Ilyashev & Partners | View firm profile
Yana Trynova, Attorney at Law, Dr. iur., Professor, Ilyashev & Partners Law Firm
The full-scale war has fundamentally reshaped the role of Ukraine’s defence industry. Once a closed and predominantly state-controlled sector, it has evolved into one of the most dynamic areas of the economy, actively attracting private businesses and foreign investment.
Today, the defence industry is no longer just about weapons production. It is about technology, international cooperation, innovation, and rapid business scaling.
However, alongside these opportunities comes a new reality: operating in this sector means constantly balancing growth with heightened legal risks.
State Defence Contracts in Ukraine: Legal Risks, Liability and Compliance Challenges
For most companies in the defence sector, cooperation with the state is essential. Yet this is also where a significant portion of legal challenges arises. Government defence contracts involve strict deadlines, complex pricing mechanisms, and heightened scrutiny from regulatory and law enforcement authorities. In practice, even minor technical deviations or delays can result in penalties, disputes, or inspections.
For example, if a UAV component is manufactured using a material different from that specified in technical requirements, or if there are tolerance deviations, certification inconsistencies, or insufficient testing, the manufacturer may face non-compliance reports, contractual penalties, or rejection of the product.
Similarly, producing a component for weapons or ammunition using improper materials may lead to severe consequences during use (e.g. premature or failed detonation). For the manufacturer or supplier, this may result in production suspension, inspections, product recalls, financial losses, and in some cases criminal liability.
To mitigate such risks, businesses must strictly follow regulations, comply with contractual obligations, and invest in qualified internal control functions, including legal and compliance specialists.
Export Control, Sanctions and International Cooperation: Legal Risks for Defence Businesses in Ukraine
Another major block of risks relates to foreign economic activity.
Companies dealing with military or dual-use goods must comply with export control requirements, obtain appropriate permits and licences, observe sanctions regimes, and follow regulations of partner countries. Any mistake in these processes may cost not only a contract but also the company’s reputation.
For instance, exporting UAV electronics as civilian goods when they qualify as military products may lead to fines, licence revocation, or even criminal liability.
Additionally, some joint activity agreements concluded before 2014 may still formally remain in force. However, cooperation with entities from an aggressor state now constitutes a criminal offence punishable by up to 12 years of imprisonment and asset confiscation.
Entering the European market also requires compliance with intellectual property rules. Any engineering innovation must be properly protected (copyright, patents), and authorised for use. Failure to do so may result in contract invalidation and liability for damages.
Reselling goods to third countries without the original supplier’s consent may trigger sanctions, contract termination, and criminal liability, particularly if such goods end up in restricted jurisdictions.
The use of dual-use goods is especially sensitive. Incorrect classification or lack of proper licensing may lead to asset seizure, criminal proceedings, searches, and reputational damage.
These examples highlight the critical importance of qualified legal support capable of preventing such risks.
Criminal Liability and Investigations in Ukraine’s Defence Sector: Key Risks for Businesses
The defence sector is under constant scrutiny by law enforcement authorities. In recent years, there has been a significant increase in criminal proceedings related to procurement, supply chains, product quality, regulatory compliance, and alleged cooperation with the aggressor state.
Given the complexity of legislation and the speed of regulatory changes, risks may arise even without intent, due to negligence.
Typical offences in this sector include abuse of power, forgery, official negligence, and violations of export control regulations. In more severe cases, charges may extend to tax evasion, obstruction of the Armed Forces’ activities, or even high treason.
In essence, operating in the defence sector is like walking a tightrope: without proper legal support, the risks can be extreme. Individuals may face long-term imprisonment and asset confiscation, while companies risk liquidation.
Investing in Ukraine’s Defence Industry: Legal Barriers, Risks and Due Diligence Requirements
Despite the risks, Ukraine’s defence sector remains one of the most promising for investors. Its strengths include a strong engineering base, production capabilities, integration with international partners, and growing demand for defence technologies.
However, this market requires a deep understanding of local specifics. Without it, even strong investors may face critical barriers.
Current investment trends include funding repair centres for armoured vehicles, ammunition production facilities, defence startups (drones, AI, cybersecurity), and infrastructure projects. All these formats require robust legal support, including export control compliance, sanctions screening, beneficiary checks, and thorough due diligence.
Legal Risk Management in Ukraine’s Defence Sector: What Actually Works in Practice
Our experience shows that in the defence sector, success belongs to those who prevent problems rather than react to them.
An effective legal support model includes:
– comprehensive compliance systems;
– proper structuring of relationships with government authorities;
– control over foreign economic operations;
– management of criminal law risks;
– legal support for personnel and internal security.
In practice, the legal function becomes an integral part of business strategy and corporate governance. Each strategy must be tailored to the specific needs of the defence enterprise.
Where strong and trust-based cooperation exists between a business and its legal advisors, many of these risks can be effectively minimised.
Ukraine’s defence industry today combines high potential with high risk. For businesses, the key takeaway is simple: success depends not only on technology or financing, but on the ability to operate effectively within a complex legal environment. This capability is becoming a critical competitive advantage.
Ilyashev & Partners is a leading Ukrainian law firm acting as criminal defence lawyers in Ukraine, with a recognised focus on white-collar crime, defence industry legal risks, and regulatory investigations in Ukraine. We represent defence companies, manufacturers, and executives operating in Ukraine’s defence sector, including businesses involved in military production, dual-use goods, and export-controlled technologies in Ukraine.
Our team provides end-to-end legal protection against criminal risks and criminal liability in Ukraine arising in the defence sector, including allegations related to abuse of office, fraud, forgery, export control violations, sanctions breaches, and cooperation with restricted jurisdictions. We represent clients in criminal investigations in Ukraine, including dawn raids, interrogations, asset seizures, and court proceedings before Ukrainian law enforcement authorities and courts, ensuring immediate response and strategic defence.
We have extensive experience supporting companies involved in defence contracts with the state in Ukraine, military supply chains, and international defence cooperation, helping them navigate compliance with Ukrainian criminal law and regulatory requirements in Ukraine, including export control regulations, sanctions regimes, and defence procurement rules. Our lawyers work closely with businesses to prevent criminal exposure in Ukraine, conduct internal investigations, compliance audits, and risk assessments, and prepare clients for interactions with law enforcement authorities in Ukraine.
We advise companies and investors on how to operate safely in Ukraine’s defence industry, minimising exposure to criminal liability and regulatory enforcement. In addition to criminal defence, we handle cross-border disputes involving Ukraine, sanctions-related matters, and protection of assets affected by wartime risks, including damage documentation, recovery strategies, and coordination with international compensation mechanisms.
With decades of experience in high-stakes disputes and criminal defence in Ukraine, Ilyashev & Partners is a trusted legal advisor for companies and investors seeking protection against criminal liability, regulatory risks, and enforcement actions in Ukraine and Ukraine’s defence and security sector.
To learn more, please visit the Ilyashev & Partners Law Firm website or contact Yana Trynova directly.