Blocking banking operations of business entities in the frontline areas
The issue of delayed/refunded payments by some international banks of business entities in the frontline territories has been on the agenda since 2022 due to the difficulties of economic entities in the European Union (EU) and other countries in determining the boundaries of the temporarily occupied and government-controlled territories of Ukraine amid the sanctions imposed by the EU on the territories of Ukraine temporarily occupied by the Russian Federation.
As a result of the ongoing work of the Mission of Ukraine to the EU with the European Commission's Directorate-General for Financial Stability, Financial Services and the Capital Market Union (DG FISMA) to resolve this issue, the said Directorate-General published the relevant clarifications at https://cutt.ly/lezsn3Vy (Part D. Trade and Customs, paragraph 9 Oblast, p. 190) for financial institutions and business entities in the EU.
In particular, the EC's explanations clearly state that there are no restrictions on financial transactions carried out by EU credit institutions in the course of trade and services in the territories of Donetsk, Kherson, Luhansk and Zaporizhzhia regions controlled by Ukraine. EU credit institutions may conduct foreign economic operations in these regions in the same way as they conduct operations with other credit institutions in any other region of our country. Additionally, the status of the cities of Zaporizhzhia and Kherson was clarified as not being temporarily occupied territories and being under the control of Ukraine.
In July 2024, thanks to the cooperation of the Mission of Ukraine to the EU with the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine and the National Bank of Ukraine, DG FISMA updated its explanations by referring to the official list of temporarily occupied territories on the website of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine (https://minre.gov.ua/en/list-of-tot/) with its translation into English and presentation in map format.
Thus, at the political level, there is an clear understanding with the EU institutions on the proper application of the sanctions regime. However, in practice, problems continue to exist at the level of individual banks, which are guided by internal compliance rules and demonstrate conservatism in assessing possible risks due to sanctions restrictions.
Regarding the information provided and to prevent further delays/refunds by foreign banks in the future, we recommend you to use actively the above-mentioned clarifications of the European Commission and provide links to them in advance to your counterparties and banks in other countries.