September 2023

To offset the effects of sanctions imposed on Russia, its authorities have put in place numerous counter- sanctions measures that are regularly updated, revised and expanded.

I. “Unfriendly” persons

A new category of “unfriendly” states has been introduced, which includes the USA, UK, EU and other countries that have imposed unilateral sanctions / restrictions against the Russian Federation, its citizens or legal entities.[1]

A list of “unfriendly” states is maintained by the Government of the Russian Federation (the “Government”).[2]

The limitations set forth in the counter-sanctions regulations are generally applicable to “Unfriendly” persons such as:

•  “Unfriendly” states;
• Citizens and officials of “unfriendly” countries;
• Legal entities under the jurisdiction of “unfriendly” countries;
• Entities directly or indirectly controlled by or related to “unfriendly” countries.[3]

The rules do not apply:

• To transactions of the Central Bank of Russia (the “CBR”) or Russian state authorities;
• To “Unfriendly” persons ultimately controlled by Russian entities/citizens or foreign entities / citizens not related to “unfriendly” states if such control was established before 1 March 2022.

II. Regulated transactions with “Unfriendly” persons

1. Regulated transactions with shares and equity interests

Approval from the Government Commission for Control over Foreign Investment in the Russian Federation (the “GC”) is required for:

• Transactions with participatory interests of LLCs; or[4]
• Transactions with securities (primarily shares in JSC’s);[5]
• Transactions that entail a transfer of ownership, like a sale and purchase, or any change in the composition of the shareholders and the nominal value of their shareholdings, or direct and indirect changes in corporate control, a pledge, pledge management, fiduciary management, corporate (shareholders’) agreements, etc.

Significant conditions for the GC’s approval are:

• A purchase price that is not greater than 50% of the fair market value, and
• A buyback of shares (an option) by the seller is limited to two years and must be beneficial to the resident buyer, and
• A “voluntary” contribution to the state budget of at least 5 to 15% of the market value of the shares depending on the share price discount.

In certain instances (such as the sale of shares in “strategic” JSC’s, energy companies or designated banks), authority to issue permissions is within the competence of the President.[6]

2. Other regulated transactions

One must obtain a permission from either the GC or CBR approved by the Ministry of Finance (”Minfin”) for the following transactions:

• RUB-denominated credits and loans to “Unfriendly” persons;^[7]
• Foreign currency loans to “Unfriendly” persons;^[8]
• Crediting dividends received from Russian JSC’s and LLC’s to a resident’s foreign bank account;^[9]
• Transactions with “Unfriendly” persons that result in ownership of certain securities and real estate (numerous exemptions, mostly for individuals).^[10]

III. Restrictions on payments to “Unfriendly” persons

1. Special procedure of payments to “unfriendly” creditors and counterparties

There is a special procedure for the performance of obligations of Russian residents to “Unfriendly” persons with respect to:

• Loans, borrowings and financial instruments;[11]
• Dividends, profits of resident LLCs, business partnerships, and production cooperatives;[12]
• Payments arising out of a charter capital reduction, liquidation or bankruptcy proceedings;[13]
• Other payments such as payments under independent guarantees.[14]

If these payments exceed 10 million Rubles or the foreign currency equivalent per month, the funds are to be transferred to a restricted type “S” Ruble account unless there is a permit from the CBR or Minfin.

With regard to permits for profits (dividends) payment the criteria are:[15]

• The amount to be distributed does not exceed 50% of the net profit for the previous year, and
• The payment should comply with the previous dividend policy, and
• Foreign owners are prepared to continue doing business in Russia, and
• The authorities have set a quarterly KPI, and
• The sector-specific agencies’ and Bank of Russia’s opinions on a company’s significance are factored in, and
• Dividends may also be paid quarterly when the KPI has been met.

The permit may be issued without observing these criteria if after 1 April 2023 the foreign shareholder has made investments into the Russian economy in the amount larger than that of the dividends payable to such shareholder.[16] Examples of investments are expansion of production volume and new technologies development.

2. Special procedure of royalty payments to “Unfriendly” parties

Royalty and other payments to “Unfriendly” parties may be carried out in a regular manner, if such persons properly fulfill their obligations under contracts.[17]

The following parties may receive royalty payments only to a restricted type “O” Ruble account and get the funds debited only with the consent from the GC:

• “Unfriendly” persons, that fail to properly fulfill their obligations under contracts, or
• Support anti-Russian restrictive measures and discredit the Russian army, or
• Have banned the use in Russia of the results of intellectual activity and/or means of individualization due to restrictive measures, and “left” Russia after 23 February 2022, or
• Disseminate information in an indecent form that violates human dignity and morality, or expresses disrespect for Russia, its society, authorities and official symbols.

Exceptions include, inter alia, publicly significant products such as medicines, food, communications, etc., and minor payments by individuals.

