Alongside the military conflict between Russia and Ukraine, the press has widely reported on the freeeze of the assets of certain natural and legal persons of Russian nationality and/or linked to the Russian Federation or its President. These freezes were carried out in application of Council Decision 2014/145/CFSP of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (amended by Council Regulation (EU) No 811/2014 of 25 July 2014) and Council Regulation (EU) No 269/2014 which have been the subject of several implementing acts by the European Council and most recently by the Council Implementing Regulation (EU) 2022/336 of 28 February 2022.
It is not our role to comment on the political or legal aspects of the military conflict; we will limit ourselves to setting out the main rules in force, as well as their weaknesses, in order to underline the need to adopt a new text, more adapted to the situation and more respectful of the fundamental values governing our democratic societies.
What justifies the freeze of assets?
The Preamble of Council Regulation (EU) No 269/2014 states that, in order to give effect to Decision 2014/145/CFSP, shall be frozen “funds and economic resources of natural and legal persons “responsible for, actively supporting or implementing, actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, or stability or security in Ukraine or which obstruct the work of international organisations in Ukraine, natural or legal persons, entities or bodies associated with them;” and of “legal persons, entities or bodies supporting, materially or financially, actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine; or legal persons, entities or bodies in Crimea or Sevastopol whose ownership has been transferred contrary to Ukrainian law, or legal persons, entities or bodies which have benefited from such a transfer.”.
The system in place
The Regulation provides that “1. All funds and economic resources belonging to, owned, held or controlled by any natural or legal persons, entities or bodies, or natural or legal persons, entities or bodies associated with them, as listed in Annex I, shall be frozen.
2.No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities or bodies, or natural or legal persons, entities or bodies associated with them, as listed in Annex I.”.
In substance, the triggering event of the aforesaid freeze is the inclusion by the Council of an individual or legal person in the list contained in Annex I of the latter; 696 natural persons and 56 legal persons were included in this list at the time of the last update on 28 February 2022.
As for freeze, it means “preventing the use of economic resources to obtain funds, goods or services in any way, including, but not limited to, by selling, hiring or mortgaging them” while “freezing of funds’ means preventing any move, transfer, alteration, use of, access to, or dealing with funds in any way that would result in any change in their volume, amount, location, ownership, possession, character, destination or any other change that would enable the funds to be used, including portfolio management;”.
There are exceptions in certain limited cases.
Are there any safeguards?
The terms of the Regulation reveal that it introduces a direct limitation on the right to property, as well as indirect limitations on the rights of freedom of expression and respect for private and family life. All these rights are protected by the Charter of Fundamental Rights of the European Union and, where necessary, by the European Convention on Human Rights and most of the constitutions of the EU countries.
It would therefore be inconceivable that measures restricting these rights would be provided for unconditionally, as the Council was aware: “This Regulation respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union and in particular the right to an effective remedy and to a fair trial and the right to the protection of personal data. This Regulation should be applied in accordance with those rights and principles.” (Preamble of the regulation 269/2014).
Have we succeeded to set up a derogatory system in line with European principles?
Without even – such is not the purpose of such a publication – carrying out an in-depth legal analysis of the text, we are not entirely convinced.
It appears from a simple reading of the text that:
A. Curiously, the criteria of the freezing decision are not integrated in the text of the Regulation: only the inclusion in the list appears in the text.
It is true that the Preamble informs us in which cases the freezing should take place, but it is very rare that a normative act does not contain the criteria for its application.
This makes a eventual challenge by the owner of the assets much more complicated… all the more so as the circumstances (one cannot speak of « criteria », in the absence of a text) of application of the Regulation are as broad as they are vague. Indeed, the text provides for the freezing of property belonging to persons “responsible for, actively supporting or implementing, actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine,(…)”.
This formulation raises several sets of questions.
First set of questions: How is the « support » referred to in the Regulation defined?
What form should it take?
Should it be active or passive?
Should it be translated into actions or would words suffice?
