Crimean Crisis as Challenge for the Law

Prologue

Inconsistent actions of Ukrainian government regarding trade association with the EU were a trigger which led to massive demonstrations in the capital of Ukraine in November 2013. Further brutal actions of Ukrainian police resulted in mass protests all over Ukraine against acting government itself. After thousands had been injured and more than 100 civilians killed on 19-20 February 2014, president of Ukraine V. Yanukovich fled the country. On 22 - 23 February 2014 at its extraordinary session the Ukrainian parliament restored power in Ukraine. Ukrainian system of power was weak as never before for its 23 years of independence.

Invasion and annexation

Starting from 24 February 2014 Chornomorskiy military forces of Russian Federation from specifically allocated Crimea military base changed their location and spread through the territory of the entire Crimean peninsula in violation of the bilateral agreements between Ukraine and the Russian Federation. It is proven by the media that the said forces were seen by journalists in different places of the Crimea. Despite numerous video and photo reports in media on this matter, Russian officials opposed those facts and alleged it to be the self-defense troops of the Crimean civil society.

Said forces blocked local Parliament of the Autonomous Republic of Crimea from access of journalists. On 6 March 2014 local Parliament adopted a resolution on holding a "referendum" in the Crimea on 16 March 2014. It should be noted that Ukrainian law provides no legal basis for holding a local referendum. Moreover, any matters related to territorial integrity of the Ukrainian state and any changes to state borders can only be decided through a nation-wide Ukrainian referendum.

On 11 March 2014 the Parliament also adopted the Declaration of independence of the Autonomous Republic of Crimea, subject to its further support by the forthcoming "referendum". On 16 March 2014 the "referendum" took place and according to the Crimean authorities, more than 95% of Crimea citizens voted for the Crimea and the city of Sevastopol to join the Russian Federation.

On 20 March 2014 by adopting the Federal Law "On annexation of the Republic of Crimea to the Russian Federation and formation of the Republic of Crimea and city with federal status Sevastopol as new subjects of the Russian Federation", the abovementioned agreement was ratified. On 21 March 2014 Annexation law entered into force and completed the procedure of annexation of the territory of Crimea by the Russian Federation.

Thus, annexation of sovereign Ukrainian territory took less than one month from the moment when system of power in Ukraine was destabilized by actions of former president of Ukraine. Such well organized operation by the Russian Federation leaves no doubts that it has not be spontaneous and has been planned by Russian government decades before it happened.

Okay and what about law?

It is difficult to analyze the Crimean situation from the legal point of view. Definitely, it is for the first time since dark moments of WWII history when sovereign territory of one state is annexed by other state. So, not a surprise that international and local laws do not provide guidelines on "what should business do" on occupied territories. However, life is going on and it is important to understand what will happen now.

Firstly, worth mentioning is the fact that most of the states, international organizations and non-governmental institutions have officially rejected to recognize the referendum in the Crimea, and the fact of further accession of the Republic of Crimea to the Russian Federation. Such position was announced by the official representatives of the United Nations, European Union, NATO, PACE, Great Britain, USA, Germany, France, Poland, Baltic states, Australia, Canada, Japan, South Korea, etc.

The Venice Commission did not recognize the referendum in the Crimea either and concluded that the accession of a state was possible only on the basis of the international treaty between the two states, but in any case not based on unilateral actions.

On 27 March 2014 the UN General Assembly endorsed the resolution which recognized the inviolability of the territorial integrity of Ukraine. 100 UN Member States including the USA voted for this resolution, while 11 UN Member States including Russia voted against and 58 UN Member States abstained.

However, international reaction does not stop the Russian Federation from implementing its legislation framework in the Crimea. Also, Ukraine is rapidly developing its own law "On provision of rights and freedoms of citizens of Ukraine on the occupied territories" (the "Draft law") which will provide some legal grounds for further relations between the Crimea and Ukraine.

Ukrainian/Russian legislative initiatives as in brief

Briefly summarizing the legislation developments, the following can be concluded:

  • The Crimea is a disputed territory for Ukraine and the Russian Federation with unclear legal status as both countries treat the Crimea as its integral sovereign territory;
  • Temporarily, Ukrainian legislation and currency may be applied on the territory of the Crimea. However, the current Crimean government is not active in providing guidance on whether and how to apply Ukrainian laws at present;
  • In Ukraine the Crimea may be granted a special status of temporarily occupied territory with a number of significant restrictions of business activity, and failure to comply with the said regime may lead to liability under Ukrainian law (if the respective Draft law is adopted in its currently available version). Previous version of the Draft law envisaged criminal liability for failure to comply with requirements of the law and conducting any cooperation with the occupation state (Russia) in the Crimea. Latest version of the Draft law does not contain such provisions, however we may not exclude that criminal liability for collaboration with Russian authorities in the Crimea (notion of "collaboration" to be specifically defined) could be included into the Criminal Code of Ukraine and thus apply to any Ukrainian citizens, including officers of Ukrainian companies;
  • Banking activities in the Crimea by Ukrainian banks remain severely restricted, including use of credit and debit cards, and no loans are available to either legal entities or individuals. Russian banks are not yet present on the ground in the Crimea;
  • Acquisition of immovable and potentially movable property, which is subject to state registration, on the territory of Crimea may be associated with risk of further non-recognition of title thereto by Ukrainian authorities;
  • We may not exclude that carriage of goods from Ukraine to the Crimea may be treated as importation by Russian authorities triggering requirement to clear the goods through local customs and pay Russian import customs duties and taxes;
  • Ukraine is set to restrict transportation into and out of Crimea, while the only existing ferry connection to Russia in Kerch (eastern Crimea) will not be sufficient to secure stable supply of goods and flow of people in and out of Crimea. Russian authorities declared plans to construct a massive bridge between eastern Crimea and the mainland Russian territory, however feasibility and cost of such project remains unclear, and it could take several years to implement;
  • Many business-related issues still remain unregulated: e.g. labour - it is not clear whether Ukrainian citizens will be required to obtain work permits in the Crimea and where to obtain such permits, fiscal - how to accrue and where to pay taxes (to Russian or Ukrainian tax authorities), etc. However, we expect that within the next few weeks any payments to Ukrainian state authorities by companies registered in the Crimea shall be blocked, and within the next 3-6 months the Russian Federation will establish its own network of state authorities in the region.

Unclear future

As you may see, the Crimea situation is a huge challenge not only for Ukraine and Ukrainian system of law but could be a dangerous experience for the whole world due to temptation for other countries to repeat the situation with other territories throughout the world. The situation around the Crimea and Ukraine is changing on daily basis and it is difficult to predict what will be the end of the story. What we could say for certain is that strong and consistent international support of Ukraine will be very important for bringing the situation to peaceful and civilized solution.

Contact: Pavlo Loginov, Leading associate, of our co-operation partners Vasil Kisil & Partners, Kyiv, Ukraine / Barbara Mayer

1:1. This is how we work together. You decide upon a competent partner; he/she will then remain your point of contact. > more