IV. Capital market restrictions

1. Depositary receipts

Russian JSCs must stop trading depositary receipts on foreign stock exchanges and terminate relevant contracts for depositary receipt programs, unless granted an exemption by the GC.[18]

2. Regulated transactions with securities

Starting from 3 March 2023, the following are subject to the approval of the CBR or GC: transactions with securities (shares of Russian joint-stock companies, sovereign bonds, bonds of a Russian issuer held in the collective safe custody of a Russian depository, as well as investment units in a Russian mutual fund) acquired by Russian residents and friendly non-residents after 1 March 2022, from unfriendly non-residents and credited to an account with a Russian depository.[19]

3. Special procedures for Eurobond payments[20]

In order to repay or novate Eurobond debt a Russian borrower may either issue and place substitute bonds analogous to initial Eurobonds or buy back the Eurobonds using money from a placement of local bonds.

When applicable, further to the approval of the GC or CBR, a restricted Ruble type “D” account may be opened by a Russian borrower/guarantor to discharge monetary obligations.

4. Sovereign Eurobonds

Coupon payments on Sovereign Eurobonds are made to the National Settlement Depositary and later distributed among the holders under procedures that depend on whether foreign infrastructure is involved and the scope of such infrastructure.[21]

Starting from 4 August 2023, pursuant to changes to the Budget Code, the Government is authorized to replace outstanding sovereign Eurobonds with new bonds issued with similar terms with the consent of bondholders.[22]

V. Certain measures regarding corporate control

1. Temporary management over assets of “Unfriendly” persons

A governmental agency designated by the president shall exercise temporary management over assets held by “Unfriendly” persons as listed in the decree.[23]

Assets include movable and immovable property in Russia, securities and interests in the capital of legal entities and property rights.

The temporary manager shall exercise all rights available to the owner of the assets, except for the right to dispose of them.

The list is being maintained by the President and as of 25 August 2023 includes:

• 83.75% of the shares in Unipro held by Uniper SE;
• 69.88% of the shares of Fortum held by Fortum Russia B.V.;
• 28.35% of the shares in Fortum held by Fortum Holding B.V.;
• 83.29 billion ordinary shares of Danone Russia JSC held by Produits Laitiers Frais Est Europe;
• 85,000 ordinary shares of Danone Russia JSC held by Danone Trade LLC;
• 98.56% of the shares in the capital of LLC Baltika Brewing Company held by Carlsberg Sverige Aktiebolag;
• 1.35% of the shares in the capital of LLC Baltika Brewing Company held by Hoppy Union LLC;
• 0.09% in the capital of LLC Baltika Brewing Company held by Carlsberg Deutschland GmbH.

2. Disqualification of “Unfriendly” persons from corporate voting

Until 31 December 2023 Russian shareholders may adopt a decision to disregard votes of “unfriendly” shareholders and their nominees in collective governing bodies in a Russian company that meets the following criteria:[24]

• It operates in energy, machinery and trade, and
• The Russian controlling shareholder or UBO is sanctioned by a foreign state, and
• The annual revenue of the company or its group exceeds 100 billion Rubles, and
• “Unfriendly” shareholders hold less than 50% of the votes.

3. Law on Corporate Governance in Economically Significant Organizations[25]

Starting from 4 September 2023, a court may resolve to exclude foreign holding companies (“FHCs”) associated with “unfriendly” states, which hold over 50% of the voting rights in Russian legal entities considered essential for the Russian economy (“Significant Companies” or “SCs”) from the ownership structure of those SCs.

An SC must meet certain criteria:

• It is included in the list maintained by the Government, [26] and
• The SC’s group within Russia meets one of the quantitative criteria on asset value, revenue, taxes paid or number of employees, and
• The SC or its subsidiary is significant for the IT sector, or is a regionally significant city- forming organization, or has an impact in terms of highly productive/high-paying jobs or is a systemically important financial institution, and
• Russian beneficiaries have direct or indirect control over the FHC or hold at least 20% of shares and either the beneficiaries or the SC are sanctioned.

The triggers for a suspension of an FHC exercising its corporate rights list certain cases where an action or the inaction of the FHC may cause obstacles in the company’s business to the point of a suspension of its operations.

The competent court is the Arbitrazh (Commercial) Court of the Moscow Region. The procedural rules are designed for a case to be considered at maximum speed.

The measures the court is competent to introduce are:

• A suspension of the FHC’s corporate rights such as voting, convening meetings, etc.;
• The FHC cannot sell or otherwise dispose of shares;
• The FHCs shares in the SC are transferred to the SC;
• Russian persons who the SC determines to be its indirect shareholders become the direct holders of shares in the SC pro rata to their participation in the FHC;
• The SC shall pay dividends to Russian persons directly;
• The market value of the remaining shares (equity interests) in the SC may be compensated to the FHC upon its request.