And if words are sufficient, do they have to have been expressed publicly, or, for example, a post on a private Facebook or Twitter account might suffice?
And in the latter case, should the extent or medium of dissemination be taken into account, and if so, on the basis of which criterion(s)?
Is there a time limit (a kind of statute of limitation) or could a « prohibited » action carried out, say 5-6 years before the entry in the list, result in the freeze of the assets of the person concerned?
We really don’t know.
Nor do we know what the term « actions » encompasses. Etc.
Second set of questions: In practice, what is the criterion(s) for deciding that a particular “speech”/opinion or action is likely to « undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, (…) in the absence of any criteria set out in the Regulation?
Moreover, is there a threshold beyond which the infringement is considered to be covered by the Regulation (in order to respect the principle of proportionality), or is any infringement, however slight, sufficient?
This is not clear either.
Indeed, a cursory examination of the (very long) list of persons sanctioned reveals that people in very different situations are included: from the close collaborator reputed to manage the Kremlin’s money to the owner of a villa where the Russian President used to regularly rest, to the journalist or parliamentarian who spoke in favour of the war and the military officer who commanded Russian forces in the region. Sometimes you can see the link to an – almost always indirect – attack on the integrity of Ukrainian territory, sometimes the link seems far too distant and/or indirect.
Third set of questions: Who is responsible for distinguishing between the expression of an opinion and an act undermining Ukrainian territorial integrity and sovereignty?
According to what criteria?
It is clear that it is not easy to determine where freedom of expression (or even patriotic discourse) – which the Regulation says it is intended to protect – ends and where the violation of the integrity of Ukraine begins.
One finding is unavoidable: this regulation establishes a derogatory measure (therefore of restrictive interpretation) and most of the time retroactive, which punishes by assets-freeze the persons who will have committed (usually in the past, without any clear time limits) acts which are described in a vague way and which will have led to a violation or threat (also difficult to determine with sufficient certainty), of the sovereignty, integrity and security of Ukraine; the interested parties bearing on top of this the burden of proof… a negative proof, as they will have to demonstrate that their action/opinion could not undermine or threaten the integrity of Ukraine.
In terms of rights of defence, due process, predictability and precision, we have seen much better… and we should, all the same, do much better.
Especially since any legislation that contains sanctions based on vague criteria is also, at times, an abusive deterrent: while it is easy to identify cases at both extremes, anyone who wishes to express a mixed opinion that is ‘likely’ to fall under this regulation will refrain from doing so, which amounts to a covert limitation of freedom of speech. This situation is not tolerable in a democratic society.
B. The purpose of this regulation is not explained at all, neither in the text nor in the Preamble: Why are these assets frozen? Is it to prevent/prevent the violation of the integrity of the Ukrainian state or (also) to punish such a behaviour?
The wording of the Regulation (“responsible for, actively supporting or implementing, actions or policies) suggest that very often, the freeze of the assets has also the nature of a sanction.
But a sanction which, sometimes, may appear peculiar: Here we have a sanction for committing something which, in many cases, was not considered wrongful 24 hours before the entry in the list. Indeed, some of the people who were included in the list on 28 February 2022 were included because of acts they had committed before that date but these acts had clearly not been considered wrongful at the time they were committed, since these persons had not been included in the list (despite the fact that the regulation is in place since 2014). There are therefore acts that became, ex post, reprehensible as a result of the Russian invasion of Ukraine. In law, this process is quite delicate to apprehend and implement.
Finally, what is the exact nature of this sanction (often retroactive)? We don’t know much.
C. The decision is taken without the person concerned being heard beforehand, following a unilateral procedure. He or she can only make comments once the decision has been notified to him or her: the Council « decides to subject a natural or legal person, entity or body to the measures referred to in Article 2” et doit “communicate its decision, including the grounds for listing, to the natural or legal person, entity or body” concerned.
Clearly, once on the list, removal will be no easy task and, in any case, even if successful, it will take a considerable amount of time, while the freeze can be highly prejudicial depending on the nature of the assets frozen.
