I S S U E  6                                                                          1 1 . - 2 4 . 0 7 . 2 0 2 2

• Security situation update
• Bakanov and Venediktova gone – what to expect?
• No state tenders for companies affiliated with enemy
• Russia is a state sponsor of terrorism: the consequences of possible decision

Upon receipt of Western high-precision artillery, Ukrainian soldiers have destroyed more than 30 Russian ammunition depots and have liberated several important municipalities in the Kherson Oblast. According to military observers, the Ukrainian Armed Forces are skillfully and “surgically” employing newly acquired NATO-type systems. Amongst recent examples are strikes at the Russian Command Post near Antonivka bridge, a critical crossing over the Dnipro River in the occupied territories of the Kherson region. However, despite local successes, Ukraine has not accumulated enough resources to launch a larger counter-offensive operation. Defence Minister Reznikov, talking at the Atlantic Council on 19 July, noted that in order to effectively protect Ukraine’s massive border and wage counter attacks on Russians occupying Ukrainian territory, Ukrainian Armed Forces “would need at least 100 high mobility artillery rocket systems (HIMARS). That would become a game-changer on the battlefield.” Ukraine also needs ​​ammunition retrieval and preparation systems for their 100 Howitzer cannons, as well as more UAVs to plot where to send long-range strikes. Following the fourth meeting of the Ukraine Defence Contact Group, known as Ramstein, Ukraine’s partners agreed on new commitments regarding the supply of weapons and ammunition, and the training of Ukrainian fighters. In particular, the United States announced a new $270 million security package for Ukraine. The US package includes an additional four high mobility artillery rocket systems (HIMARS), bringing the total number of these systems in Ukraine to 12, as well as 36,000 artillery ammunition rounds, anti-armor systems, and 580 Phoenix Ghost drones. Moreover, on 22 July, it was confirmed by the U.S. Administration that the Pentagon is considering providing Ukrainian forces with fighter jets, a move which was earlier described as highly unlikely.

ANALYSIS

Presently the battles in Donbas remain the central theater of the Russia-Ukraine war, where neither Ukraine nor Russia manage to achieve operational goals effectively. Russia had a clear advantage in resources in the onset of the operation (four times more troops, 10-20 times more artillery), but the Ukrainian army has resourcefully employed its tactical training, modern anti-tank equipment, and geographical familiarity within the region to thwart Russian advances. Now the “battle of paces” has begun, meaning that the pace of military aid supplied to Ukraine by the West is in direct competition with the pace at which the Russian military can resupply and update their resources. Each side is also seeking to seize and fortify better positions before the change of season, preparing for a winter campaign. Apart from the military operation, hybrid activities of the Russian special services have been detected, both inside and outside Ukraine. In particular, Russia is attempting to discredit Ukraine as a trustworthy recipient of Western military aid through European and the U.S. media resources. In response, Ukraine’s National Security and Defense Council Secretary Oleksiy Danilov reiterated that the Ukrainian government is employing multiple monitoring mechanisms to keep track of weapons deliveries to Ukraine, which include Ukrainian elements (Informational and Analytical System of the Main Situational Centre) and NATO’s LOGFAS logistics and accounting control system. Ukrainian partners also confirmed that presently no indications of misuse of the weapons are registered. Another narrative actively promoted by Russia is the possibility of escalation, as Ukraine may use long-range systems to attack targets deeper into the Russian territory. That prompted limits for munition supply for HIMARs to be set at 85-kilometer range, which has been described by observers as “a bit artificial”. Ukraine admits that it aims to hit deeper into the Russian positions to attack resupply lines. However, several top officials excluded the possibility of striking such targets as the Kerch bridge linking Russia with Crimea, due to lack of strategic and operational significance. Hitting Crimean infrastructure will also put at risk further supplies.

Late in the evening on Sunday, 17 July, President Volodymyr Zelenskyy unexpectedly announced that he had made a decision to remove from their positions the heads of the Security Service of Ukraine, Ivan Bakanov, and the Office of the Prosecutor General, Iryna Venediktova. The reason was stated to be serious - sheltering Russian spies, traitors and collaborators within the departments. In the case of Bakanov, his offence was the “negligence that could lead to the death of people.”

