The legislator must clearly establish: what economic activity Ukrainian business and citizens of Ukraine (everyone, not only those living on the peninsula!) Can conduct in the occupied territories, and what is prohibited.
The state has not yet answered the question of what its economic policy should be in relation to the territories of the Autonomous Republic of Crimea and Sevastopol occupied by Russia. Politics is a system of rules, their legal regulation, and application in practice, which should both protect the rights of citizens and cause economic damage to the aggressor country. Instead, a fake “free economic zone“ Crimea ”was created in the occupied territory for ten years, although such zones, as is customary throughout the world, are created to attract investment. You can’t put on a healthy head, but since 2014, this is how the specifics of carrying out economic activities in the temporarily occupied territory (WTO) have been defined.
The reason for the appearance of this political and legal freak is of the same nature as the ATO instead of the martial law provided for by law in the event of armed aggression; qualification of crimes committed in the context of an armed conflict in the East, not as military, but under “terrorist” articles; different status of the occupied territories; the slogan “Crimea is Ukraine” and the status of non-residents for Ukrainian citizens from the occupied peninsula; appeals to Western partners to strengthen sanctions against Russia over Crimea and the introduction of a free economic zone regime there, which undermines the effectiveness of these sanctions. This nature is the political and professional inconsistency of persons authorized to perform the functions of the state, to perform these functions, multiplied by high-level corruption.
Let me briefly recall this one of the most shameful pages of our recent history. In April 2014, the Verkhovna Rada of Ukraine adopted a law on the legal regime of the temporarily occupied territories of the Autonomous Republic of Crimea and Sevastopol and guarantees the rights and freedoms of citizens living there. It was decided to withdraw the section that was supposed to regulate economic relations and prepare a high-quality bill. The Cabinet of Ministers was given three weeks for this. But the government of Arseniy Yatsenyuk ignored the decision of the parliament, instead of on August 14, with several attempts in parliament, they dragged through a law (authors – Ksenia Lyapina and Sergey Terekhin) on the introduction of a free economic zone regime in the occupied territory. In fact, Ukrainian businesses were encouraged to invest in the Russian-occupied economy. The law entailed the adoption of several discriminatory acts: NBU Order No. 699, which deprived Crimean citizens endowed with the non-resident status of access to banking services in the free territory; and Resolution of the Cabinet of Ministers No. 1035, which limited the number of things that Crimean residents could take with them to two dozen. The rest were equated to goods and taxed.
As Media wrote, there were three nuts in Kyiv that Putin had to break his teeth about in 2014: Crimea was 70-85% dependent on water and electricity supplies from the Ukrainian “mainland”, to a large extent – on food supplies and industrial goods. Instead, kilometers-long queues of trucks with food and other goods stretched to Crimea. Ukrainian business helped Russia maintain an army of military men and officials during the most difficult period when the Kerch Strait was the only supply channel to Crimea. During the year of the existence of the FEZ, goods worth almost a billion dollars were delivered through the administrative border with the Kherson region (data from the State Fiscal Service). Kyiv agreed to a contract for the supply of electricity to Crimea, which in the agreement is called the “Southern Federal District” (details of the deal are in Medvedchuk’s tapes). The supply of goods and electricity in the fall of 2015 was stopped by the Civil Blockade, but under the presidency of Petro Poroshenko they stood up for the law itself. Even when the head of the Verkhovna Rada ordered the creation of a working group on amendments to the law on a free trade zone with the participation of officials and the civil sector, the head of the committee, Nina Yuzhanina, simply blocked its work. Ukrainian business in the occupied territories continues to operate without any restrictions – this is allowed by the law on the FEZ “Crimea”.
Now we have a favorable situation and, importantly, we have the political will to steer out of this peak, restore the rights of citizens and at the same time adopt a system of clear and adequate rules that will shape the economic policy towards the occupied Crimea. The summit of the Crimean Platform forces the authorities to do their homework – to pass laws that were postponed for all the years of occupation due to the disadvantage for oligarchic business or political inexpediency from the point of view of the ruling circles. In the so-called package of laws of the Crimean platform, according to People’s Deputy Rustem Umerov, there are 20 bills. There are only two + in the active work of the parliament today. This is a bill on the indigenous peoples of Ukraine (Crimean Tatars, Karaites, and Krymchaks), introduced by the President as an urgent one,
Among the initiators of project # 5502, according to which the law on the FEZ “Crimea” is no longer in force, there are almost 60 MPs from all factions, except for the OPZZH. Major Committees this week have recommended it, as well as draft amendments to the Tax and Customs Codes, for adoption as a basis and in general. This turbo mode has one explanation: the people’s deputies need to be in time before the end of the session and before the Crimean summit to adopt at least these bills from the “package of the Crimean platform.”