Furthermore, the Regulation does not provide that the interested person may have access to his “file”, in order to examine the material evidence on which the Council’s decision in based… while in the same time, he or she, in order to reverse de decision, must provide “new substantial evidence”.
D. The fate/destination of frozen funds is not specified, nor is it the duration of the freeze: this is one of the biggest flaws of this regulation.
As mentioned above, it would seem that the freeze is the consequence of a prohibited action (or even abstention?) already committed by the person concerned. Indeed, a person is listed from one day to the next, while the day before, his or her actions had not been the subject of any comment or criticism.
Nevertheless, what is done cannot be undone: are we to understand that the assets will be frozen indefinitely?
Wouldn’t this be a kind of de facto confiscation, even if the text does not provide for any transfer of ownership of the frozen funds to a third party or a State? We will add here that certain states have announced considering to implement new rules in order to take ownership of the frozen assets. From a legal point of view, this would be hardly acceptable.
Some have thought it possible to make a comparison with anti-money laundering regulations and legislations, but such a comparison is hazardous : anti-money laundering laws never allow the « eternal freezing » of suspect assets, while the provide that the owner has the opportunity to defend themselves and above all, leave to the judiciary the competence to decide of the fate of the frozen assets.
Finally, there is the question of the management of frozen assets; it is rare that a fortune estimated in the billions consists of a deposit in a bank account. In particular, the management of securities portfolios is, curiously, prohibited. This prohibition will inevitably result in unnecessary losses, whatever the ultimate fate of the assets.
E. The text does not indicate the remedies available to the person concerned. However, in Europe, remedies are considered as a very important issue. For example, Article 19 of the European Code of Good Administrative Behaviour provides that a decision of the institution which may adversely affect the rights or interests of a private person must contain an indication of the remedies available for challenging that decision.
This is a requirement linked, inter alia, to the right to a fair trial.
The Regulation only provides that that where the Council decides to subject a natural or legal person, entity or body to the measures referred to in Article 2, it shall amend Annex I accordingly and “Where observations are submitted, or where substantial new evidence is presented, the Council shall review its decision and inform the natural or legal person, entity or body accordingly.”.
In these circumstances, the first recourse for the person concerned would be to turn to the European Council, which has the power to include in or exclude a person from the list. But in this case, would the Council not be acting as judge and jury?
Could the person concerned try to invoke a violation of the European Convention on Human Rights? The question deserves to be examined thoroughly, but the answer is far from obvious, since the European Union has not acceded to the ECHR and the Court of Justice of the European Union has exclusive competence to examine the compatibility of the acts of European bodies with the treaties and the general principles of European law.
And a liability lawsuit? This is also a subject that deserves to be considered.
There should also remain an action for annulment before the European Court of Justice, available to the applicants who would establish that an act was addressed to them or that the act is both of direct concern and of individual concern to them, or, depending on the circumstances, an appeal under national law with a preliminary question to the Court of Justice, since most of the principles of the ECHR are considered as general principles of European law and/or are included in the Charter of Fundamental Rights of the European Union, but given the delays in processing this type of case, the applicant will have to be very (very) patient.
Without any indication of the remedies and in view of the time taken by the European Courts to process such cases, the notion of the effectiveness of the remedy seems quite theoretical… especially since, in terms of burden of proof, the Council may limit itself to a simple entry in a list, whereas the person concerned will have to provide substantial new (negative) evidence. These are hard times of the equality of arms principle…
F. The planned measures may have disproportionate effects, while the principle of proportionality is a general principle of European law. The assessment of proportionality in our case must take into account two fundamental features of this Regulation, which
– on the one hand, introduces derogations to/restrictions from fundamental rights, and
– on the other hand, it shall often apply retroactively, which means that in many cases an attitude/act/abstention that was not punishable, nor even objectionable, at the time it was committed, i.e. before the publication of the text that (suddenly) sanctioned it, will be sanctioned.
Therefore, it is important that these texts are drafted in a precise and nuanced manner… which is unfortunately not the case of the texts applicable in this case.