4. Other corporate governance measures

Regulation has been implemented to hand over control over the major projects Sakhalin-1 with the ownership of Exxon Mobil Corp., ONGC and SODECO[27] and Sakhalin-2 with foreign ownership such as Shell, Mitsui and Mitsubushi.[28] The operations have been fully transferred to a newly created company, where foreign shareholders must apply to the Government for the latter to make a decision on whether to grant those shareholders shares in the newly created company.

VI. Other measures

1. Parallel import

Certain provisions of the Civil Code regarding the protection of trademark holders’ rights are no longer applied to trademark holders’ rights regarding certain goods / groups of goods / goods with certain trademarks listed by the Government, if such goods have been purchased legally outside of Russia.

2. Export restrictions

The export of certain pharmaceutical products, agricultural machinery and industrial equipment is either prohibited or subject to licensing. “Unfriendly” countries and persons can pay for gas only in Rubles.[29]

3. Oil export restrictions

Until 31 December 2023, it is prohibited to supply Russian oil and petroleum products, if a foreign purchaser directly or indirectly applies a price cap on such goods, unless a special approval has been granted by the President.[30]

4. Restrictions on banking information disclosure

Russian banks cannot disclose information that is subject to banking secrecy further to requests of non-tax government bodies of foreign states (including judicial authorities) without the prior consent of the authorized Russian government body, which is yet to be determined by the President.[31]

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[1]     Decree No. 81 of the President of the Russian Federation dated 1 March 2022 (“Decree 81”).

[2]     Order No. 430-r of the Government of the Russian Federation dated 5 March 2022.

[3]     Letter No. 05-06-14RM/99138 of the Ministry of Finance dated 13 October 2022.

[4]     Decree No. 618 of the President of the Russian Federation dated 8 September 2022.

[5]     Decree 81.

[6]     Decree No. 520 of the President of the Russian Federation dated 5 August 2022.

[7]     Decree 81.

[8]     Decree No. 79 of the President of the Russian Federation dated 28 February 2022 (“Decree 79”), Decree 81, Extract from Decision No. 171/1 of the Sub-Commission of the Government Commission for Overseeing the Making of Foreign Investments in Russia dated 21 June 2023.

[9]     Decree 79, Decree 81, Decree No. 430 of the President of the Russian Federation dated 5 July 2022 (“Decree 430”).

[10]    Decree 81.

[11]    Decree No. 95 of the President of the Russian Federation dated 5 March 2022 (”Decree 95”).

[12]    Decree 95, Decree No. 254 of the President of the Russian Federation dated 4 May 2022 (“Order 254”).

[13]    Decree No. 737 of the President of the Russian Federation dated 15 October 2022 (“Decree 737”).

[14]    Decree 254.

[15]    Extract from Decision No. 171/5 of the Sub-Commission of the Government Commission for Overseeing the Making of Foreign Investments in Russia dated 7 July 2023.

[16]    Extract from Decision No. 182/5 of the Sub-Commission of the Government Commission for Overseeing the Making of Foreign Investments in Russia dated 9 August 2023.

[17]    Decree No. 322 of the President of the Russian Federation dated 27 May 2022.

[18]    Federal Law No. 114-FZ dated 16 April 2022.

[19]    Decree No. 138 of the President of the Russian Federation dated 3 March 2023.

[20]    Federal Law No. 319-FZ dated 14 July 2022, Decree 430, Decree No. 529 of the President of the Russian Federation dated 8 August 2022, Decree No. 364 of the President of the Russian Federation dated 22 May 2023, CBR Official Guidance No. 11-OR, Letter No. IN-018-34/154 of the CBR dated 30 December 2022.

[21]    Decree No. 240 of the President of the Russian Federation dated 22 June 2022 No. 394, Order of the Ministry of Finance dated 22 June 2022.

[22]    Federal Law No. 416-FZ dated 4 August 2023.

[23]    Decree No. 302 of the President of the Russian Federation dated 25 April 2023.

[24]    Decree No. 16 of the President of the Russian Federation dated 17 January 2023.

[25]    Federal Law No. 470-FZ dated 4 August 2023.

[26]    Draft Resolution of the Government of the Russian Federation ID 140811.

[27]    Decree No. 723 of the President of the Russian Federation dated 7 October 2022, Resolution No. 1808 of the Government of the Russian Federation dated 12 October 2022.

[28]    Decree No. 416 of the President of the Russian Federation dated 30 June 2022, Resolution No. 1369 of the Government of the Russian Federation dated 2 August 2022, Resolution No. 1566 of the Government of the Russian Federation dated 6 September 2022.

[29]    Decree No. 100 of the President of the Russian Federation dated 8 March 2022, Decree No. 172 of the President of the Russian Federation dated 31 March 2022, Resolution No. 311 of the Government of the Russian Federation dated 9 March 2022, Resolution No. 313 of the Government of the Russian Federation dated 9 March 2022.

[30]    Decree No. 961 of the President of the Russian Federation dated 27 December 2022.

[31]    Federal Law No. 125-FZ dated 1 May 2022.