As regards the restoration of the rights of Ukrainian citizens in Crimea, violated by the law on the FEZ “Crimea” and its derivatives, the bill №5502, undoubtedly, can be called qualitative. And this is, first of all, the merit of the Crimean human rights activists, who have been suing the government and the NBU for all the years of the occupation for the abolition of discriminatory norms, as well as the presidential representative in the Autonomous Republic of Crimea. Their recommendations were fully taken into account in the draft law, therefore, with its adoption, the shameful non-resident status for Ukrainian citizens of Crimea and Sevastopol should go into oblivion (although not everyone in the government-supported its abolition), a mocking list of 20 things allowed for transportation from occupied to free territory ( it will be replaced by a list not allowed for transportation), restrictions on the import of funds and others that did not allow evacuation from the occupied Crimea with all the necessary property or money from the sale of real estate.
However, the conditional economic part of the bill looks minimalistic. In principle, now we see an option that Crimean public figures have repeatedly proposed to the authorities: to abolish the law on fake FEZ, and to transfer its sound norms to the Tax and Customs Codes and other special laws. They also tried to fill with content article 13 “Features of the implementation of economic activities in the temporarily occupied territory”, which previously referred to the relevant law, which instead became the law on FEZ. The project establishes a ban on previously permitted activities, which were undermined by the restrictions imposed by the “Crimean sanctions” of the EU and the United States. Among the short stories are the following:
- certificates, licenses, and permits that are still recognized as valid, including for exploration and production of minerals, will be considered invalid in the temporarily occupied territory, but they can be used in the rest of the country. However, they will not be renewed upon expiration;
for goods produced in the temporarily occupied territory, a certificate of Ukrainian origin cannot be issued (one of the most delicious corruption components of the Crimea FEZ is closed, this exception is even taken into account in the EU sanctions);
a direct ban on the supply (import/export) of goods (works, services) by all modes of transport, power lines, and hydraulic structures. The latter, of course, concerns the supply of Dnieper water through the North Crimean Canal, but the ban on water supply is also spelled out as a separate clause (so that without any fantasies of neophytes in power who will certainly go through the ritual of beating their heads on the water theme for Crimea);
a ban on the privatization of state and communal property (except for housing for military personnel – this norm has been preserved).
All these prohibitions and restrictions are undoubtedly a big breakthrough in the formation of state policy in relation to the FOT of Crimea and Sevastopol, especially when viewed from the point of view of the law on a free economic zone. However, they have not yet compiled a system of rules for citizens and authorities.
Simply put, the legislator must clearly establish: what economic activities Ukrainian business and citizens of Ukraine (everyone, not only those living on the peninsula!) Can conduct in the occupied territories, and what is prohibited. And for violation of these prohibitions and restrictions, administrative and criminal liability should be introduced (and these changes to the relevant codes should go in a package with bill No. 5502, but, unfortunately, they do not go).
To formulate the rules that will determine the economic policy in relation to the WTO, it is important to find out: what do we want to achieve, what is the goal? It sounded like a slogan more than once, but so far this goal has somehow not been implemented into legislation: to make the cost of the occupation of Crimea for the Russian Federation higher, ideally unaffordable, to synchronize the policy on economic relations with the occupied Crimea with Western sanctions.
At the same time, it is necessary to reset the Ukrainian law on sanctions (bearing in mind that sanctions are still a foreign policy and economic instrument), in which it is also necessary to clearly establish restrictions and prohibitions on activities on the HOT for businesses and citizens of other countries. And also it is necessary to establish responsibility for violation of sanctions restrictions on the part of foreign citizens and legal entities. By the way, the relevant bill has already been worked out in the relevant committee, but so far this is a supply without a horse: after all, the law itself with a list of restrictions, for violation of which it is proposed to establish responsibility, has not yet been adopted. The government project is stuck: the appointed coordinator of the Ministry of Economics managed to assemble an interdepartmental working group only once in eight months, and now this task has been transferred to the Ministry of Foreign Affairs.
These two bills – the economic part of the law on guarantees of the rights and freedoms of citizens in the WTO and the law on sanctions – should be harmonized in terms of the regime of restrictions on economic activity in the occupied peninsula, although they are not identical. After all, Ukrainian citizens live there who need to survive the occupation, feed their families, raise children, but there are fundamental things that should be taken into account in order to stop undermining the Western “Crimean sanctions”. And this will be absolutely logical from the point of view of the belligerent country, in line with the policy of the organization, the fight against corruption, de-occupation, and reintegration of Crimea, declared by the president. Therefore, it is proposed to prohibit its citizens in terms of business, which is prohibited by the sectoral sanctions of the EU and the United States. By the way, Ukraine annually declares its support for the EU sanctions, but, again, it has not yet come to implementation. Therefore, we now have a favorable opportunity to synchronize the restrictions on economic activity in the temporarily occupied territory for both our own and foreign citizens – in different, of course, laws. And do not hide your eyes when we are asked: why our companies cannot work in Crimea, while Ukrainian oligarchs can, moreover, on Ukrainian raw materials supplied to closed ports of Crimea?