For example: A company’s assets can be frozen. Because of the freeze, it cannot, in particular, distribute dividends. What about the shareholders, at least the minority shareholders, who would never have had a say in the implementation of a questionable transaction (and, moreover, potentially non-prohibited if it predates the Regulation for example)? They will be deprived of income when they have done absolutely nothing. And it will be difficult to consider them as « responsible for, actively supporting or implementing« … anything.
On the other hand, one must also consider the size of the frozen funds and the duration of the measure, in relation to the act committed. For example: consider an « oligarch » who has publicly shown his support for the Russian soldiers currently in Ukraine by expressing his admiration and wishing them « Good luck and Victory for Russia ». It is more than plausible, given the current climate (and the acts of some of the persons “listed”), that he will be sanctioned. Would it be proportionate to freeze several billion euros because of an (sometimes allegedly, sometimes indisputably) ‘inappropriate’ statement? And considering that this is the case, would it be proportional to freeze his assets indefinitely, moreover, when assets management is forbidden? This is doubtful, especially since it would be impossible to demonstrate that the integrity of Ukrainian territory has been violated or even threatened…. unless any pro-Russian/Russian army statement for example is considered as a violation or a threat to Ukraine’s security, no matter how (in)significant/inconsequential in fact, is retained and could justify an (indefinite) freeze, in which case there would once again be a infringement of the principle of proportionality.
The same would apply to another oligarch who is said to have hosted the Russian President at his property on several occasions. Should one consider that the (often forced) « friendship » with the President an act which, years later, could be considered as undermining the integrity of Ukraine?
Finally, we could also talk about the military who have no choice but to obey or be imprisoned (or worse, in times of war), the journalist who gets too passionate or who, in the end, will write in the same style as his colleagues from the other « camp » to whom no limits are imposed, etc.
In conclusion: Within the precise framework and scope of this Regulation, acts or speeches which could undermine the integrity or the security of Ukraine (as of any other country of course) should actually be forbidden and sanctioned…. as long as the controlling authority is in position to establish a substantial cause and effect relationship between the act/the opinion and the aforesaid violation or threat, in order to avoid ending up punishing opinions and personal relationships.
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The current situation is very delicate on a human level: people are confronted with the horror of war and passions of all kinds are running high. However, the legislator, whether national or European, must be above such considerations, especially when such « tailor-made » regulations always make “somebody” unhappy. From the oligarch punished today for being what he was already yesterday, to the Russian citizen who considers himself muzzled by this regulation when his neighbour can express himself with complete freedom. Not to mention the people from countries in similar situations who feel « discriminated », such as the Tibetan who would like to prevent anyone from speaking out against the independence of Tibet, or the Taiwanese who would no doubt like to see the same regulations adopted in favour of his country.
It is clear that the European Council cannot satisfy everyone, and that it must now focus on the current situation.
However, what the Council must do is to ensure that the rule of law is respected and that the means used respect the principle of proportionality. This requires precise rules that respect our fundamental legal principles.
We may not adapt the quality or interpretation of our regulations to the person we intend to target and if, through inadvertence or haste, this should happen, we should reassess and make things right. In this frame, one cannot help but notice that, in our case, the rules need to be improved: a text which, after a quick examination and without resorting to a « scientific » analysis, raises so many questions should be reviewed and amended as soon as possible; similarly, in view of the specificity of the situation and the sometimes gigantic economic interests in stake, specific remedies should be implemented, unless we decide to adopt a system based on a kind of « presumption of guilt », which would be incompatible with the philosophy and the texts of our legal systems.
Predictability, equal treatment, respect of the rights of the defence, respect for property and the requirement of proportionality, are fundamental rights and values that must be protected; sometimes even from ourselves.
In addition to political, legal and humanitarian imperatives, it is also important, especially in these times of trouble, to recall, to paraphrase D. Eisenhower, what has happened when there is no rule of law, and thus also, and above everything else, to set an example.
Spyridon CHATZIGIANNIS