They decide if sanctions bite.

Photographer: Wolfgang Von Brauchitsch/Bloomberg

Ukrainians Get Their Day in (European) Court

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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The associates of ousted Ukrainian President Viktor Yanukovych were not exactly known for being sticklers for the law; when they were in power, they tended to make their own rules. European sanctions, however, turned them into eager litigants seeking to clear their reputations and regain access to their European assets and favorite vacation spots.

On Monday, the European Court of Justice upheld the petition of Andrei Portnov, formerly a senior member of Yanukovych's staff, and lifted the asset freeze and travel ban imposed on him on March 5, 2014. The court pointed out that the Ukrainian Prosecutor General's request, on which the sanctions were based, incorrectly said he was subject to a "criminal procedure" for alleged embezzlement of government funds. That procedure had in fact been just a preliminary investigation that went nowhere and so was not deemed a valid reason for an asset freeze.

The court decision orders the Council to pay Portnov's legal costs, but is otherwise symbolic. The European Council had already taken him and three more Yanukovych associates off the sanctions list in March, after Ukraine had been unable to follow through on its accusations against them. The Portnov case, however, is unlikely to impact judgments in the cases of other Ukrainians still fighting sanctions -- notably former Prime Minister Mykola Azarov and former tax minister Oleksandr Klymenko.

Both Klymenko and Azarov initially pursued a different strategy than Portnov. Their European lawyers convinced them to lobby the EU bureaucracy before going to the courts, arguing that sanctions against them were essentially political and it was necessary to build some goodwill before starting a legal fight. This went on for a year, and it's not difficult to imagine the legal fees the hapless Ukrainians incurred from their self-imposed Moscow exile. 

The lobbying campaign must have been frustrating. There wasn't much sympathy for two obviously very wealthy individuals who had been government officials in a very poor and notoriously corrupt country. High-ranking European officials refused meetings, lower-ranked ones fudged. Klymenko vividly depicted the runaround in a professionally produced video on his YouTube channel: 

Finally, in April and May 2015 Klymenko and Azarov did what Portnov, a lawyer by training, had done a year earlier: They applied to the European Court of Justice. The wording of their applications is identical. Like Portnov, they claim the Ukrainian government's representations on which the sanctions are based are "too general," the restrictions themselves "disproportionate" and their right to defend themselves violated.

Their chances, however, are slimmer than that of Portnov, who was not one of the Yanukovych regime's more recognizable faces. Azarov and Klymenko are both household names among Ukraine's Yanukovych-hating voters. They are also both politically ambitious, openly plotting a return to Kiev. It was no surprise that the Ukrainian prosecutors went further than just a preliminary investigation.

Klymenko has been charged in absentia with misappropriating about $30 million in government funds through a tax scam. Azarov is wanted on three different charges: abuse of power, misappropriation of state property and calling for a coup d'etat. It's likely that upon the court's request, Ukraine will supply more detail of the cases. The European judges will only need to see that there are indeed serious proceedings against the applicants to keep sanctions in place.

Klymenko and Azarov might decide to cut their losses, following the example of Arkady Rotenberg, Russian President Vladimir Putin's longtime judo sparring partner and now a billionaire who built his fortune on government contracts. He was hit by sanctions last year after the EU took its cue from Washington and decided to make life difficult for Putin's friends. In October, 2014, he filed an application -- worded the same as the Ukrainians' -- to the European Court. Only a month later, however, he withdrew it, apparently sensing the futility of his efforts.

Apart from saving on legal fees, Rotenberg tacitly admitted the obvious: that sanctions are a quasi-legal manifestation of a political position. Late last year, the European Court ruled that the Palestinian organization Hamas be taken off the list of terrorist groups, but the triumph, which Hamas owed to procedural reasons, turned out to be short-lived. The EU kept the group on the list as it appealed the ruling. The appeal is expected to take more than a year, and after it runs its course, the EU can reinstate Hamas on the list by merely using a different formula. Reversing that would require another years-long process.

Klymenko and Azarov stand a better chance of getting off the sanctions list if they strike a political deal with the administration of Ukrainian President Petro Poroshenko. That's not impossible, given the confident performance of former Yanukovych allies in last Sunday's local elections. In a number of regions, Poroshenko's party chose not to fight them and even gave them conditional backing. Vesti, the Klymenko-controlled media organization in Kiev which publishes a popular newspaper and runs a radio station, recently changed its harsh anti-government political stance to a pro-Poroshenko one.

No one in Brussels is eager to exonerate the top officials of a regime widely seen to be corrupt and authoritarian. But sanctions require political will and the cooperation of authorities in Kiev. For the moment, they like keeping the Yanukovych cronies on the hook by continuing, but never quite concluding, the criminal investigations against them.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Therese Raphael at traphael4@bloomberg.net