 151,400), while movable property is only considered under such sanctions if its value exceeds this threshold.

“Special” Salaries Initiatives in State Bodies

Event

Last week, the Verkhovna Rada of Ukraine considered the draft law “On amendments to the Budget Code of Ukraine to update and improve certain provisions”, introduced by the Cabinet of Ministers of Ukraine (№ 12245, of November 25, 2024).

This draft law, prepared by the Ministry of Finance of Ukraine, contained provisions, specifically addressing the following:

– the leadership of the State Audit Service of Ukraine is exempt from civil service legislation, except for requirements related to appointment and termination;

– officials of the State Audit Service are assigned new special ranks (state controller ranks I–VI);

– salaries are determined based on the subsistence minimum for non-disabled persons (hereinafter referred to as SM), which is set at UAH 3,028 as of January 1, 2025:

the head of the financial control body – 55 SM (UAH 166,540), deputy head – 50 SM (UAH 151,400), department director or head of a territorial unit – 35 SM (UAH 105,980), state inspector – 20 SM (UAH 60,560), and other positions;

– a monthly allowance is provided based on special ranks, calculated as a percentage of the base salary (state controller rank I – 80%, rank II – 65%, rank III – 50%, and so forth).

At the same time, the Verkhovna Rada Committee on Budget Issues, serving as the main committee, drew attention to these revisions and their excessive specificity. In its conclusion dated December 13, 2024, the committee recommended excluding the proposed exemption of the head of the state financial control body and their deputies from civil service legislation, as well as the provision establishing their salaries, from the Law of Ukraine “On the fundamental principles of state financial control in Ukraine”.

Furthermore, during the parliamentary review of the draft law, amendment № 605, proposed by MP H.M. Mamka was rejected. This amendment called for further expansion of the Ministry of Finance’s provisions by introducing additional allowances, including those for workload intensity and for performing particularly important tasks. It also proposed that salary schedules for civil servants of the State Audit Service and its territorial bodies be determined separately by the Cabinet of Ministers of Ukraine and excluded from the unified salary schedule for civil servants.

CPLR’s assessment 

The CPLR consistently advocates for the removal of unjustified special provisions in the remuneration system for civil servants in state institutions, which are occasionally included into draft laws, either directly or under the pretext of unrelated legal regulation, as demonstrated in this case. Currently, similar “special” remuneration regulations exist for civil servants in the Customs and Tax Services of Ukraine, which function as central executive authorities and are also coordinated by the Ministry of Finance.

Such “special provisions” and “exceptions” lead to the outflow of qualified civil servants with relevant expertise, either through transfers or resignations, to other state bodies offering preferential salary conditions.

By adopting a grading system based on EU governance standards and business sector practices as state policy, public administration must align with the principles driving the reform of salary levels. This includes considering the role and position within the state body’s structure, the level of responsibility, task complexity, and other relevant factors.

Influence and lobbying by certain state bodies for higher salaries within their offices show signs of a conflict of interest and are unacceptable. Parliamentarians and the public act as the external oversight in these matters during the review of draft laws.

In its report on Ukraine, presented as part of the Enlargement Package at the end of last year, the European Commission highlighted the importance of adhering to the principle of equal pay for equal work.

The CPLR will continue to monitor this situation and draw attention to similar “initiatives”. 

Notably, the European integration draft law, №8222 of November 23, 2022, which proposes the implementation of a unified remuneration system across state bodies, should take into account these European approaches and grading standards by the time of its second reading. However, its consideration for adoption has not yet occurred.

We hope that consultations and its preparations for the second reading will involve civil society institutions and fully reflect the principles outlined above.

Citizens Elected New Membership of the Ministry of Defense’s Anti-Corruption Council

Event

On January 13, the Commission on ensuring the competition for the formation of the Public Anti-Corruption Council under the Ministry of Defense approved the results of the online voting and announced the names of the 15 winners who will join the membership of the council (PAC).

The voting, which took place on January 7 on the ministry’s website, attracted over 100,000 participants, setting a new record for citizen engagement in public council competitions, both within the Ministry of Defense and other state bodies. The increased public attention to this competition led to the cancellation of the initial vote on December 26 due to technical issues, with some participants alleging possible manipulation of the voting process.

CPLR’s assessment

The initiative to establish an advisory body to assist the Ministry of Defense in managing corruption risks emerged following high-profile corruption scandals in military food procurement. In March 2023, the ministry approved the Regulations for the Public Anti-Corruption Council (PAC) and announced a competition.

By mid-April of the same year, the council began its work. One of the key achievements of the PAC’s first composition was the return of procurement procedures to the Prozorro platform.

According to the PAC regulations, the council’s first composition was elected for a term of just one year. This short term of office, along with the need to hold annual competitions turned out to be quite burdensome for the Ministry of Defense, particularly in wartime conditions. In 2024, amendments were made to the PAC regulations. As a result, council members will now serve two-year terms, and public organizations can delegate not only civilians but also rank-and-file military personnel, which is expected to improve the council’s effectiveness.

To conduct the competition, the Ministry of Defense forms a commission that also includes public representatives. The ministry’s role is limited to supporting the commission’s operations, without any influence on its decisions. A key responsibility of the commission is to verify whether candidates meet the criteria set out in the Regulations and to determine their eligibility to participate in the competition.

Given that the PAC is also responsible for monitoring the effectiveness of the Ministry of Defense’s public procurement, it is crucial that council members have no affiliation with procurement participants to prevent conflicts of interest and distortions in the results of tender processes. This is one of the main requirements for candidates, which the commission shall verify. The Regulations do not specify any additional requirements concerning the connections between candidates or the public organizations nominating them. Furthermore, the Regulations specify that a single public organization may nominate up to three candidates.

For the 2024 competition to form the new PAC, documents were submitted by 42 candidates. One candidate was disqualified for failing to meet the requirements due to being nominated by a charity fund, which is not permitted under the Regulations. Another candidate withdrew from the competition. As a result, 20 representatives from public organizations who fully met the PAC Regulations, including those regarding connections with procurement participants, were eligible for the voting stage.

According to the PAC Regulations, the council consists of 15 members, selected based on the highest number of votes in the online voting. Each voter had the option to support either one candidate or vote for the entire council of fifteen members. Voter identification was conducted via BankID and Diya.Signature services, ensuring that each individual could only vote once.

After the voting concluded, the Commission on ensuring the competition reviewed the report analyzing the ranking vote, which confirmed that there were no interventions in the online voting system or any attempts to unlawfully influence the competition’s results. This validation allowed for the approval of the list of winners and the formation of the PAC. Furthermore, the Commission plans to provide recommendations to the Ministry of Defense regarding amendments to the PAC Regulations to improve the council’s formation process.

By establishing the PAC and supporting its activities, the Ministry of Defense demonstrated a commitment to balancing transparency with the need to ensure information security. However, under normal circumstances, where state bodies operate based on transparency and accountability, the need for such extensive public involvement in managing corruption risks should not arise. Existing legislation already provides effective tools for both preventing corruption and engaging the public in policy-making. Implementing these measures could reduce corruption risks and enhance the transparency of state bodies’ operations, eliminating the need for separate anti-corruption councils, even under martial law.