Ukraine creates a special legal regime in the Crimea

 The Law sets up a special legal regime within the Crimean territory (that includes onshore, internal waters, territorial sea, continental shelf and air space) to protect the rights and freedoms of Ukrainian citizens and legitimate interests of legal entities. In this alert we address the main impacts of the Law for both businesses and individuals residing in the Crimea.

Legal Status of the Crimea

The Crimea is an inherent territory of Ukraine with a special legal status as an occupied territory. Migration to and from the Crimean peninsula is subject to specific control by the frontier service, specifically:

– Ukrainian citizens are allowed to freely enter and leave the Crimea at check points, provided that they are able to present a document evidencing their Ukrainian citizenship; and

– foreigners and stateless persons need special permission from Ukrainian authorities to enter the Occupied Territory.

Rights and Freedoms of Ukrainian Citizens

Ukraine protects the rights and freedoms of all Ukrainian citizens residing in the Crimea, such rights being guaranteed under the Constitution of Ukraine, Ukrainian laws and international agreements to which Ukraine is a party. Ukraine also maintains social, economic, political, financial, informational, cultural and other ties with Ukrainian citizens in the Crimea.  

At the same time, the Law clearly states that the liability for violation of the protected rights and freedoms, and for damage of any kind caused in connection with the Russian military intervention in the Crimea to legal entities and individuals (Ukrainian citizens, foreigners and stateless persons), or to cultural heritage in the Crimean territory, is placed on the Russian Federation, as the occupant. Ukraine, in turn, shall by all possible means aim to facilitate such compensation.

The Law, however, does not specify legal remedies available to individuals and legal entities. Ostensibly, since the Ukrainian courts have no jurisdictional power to bind other sovereign states, such as the Russian Federation, with its decisions, legal entities and individuals may de-facto rely only on the legal remedies offered under international law (for example, the diplomatic espousal) and the European Convention on Human Rights.

The State Authority in the Crimea

The only legitimate bodies of state power are those established in accordance with Ukrainian law. Any other quasi-state or self-government authorities in the Crimea are illegitimate. However, interaction and cooperation between legitimate Ukrainian authorities and self-established (illegitimate) authorities is possible if there is a need to protect national interests, the rights and freedoms of Ukrainian citizens, in order to fulfil Ukraine’s obligations under international agreements, or to restore the constitutional order in the Crimea.

The Law is silent on whether Ukrainian authorities are able to interact with the Crimean self-established (illegitimate) authorities to protect the interests of legal entities (e.g. to provide information from state registers) and it appears that only shareholders – Ukrainian citizens or foreigners protected under investment protection treaties of Ukraine – can turn to Ukrainian state authorities with a request for such cooperation.

The Law does not impose any direct liability on individuals or legal entities for cooperation with illegitimate authorities (collaborationism). At the same time, both individuals and senior management of legal entities must be aware that in certain cases such cooperation may be considered as treason under the criminal law of Ukraine. 

Rendering of Justice

The Law recognises that Ukrainian courts cannot render justice on the occupied territory, therefore all cases (i.e. civil, commercial, administrative and criminal) falling under the jurisdiction of the Crimean courts shall be reviewed by the competent courts in Kyiv, Ukraine. 

The jurisdiction of investigation authorities in respect of criminal offences committed in the Crimea will be determined by the General Prosecutors Office of Ukraine.

Those Ukrainian state authorities that are not able to function normally in the Crimea can be transferred to the mainland by resolution of the Government.

Economic Activities

It was highly anticipated that the Law would impose very strict limitations on business activities in the Crimea. However, the final draft of the Law does not include the business section and only states that the respective provisions are to be provided by law. The Law instructs the Cabinet of Ministers of Ukraine to establish and submit to the Ukrainian Parliament a respective draft within 15 days of the effective date of the Law.

At the same time, operating a business under Ukrainian law without the required permit or licence, or operating a prohibited business, is a criminal offence. Therefore, registering and operating a business in the Crimea in accordance with the laws of the Russian Federation may result in criminal liability for management under Ukrainian law, including liability for tax evasion.

Title to Property

Ukraine, the Autonomous Republic of the Crimea, local communities, bodies of the state power and self-government, and other public entities retain the legal ownership of their property (including land plots and military property) in the Crimea. The earth, subsoil, air space, water and other natural resources located within the territory of Ukraine, its continental shelf and exclusive (maritime) economic zone is the property of Ukraine and may not be acquired by other states, legal entities or individuals.

Individuals, enterprises, institutions and organisations retain the legal ownership of property (including real estate), which they acquired in accordance with Ukrainian law. The Law further provides that the title to real estate property located within the occupied territory shall be acquired or terminated in accordance with Ukrainian law in effect outside the occupied territory. Any act related to real estate property located in the Crimea executed in violation of Ukrainian law, in particular, the Law(e.g. in accordance with the laws of Russian Federation), is null and void.

In accordance with Ukrainian law, a transaction with real estate property is completed once it is entered into the State Register of Proprietary Rights to Immovable Property. The Law provides that if the state registrar in the Crimea is unable to register a transaction, the registration can take place elsewhere. The Ministry of Justice has recently issued an order, pursuant to which transactions with real estate property located in the Crimea are registered by the state registrars in Dnipropetrovsk, Odessa, Khmelnytsk, Kherson, Zaporizhya and Chernihiv regions (depending on how the registration takes place).

Social Rights of Individuals

Ukrainian citizens residing in the Crimea are entitled to social security benefits guaranteed under Ukrainian law. The right to a pension will, however, be lost if a Ukrainian citizen receives a pension or other social benefits from the Russian Federation. As mentioned in our recently published article, pensions in the Crimea will be paid by Ukraine solely from funds collected within the Crimea. It is, however, not sufficiently clear how the Government will manage and ensure payments from the pension fund in the Crimea.

Ukrainian citizens that have decided to move to mainland Ukraine also preserve their right to social security benefits. Such individuals have to register with the appropriate authorities and can restore their personal identification documents if these were lost (the information can be taken from the State Register of Electors). 

In advance of the forthcoming presidential elections, the Law sets out a number of important restrictions on voting in the Crimea. In particular, the Law provides that neither elections of the President or members of the Parliament, nor the all-Ukrainian referendum, can take place in the occupied territory. However, Ukrainian citizens residing in the Crimea are not deprived of their voting rights and can cast their vote at voting places organised in other regions of Ukraine. 

Further Amendments and Secondary Legislation

The Law also introduces a number of changes to the primary legislation that regulates the matters reviewed by the Law. In particular, the Law provides that the Government must adopt legislation regulating generation and sales of electricity within/to the Crimean peninsula.

The Government must also develop all necessary procedures and bring secondary legislation in to compliance with the Law within fifteen days as of the Law’s effective date. A recommendation to revise banking regulations has also been given to the National Bank of Ukraine; however, no definitive deadlines have been set. 

The Law “On Ensuring Protection of the Rights and Freedoms of Citizens and Legal Regime in the Temporarily Occupied Territory of Ukraine No. 1207-VII dated 15 April 2014

Authors: 

Olexander Martinenko, Senior Partner, olexander.martinenko@cms-cmck.com

Victoria Kaplan, Senior Associate, victoria.kaplan@cms-cmck.com 

Volodymyr Kolvakh, Associate, volodymyr.kolvakh@cms-cmck.com