As we have already written more than once, the “Crimean sanctions” of the EU and the US restrict the activities of their businesses and finances in sectors of the peninsula’s economy that are especially sensitive for Russia. And this needs to be supported. This means that to prohibit Ukrainian citizens and their companies from any activity in the following sectors: telecommunications, sea, aviation, railway transport, energy, exploration, development, and production of oil, gas, and other minerals. But there are nuances.
In bill №5502 it is proposed to consider licenses and permits invalid on the HERE, but they can be used in another territory. But these norms do not in any way regulate the effect of special permits for the use of subsoil, because they are issued for a specific area, including on the shelves of the Black and Azov Seas, and the territory of the SEZ is limited by land. Special permits were received not only by Ukrainian companies, so it will not work just like that. It would be more expedient, perhaps, to suspend the special permits until the de-occupation of Crimea, and for those companies that illegally “exchanged” Ukrainian licenses for Russian ones (listen to Medvedchuk’s tapes) and/or do not pay taxes for the use of subsoil resources, to cancel their effect in court.
By analogy with Western sanctions, Ukrainian business should also be banned :
to export technologies and equipment for Crimean companies or for companies registered in the jurisdiction of other countries, but working in / with Crimea, in the above-sanctioned sectors, as well as provide brokerage, leasing, construction, and engineering services related to their infrastructure;
create joint ventures both on the territory of Crimea and Sevastopol, and with legal entities registered in jurisdictions in other countries, but working in / with Crimea;
to invest in the Crimean region. In the EU’s understanding, this means: buying real estate and businesses on the peninsula, creating new companies, financing them, or providing them with services;
to export and import goods produced on the HOT, including through the mediation of third parties.
Ukrainians and their companies should also be banned from participating in illegal auctions and tenders for the sale of assets of all forms of ownership, misappropriated by the occupation administration or individuals.
And the last thing. Part one of Article 13 of the draft law No. 5502 establishes: “The implementation of economic activities by legal entities and individual entrepreneurs, the location (place of residence) of which is the temporarily occupied territory, is allowed only after changing their tax address to another territory of Ukraine.”
That is, a company can operate legally in Crimea if it changes its legal address to, say, Kyiv? If so, then this article can be considered a gift to the oligarch Dmitry Firtash. Because this is the legalization of the scheme, which he, and at one time Rinat Akhmetov, as well as others, applied.
Firtash’s Crimean Titan changed its name to Ukrainian Chemical Products, and its legal address changed from Crimea to Kyiv. And the plant itself was registered as an Armenian branch and leased to LLC “Crimean Investments”, registered in the name of trustees in Moscow. Akhmetov did the same with his port assets, changing the legal address of the Avlita Stevedoring Company and the Marine Industrial Complex from Sevastopol to Kyiv, the branches of which were the Sevastopol companies that were leased. (The managers of the Moscow godfather of Akhmetov, composer Igor Krutoy, were later introduced into the owners in both the Ukrainian and Russian jurisdictions, and in 2018 these assets came under the control of a company from the Russian military-industrial complex.)
“But the project recognizes the deals of the companies in Crimea as null and void,” one of the project’s developers opposes me. Yes, but the lease agreement for the same titanium plant is not with the Crimean branch (this is a separate subdivision without a legal entity), but between the Kyiv and Moscow companies!
And many such schemes have already been invented in all the sanctioned spheres of the Crimean economy. Therefore, a separate article should prohibit participation, knowingly or unintentionally, inactions, the purpose or effect of which is to circumvent the prohibitions/restrictions, that is, the use of schemes. Russia and assorted businesses in Crimea have learned to bypass the sanctions, so Ukraine must take these schemes into account when forming its legislation, primarily the scheme of “gasket” companies.
Unfortunately, bill # 5502 does not answer the difficult question: what to do with the dual – Ukrainian and Russian – jurisdiction of the Crimean legal entities? What to do with tens of thousands of LLCs, PEs, and sole proprietorships, which have a legal address in Crimea and Sevastopol and which, according to the law on this, were automatically transferred to the tax office in Genichesk, Kherson region? Well-known Ukrainian services that provide database aggregation services are already adding data on registration in the jurisdiction of the Russian Federation to the dossier of companies, simply “pulling” this data from the Unified State Register of Legal Entities of Russia, as well as on being in the sanction lists of different countries. This is reality, and it is impossible to continue to “ignore” it.