The next morning, Deputy Head of the Office of the President Andrii Smirnov, who is the curator of the entire legal block, noted that the parliament must also have its say regarding the final release of both officials. However, this would not be discussed until special investigations have been concluded and reported to the President. But a few hours later - in the evening of the same day, Zelenskyy appealed to the Verkhovna Rada with a request to finally relieve Bakanov and Venediktova of their duties, which came into effect on Tuesday.

ANALYSIS

Both Bakanov and Venediktova learned about what was happening from media. Despite the fact that Bakanov is a childhood friend of Volodymyr Zelenskyy and generally a person very close to him, he was not invited by Zelenskyy “for a conversation” the day before and was not asked to write a resignation letter “of his free will”. For the first assistant of the President Serhiy Shefir, these events also came as a surprise. This shows that the decision was prepared in a very close circle, and representatives of the former “Quarter” (“Kvartal 95” is the name of the creative team that Volodymyr Zelenskyy led before entering politics) with whom Zelenskyy entered politics - are no longer part of it.

People considered to be close to the notorious deputy head of the Office of the President Oleg Tatarov (who supervises the power bloc) became temporary acting heads of SBU (Security Service of Ukraine) and Prosecutor General respectively. Tatarov is known for his direct involvement in the suppression of Maidan, and was also an associate of Andrii Portnov. Therefore, as of now, the entire power bloc is concentrated in one centre of influence in the Office of the President. These are the SBU, the Prosecutor General’s Office, the Ministry of Internal Affairs and the State Bureau of Investigation. Obviously, such a monopoly creates numerous risks.

After the quick dismissal of Bakanov and Venediktova, there is no longer any talk about the need to conduct investigations into their activities - this topic seems to have ceased to exist. Moreover, the post of Ambassador to Switzerland had been previously announced for Venediktova. This further proves that the purpose of the rotation was to free up two top positions for people who are even more loyal to the Office of the President. At least that is how it looks at the moment.

Who will be appointed to positions freed by Bakanov and Venediktova, and when, depends on the President. These decisions must be approved by the parliament, but currently Zelenskyy has enough votes meaning Zelenskyy will make the decision.

The Special Anti-Corruption Prosecutor’s Office could become an important counterweight. A quick election of its head through a competitive process is one of the requirements of the EU for Ukraine. The competition itself ended in December 2021 with the victory of NABU (National Anti-Corruption Bureau of Ukraine) detective Oleksandr Klymenko, who at one time led the investigation into Oleg Tatarov’s corruption cases. Currently, Klymenko has been approved by the decision of a special commission, but he must also be approved by the Prosecutor General’s Office.

On 8 July, Bureau of Economic Security (BES) analysts reported that 83 enterprises, the beneficiaries of which are connected to the Russian Federation and Belarus, participated in state procurement processes even during the war. More than 400 agreements were concluded with these enterprises for a total amount of about 1.7 million euros. The Bureau reported that they initiated the issue of banning the participation of such companies in state tenders. They will also try to annul those contracts that have already been concluded.

ANALYSIS

On 9 April, 2022, the Government of Ukraine legally established the termination of trade relations with Russia. However, there is no official ban on cooperation with companies that has a Russian footprint in their structures. Currently, this issue is regulated only by the moral position of private individuals and their reluctance to enter into or continue such cooperation. The situation is different for state tenders. The competition’s winner is chosen according to clearly defined criteria, among which there is no clause about the absence of beneficiaries in Russia. This has allowed such companies to participate in public tenders and sign contracts to provide goods and services for state funds.

However, the resolution mentioned above of the Cabinet of Ministers does not include a ban on trade with Belarus or companies associated with Belarusian citizens. Officially, Belarus is not participating in the war. Still, it is a fact that the country is supporting Russia in every possible way in the war against Ukraine, including through providing its territory to deploy weapons and troops. At the same time, the Cabinet of Ministers launched the international information campaign DO NOT sponsor murder to boycott not only Russian but also Belarusian goods and their companies abroad. With such a position on Ukraine and the promotion of this campaigning abroad, the absence of a ban on trade with Belarus at the state level looks suspicious to say the least.

It should be noted that the Russian and Belarusian beneficiaries of the winning companies of state tenders will pay taxes to their countries’ budgets from these profits. These funds will also go to support the defense-industrial complex. Therefore, the termination of any cooperation between Ukraine and these countries is necessary not only in terms of reputation but also in terms of security.

