Protecting Foreign Investments in Ukraine’s Conflict Regions

As the crisis in Ukraine intensifies and broadens, more foreign investment is likely to find itself caught in the crossfire. The situation raises novel questions about the application of Ukraine’s many investment treaties (see list below) in the context of armed conflict and belligerent occupation.

These investment treaties obligate Ukraine to provide investment protection to foreign investors — including non-discriminatory and non-confiscatory treatment — within Ukraine’s territory (see our previous alert). However, the Crimean Peninsula is now firmly under Russian control. In addition, eastern Ukraine is fraught with violent insurrection by Russian-backed fighters, making it difficult, if not impossible, for the Ukrainian government to control the region.

Further, in these situations, the laws of war and belligerent occupation may now apply alongside Ukraine’s investment treaties. The laws of war notably contain their own rules relating to the protection of property.

So what does this mean for the level of investment protection available to foreign investors? The answer will depend on the specific terms of the applicable investment treaty, the laws of war and belligerent occupation applicable to a particular situation, and the complex relationship between both under international law.

Occupation of Crimea

Despite most nations having rejected Russia’s purported annexation of Crimea, the region is now under Russian occupation. In this situation, the laws of war and belligerent occupation require Russia to respect property rights and the laws that were in force in Crimea prior to the occupation, which arguably include Ukraine’s investment treaties and their protections. However, the laws of war and belligerent occupation contain certain exceptions to an occupying power’s obligations. This raises complex questions concerning the extent to which investment treaties are applicable, which investment protections under those treaties may be available to foreign investors, and who can be subject to a claim for injury to property.

Insurrection in Eastern Ukraine

Eastern Ukraine is currently embroiled in an escalating insurrection, with external support from Russia. The laws of war apply and prohibit the destruction, seizure, or requisition of private property, except in cases of military necessity. Certain of Ukraine’s investment treaties contain obligations to provide “full protection and security” to foreign investment, among other possible safeguards, although exceptions for host State measures pursued in defense of the State’s essential security interests may very well limit Ukraine’s obligations. Further, contested control over eastern Ukraine raises hard questions about who is ultimately responsible for injury to foreign investments during the conflict.

Arent Fox’s International Trade practice, with deep knowledge and experience in the areas of investment treaties, investor-state arbitration, and public international law, advises on managing risk, developing strategies to protect investments, and pursuing property claims in war-torn or occupied areas. Our lawyers are prepared to guide your company through the challenges of doing business in Crimea and eastern Ukraine, helping you to solve problems during difficult times.

If you have any questions about this alert, please contact Lee M. Caplan or Timothy J. Feighery, or the Arent Fox professional who handles your matters.

List of Ukraine’s Investment Treaties in Force