There are not many options yet. The state, by analogy with the compulsory certification of citizens, will consider registration in Russian registries as a kind of “ausweiss” for companies, that is, it will continue to consider it null and void and will not punish registration actions. However, these persons exist and conduct economic activities! And it’s probably time to take this into account, including in the Ukrainian registration data. As well as declaring the receipt of “passports” of the Russian Federation in Crimea and “D / LPR” in ORDLO by persons authorized to perform the functions of the state, and their close relatives and their assets in the temporarily occupied territories.
I will also note that a broad public discussion about the economic policy of Ukraine in the temporarily occupied territory of Crimea and Sevastopol has not yet taken place. Economic experts, unlike human rights defenders, did not get involved in the work on bill # 5502. But, it is quite possible that while working on the sanctions project, experts will also prepare amendments to the law on guarantees of the rights and freedoms of citizens and the legal regime of the temporarily occupied territories. Without their harmonization, this “machine” will not go.
PS When the material was already submitted for publication, NSDC Secretary of Ukraine Oleksiy Danilov announced the application of “a full package of sanctions against the oligarch Dmitry Firtash mentioned in it, which our country can apply to this gentleman.” The basis is the supply of titanium products by related companies, which, according to Danilov, “then go to military facilities of the Russian Federation, and we cannot allow this to continue.”
It is not known which companies of Firtash’s DF Group may be affected by the restriction; at the time of publication, the presidential decree on the implementation of the NSDC decisions had not been made public. However, the introduction of personal sanctions against individuals in Ukrainian practice is not accompanied by a list of assets that are blocked. The names of titanium ore (ilmenite) deposits are also unknown, for which special permits were canceled by the NSDC decision. Most likely, the impudent supplies of Ukrainian ilmenite through a number of intermediaries, third countries, and closed ports of the occupied peninsula to Firtash’s titanium plant in Armyansk this time did not become a reason for the application of sanctions. And we are talking about the supply of pigment titanium dioxide to Russia, which is produced by the Crimean plant and Sumykhimprom, or titanium sponge produced by Zaporozhye Titanium-Magnesium Plant LLC,
Consequently, this NSDC decision does not seem to change anything and does not add to the proposed concept of Ukraine’s economic policy in the territories temporarily occupied by the Russian Federation. However, it is another reminder of the need for a complete reset of the sanctions policy, the application of sectoral sanctions against the Russian Federation, the creation of a sanctioning body, and before that – verification of the sanctions lists and monitoring the implementation of the sanctions decisions of the NSDC. Therefore, there are several points to which we would like to draw the attention of the head and secretariat of the NSDC.
Sergei Chemezov, the head of Rostec, was “shot twice” by the Ukrainian National Security and Defense Council. US and EU sanctions in connection with the Russian aggression against Ukraine have been applied to Chemezov since 2014. And in 2018, the Center for Investigative Journalism, comparing the sanctions lists of the United States and Ukraine, found that Chemezov and more than 70 Russian officials and oligarchs from the inner circle of President Putin, including their businesses, were absent from the lists of the NSDC! Six months of round-robin correspondence with the APU, the SBU, the NSDC secretariat, the CMU brought the result: the NSDC’s “losses” were included in the sanctions lists that President Poroshenko put into effect in March 2019. And Chemezov in Appendix 1 to this decree is under No. 780; the term of restrictive measures is three years, that is, until March 2022.
Another person involved in yesterday’s NSDC decision is Mikhail Shelkov, deputy chairman of the board of directors of VSMPO-Avisma, where he controls over 65% of the shares through Business Alliance Company (a blocking stake of 25% belongs to Rostec). And Shelkov suggests that Chemezov this time fell under the distribution precisely because of his involvement in the management of VSMPO-Avisma, where he heads the board of directors. The corporation, the largest titanium producer in the world, covers one-third of all the needs of the global aviation industry and has a joint venture with Boeing – Ural Boeing Manufacturing (UBM), located in the Sverdlovsk region. Therefore, the US sanctions did not affect VSMPO-Avisma. More precisely, the Department of Commerce last year introduced a special export regime for the corporation, including it on the military end-user list,
We do not know all the final ideas of the SBU, which proposed to authorize Shelkov (or VSMPO-Avisma?). But it is very interesting how this decision will affect the activities – production and export – of the Ukrainian subsidiary (96.3%) of this Russian giant, the Ukrainian LLC VSPMO Titan of Ukraine, which produces seamless titanium pipes. Its ultimate beneficiary, according to the Ukrainian state register, is Mikhail Shelkov. He is also the beneficial owner of LLC Demurinsky Mining and Processing Plant, which produces ilmenite at the Volchanskoye deposit.
What do these decisions of the National Security and Defense Council mean (and do they mean?) For the titanium industry of Ukraine, no one dares to predict. The practice of applying sanctions in Ukraine is like jazz, each performer has his own party. But the beneficiaries may soon appear.