The BES’s initiatives look like an effective action plan to correct such a situation. In the case of cancellation of already concluded contracts, there are several options. In public procurement contracts, the condition for unilateral termination of the contract is rarely found. Therefore, it is possible only with the parties’ consent. However, it is unlikely that the companies that signed million-hryvnias contracts will agree to do this.

The customer also has the right to withdraw from the contract. However, this requires a clear justification. It may include force majeure circumstances caused by the war, improper contract performance if there is relevant evidence, etc. This option may lead to lawsuits from the companies that are also party to the contracts.

Another option for terminating such contractual relations is terminating the contract if state interests require it. For example, one of the services provided by a company with beneficiaries in the aggressor country is the provision of cloud environment access and support services. Storage of state structure data by such a company can harm state interests in wartime conditions.

It is not yet known how the already concluded contracts will be terminated and whether it will be possible to do this with all agreements. However, the state should improve the legal regulation regarding the prohibition of cooperation with companies related to Russia and Belarus. Since 8 July, there has been no news on the development of such mechanisms. Obviously, this process takes time, but these steps should have been taken in the spring. Within the framework of such regulation, the primary tool will be the introduction of an appropriate level of control and verification of any procurement participant for the presence or absence of persons associated with the Russian Federation or Belarus. Checking potential executors before concluding a contract will eliminate the need for their termination and participation in court proceedings in the future.

After the invasion of Ukraine and a series of crimes committed by Russian invaders in Bucha, Borodianka, and Irpin, Kyiv has repeatedly called on the world to recognize Russia as a state sponsor of terrorism. A new wave of demands for the West was intensified after the bombing of a shopping center in Kremenchuk and civilian facilities in Vinnytsia, where Russians killed dozens of innocent people. In almost 50 countries, there are actions supporting this decision. The U.S. Congress is demanding that Russia be designated as a state sponsor of terrorism. Earlier on 24 June, the U.S. Senate approved a resolution calling on the State Department to recognize Russia as such. In Ukraine, this status has been legally established by the Verkhovna Rada since 14 April. As for the EU member states, only the Sejm of Lithuania has recognized Russia as a terrorist state and its actions in Ukraine as genocide.

ANALYSIS

Russia’s inclusion in the list of states sponsoring terrorism will mean imposing tougher sanctions. In particular, this is a ban on the supply of weapons (export and sale), financial restrictions, and a prohibition of economic assistance. Also, the issue of controlling the export of dual-use goods is of great importance. This means that terrorist countries will not receive weapons and technologies for manufacturing or modernization. Obviously, such restrictions make it impossible to cooperate with business as usual. Countries that trade with Russia also risk Western sanctions if they export weapons or technology to Russia. In other words, the fear of being sanctioned will be an additional deterrent and can significantly limit the number of those wishing to do business with the Kremlin. It is important to add that Washington can not only apply these sanctions itself but also influence its trading partners to comply with them. Thus, recognizing Russia as a state sponsor of terrorism will lead to even greater economic and political isolation.

This status is also essential for future trials. After all, this can be a strong argument for prosecution in international institutions. Currently, 14 EU countries have joined the investigation into Russia’s war crimes in Ukraine, with between 15,000 to 20,000 specialists involved in the process.

In addition to purely economic and legal factors, Russia’s inclusion in the list of exiled countries will destroy Moscow’s image. Russia fears this status more than the seventh and subsequent packages of sanctions, so it will continue to pressure the West in every possible way to avoid the “terrorist” label.

The consequences of such a decision are known in Washington and Brussels, though they are in no hurry to adopt it. The decision has been postponed for both political and economic reasons. Parliamentary elections will be held in the United States in November, for which the de facto election campaign has already begun, and the Ukrainian issue is of significant importance in it. To avoid speculation from Republicans, Joe Biden is likely to approve the resolution closer to or after the election, when the campaign won’t influence the White House’s decision.

A restraining factor for the EU in this matter is its dependence on Russian gas and reluctance to confront a nuclear state. Some European leaders support the United States’ position on recognizing Russia as a sponsor of terrorism, but Lithuania’s brave example is unlikely to be followed in the near future.

CZK:   Transparent account

AN:     2300405420/2010

VS:     2022

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