Comparing the U.S. and E.U. Economic Ukrainian Sanctions: Are They A Force In Combination Or A Missed Opportunity

Literally within hours of each other, both the President of the United States and the Council of the European Union imposed economic sanctions against targeted officials who had participated first in the Russian incursion into Crimea and then in the secession vote from Crimea to the Russian Republic.  The Council of the European Union issued the first of two Regulations on March 5, 2014. The President of the United States issued the first of three Executive Orders one day later on March 6, 2014. The first E.U. response was significantly more forceful than the U.S. response. The E.U. regulation imposed sanctions on 18 individuals, all of whom were Ukrainian nationals and all of whom were alleged to be subject to criminal investigation for embezzlement of Ukrainian national wealth.  The first U.S. Executive Order (13660) targeted no individuals but it declared a national emergency under the International Emergency Economic Powers Act, and gave the President the authority to act at a later time.  The second E.U. Regulation of March 17, 2014 identified 21 additional individuals, or a total of 39 E.U. targets. The second and third U.S. Executive Orders identified a total of 11 and 20 targets, respectively, for a total of 31 targets.  What is surprising is that, of all of the identified individuals, only 12 appear on both the U.S. and the E.U. lists.  Indeed, two Russian officials (Dimitri Rogozin and Vladislav Surkov) who were named on the U.S. list but not on the E.U. list, quickly posted tweets ridiculing the Orders, stating that they had no assets in the U.S.  Rogozin called it the act of a "prankster." [1] At least in the initial response, an important opportunity for coordinated effort appears to have been lost, because the freezing of assets of a carefully targeted list of individuals by the combined E.U.-U.S. powers would have had a substantially more powerful effect than a freezing by only one of them.

The terms of the sanctions are predictably similar, but contain some very interesting variations.

The primary goal of both the U.S. and the E.U. sanctions is to freeze the assets of the targeted individuals.  Targeted individuals are effectively denied any control over their assets in either the U.S. or the E.U. The assets belong to the sovereign seizing them. [2]

In the E.U. sanctions, there is a careful attempt to ensure that the persons whose assets are seized are carefully identified, indicating a concern that freezing the assets of an innocent individual could have disastrous, unwanted consequences.  The E.U. regulation requires that the targeted individual be identified by name, aliases, date and place of birth, nationality, gender, ID and passport numbers and, importantly, the legal basis upon which the individual is placed on the list.  No similar requirement exists in the U.S. Executive Orders.

The requirement of the legal basis for the E.U. action puts into focus a matter that, down the road, could be material.  Whereas the justification for the E.U. Regulation in general was to restrain persons "responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine," [3] the justification for the asset freeze of the first group identified by the E.U. was exclusively the plundering of assets of the Ukrainian state.  In effect, the first E.U. Regulation could have almost been read as a law enforcement, not a diplomatic, initiative.  The second E.U. Regulation clearly broadened its basis for action and identified Russian and Ukrainian government and military officials who were responsible for the looting of state assets, the Crimean incursion and the illegal secessionist vote.

Both sets of orders address the movement of funds and the movement of persons.  The E.U. Regulations limiting movement of persons was announced on the same day (March 17, 2014), but in a separate document. [4] In the U.S. both the right to block and the right to prohibit entry were treated in the same document.

The E.U. Regulations orders give some, but minimal, due process rights to the targeted individual to challenge the legitimacy of being placed on the list in the first place.  Article 14 of both E.U. Regulations requires that the targeted individuals be notified of the action and given the right to "present observations." Once "observations" are presented, the Council must only review those observations and notify the targeted individual "accordingly". [5] No similar process is provided for in the U.S. Executive Orders.

Perhaps the most prominent difference between the U.S. and E.U. blocking orders is the treatment of third parties.  The E.U. Regulation assumes that there will be claims by third parties and blends the treatment of those claims into the structure of the Regulation.  The U.S. order does not.  In effect the two sovereigns take very different views of their relationship to the blocked asset.  The U.S.  view is one of forfeiture and right of sovereign ownership. The E.U. Regulation places the sovereign more in the position of trustee.  Article 4 of both E.U. regulations authorizes the competent authority to release seized funds to provide for the basic necessities of the targeted individual and of his family; for the payment of professional legal fees; and for the payment of fees incurred by the custodian institution for the management of the seized accounts.  Article 5 authorizes the release of frozen funds for the payment for arbitral awards or claims against the targeted individual (but not for awards or claims in favor of the targeted individual).  Article 6 of the E.U. Regulations authorizes the payment of money due under contracts or obligations undertaken by the targeted individual before the date of the freezing of assets.  No similar provisions exist under the U.S. Executive Orders.

However, in terms of overall effectiveness, the U.S. Executive Orders may have more consequence, because while the E.U. Regulations targeted only individuals, Executive Order 13362 also blocked the assets of Bank Rossiya of St. Petersburg.  The blocking of the assets of that institution, for example, will not only prohibit the bank from doing business with U.S. banking institutions, it will prohibit U.S. credit card companies from servicing payment transactions for Bank Rossiya's customers, which will obviously have a far wider impact than the 12 identified U.S. targets. [6] Whatever may be the failings created by the lack of harmony in the response of the U.S. and the E.U. in the past two weeks, it is likely that the future responses, which are expected, will be both better organized and more effective.