Executive Summary of Russian Sanctions January 11, 2023
New Regulations (November – December, 2022):
- Extract from the Minutes of the Meeting of the Sub-Commission of the Governmental Commission for Control over Foreign Investments in the Russian Federation No. 103/1 dated November 2, 2022;
- Extract from the Minutes of the Meeting of the Sub-Commission of the Governmental Commission for Control over Foreign Investments in the Russian Federation No. 106/1 dated November 10, 2022;
- Extract from the Minutes of the Meeting of the Sub-Commission of the Governmental Commission for Control over Foreign Investments in the Russian Federation No. 118/1 dated December 22, 2022;
- Decision of the Board of Directors of the Bank of Russia dated November 21, 2022;
- Decree of the President of the Russian Federation No. 845 dated November 23, 2022;
- Decree of the President of the Russian Federation No. 876 dated December 5, 2022;
- Federal Law No. 511-FZ dated December 5, 2022;
- Federal Law No. 499-FZ dated December 5, 2022.
New Requirements for Sale of Shares in Russian Companies
- Starting from September 8, 2022, the sale of shares (and equity interest) in Russian entities by the foreign shareholders associated with “unfriendly” states has become subject to preliminary approval of the Sub-Commission of the Governmental Commission for Control over Foreign Investments in the Russian Federation (the “Commission”). The application for approval of transaction shall be submitted with the Russian Ministry regulating the sector of economics where the Russian entity, whose shares are being sold, is active.
- On December 22, 2022, the Commission adopted the following formal conditions (requirements) for approval of the sale of shares :
- Demand for approval shall be accompanied by the share valuation report prepared by the independent appraiser;
- Selling price of shares shall be established with a discount of at least 50% of the market value indicated in the share valuation report;
- Key performance indicators (KPIs) shall be previewed for the acquirer(s); and
- SPA shall provide for a payment of the selling price in instalments during 1-2 years OR a voluntary contribution of at least 10% of the amount of transaction shall be made to the federal budget (by any party of the transaction).
New Requirements for Distribution of Dividends in Russian Companies
- On December 2022, the Commission also established new conditions that shall be applied while considering the demands for approval of distribution of the dividends in Russian entities to the foreign shareholders associated with the “unfriendly” states:
- Dividends to be paid shall not exceed 50% of the Russian entity’s net profit for the previous reporting year;
- Retrospective analysis of the distribution of dividends for the previous periods shall be made (to demonstrate consistent dividend distribution policy);
- Foreign shareholders shall undertake to continue commercial activities in Russia (a “guarantee letter” to be submitted);
- “The significance” of the relevant Russian company’s activities and its “impact on the technological and industrial independence of Russia or its regions, as well as their socioeconomic development” shall be assessed (the criteria for assessment of the “significance” and of the “impact” shall be established by the government body competent in the relevant Russian entity’s field of activity);
- Competent government body shall establish quarterly KPIs for the relevant Russian entity;
- Dividends may be distributed on a quarterly basis, subject to the fulfillment of the established KPIs by the relevant Russian entity.
New Exemptions for Transactions with Shares in Russian LLCs
- Russian natural persons may carry out gratuitous transactions (without consideration) entailing, directly and (or) indirectly, the termination of ownership rights of foreign natural persons from “unfriendly” states in respect of shares in Russian limited liability companies, or other rights which allow to determine the conditions of management of LLCs, and (or) the conditions for their business activity.
- The aforementioned exemption applies only if the parties to the transaction are spouses or close relatives.
Updates in the Regime of a “C-type” Bank Account
- The Bank of Russia has updated the regime of a “C-type” account (bank account, a depot ccount, subaccount of a depot account, a brokerage account, and a trading bank account).
- A list of operations for crediting and debiting funds using such accounts has been defined.
- A previous decision of the Board of Directors of the Bank of Russia dated June 24, 2022 has been canceled.
Source: Extract from the Minutes of the Meeting of the Sub-Commission of the Governmental Commission for
Control over Foreign Investments in the Russian Federation No. 103/1 dated November 2, 2022
Decision of the Board of Directors of the Bank of Russia dated November 21, 2022
Foreign Currency Loans to Non-Residents from “Friendly” States
- The Commission has extended the possibility for Russian residents to provide loans in foreign currency to non-residents from “friendly” states until March 31, 2023.
Extension of the Ban on Certain Operations with Shares of Foreign Companies
- The ban for Russian residents to (1) pay for stakes, deposits or shares in the share capital of non-resident legal entities (irrespective of whether they are from “friendly” or “unfriendly” jurisdiction) and (2) make a transfer or any contribution whatsoever under a joint venture agreement has been extended until December 31, 2023.
- Exempt from such ban are:
- Payments in RUB or currency of a “friendly” state, or
- Payments in currency of an “unfriendly” state not exceeding the equivalent of 15M RUB.
- Payments in currency of an “unfriendly” state provided that there is a clearance of the Bank of Russia.
Source: Extract from the Minutes of the Meeting of the Sub-Commission of the Governmental Commission for Control over Foreign
Investments in the Russian Federation No. 120/1 dated December 27, 2022
Decree of the President of the Russian Federation No. 845 dated November 23 , 2022
Russian Parliament Expanded the List of Permitted Currency Operations between Residents
- From December 16, 2022, Russian residents may perform mutual settlements for the payment of monetary claims in foreign currency assigned by non-residents to residents under foreign trade contracts, provided that non-residents:
- Transfer goods to Russian residents under foreign trade contracts, perform work, services, etc.;
- Have monetary claims to Russian residents under these contracts or to financial agents (factors) who are Russian residents.
- Currency control agents may request documents on such transactions.
Continuing Ban on Exit from Russian Investments in Certain Industries
- Presidential Decree No. 520 dated August 5, 2022, has been extended until December 31, 2023.
- The Decree introduced an overall ban on transactions with certain assets, such as securities in certain Russian companies and interests in certain Russian investment projects, if these securities and interests are owned by persons from “unfriendly states” or persons under their control.
Extension of the Permission for Russian Retailers to Use the Retail Facilities of Foreign Companies that Have Left Russia
- According to Federal Law “On the Fundamentals of State Regulation of Trade Activities in the Russian Federation” No. 381-FZ dated December 28, 2009, a retailer whose market share in the particular Russian region exceeds 25% cannot buy or rent additional retail space.
- On June 15, 2022, a temporary exemption from this restriction was introduced for acquisition or lease by the Russian retailer of the additional retail space, the owners of which were foreign companies which have left Russia.
- The validity of the aforementioned exemption was extended until the end of 2023.