The law on counter-sanctions now in force

On 4 June 2018, Federal Law No. 127-FZ “On Measures (Countermeasures) against Unfriendly Actions of the United States of America and Other Foreign States”* (the “Counter-sanctions Law”) came into force.

The Counter-sanctions Law provides for a series of retaliatory measures that Russia can take in response to the sanctions imposed against it by the United States and other countries (“Affected States”).

The Counter-sanctions Law only sets the general scope of the measures. In turn, concrete measures can be introduced by the Russian Government as per the decision of the President.

The Counter-sanctions Law determines the following broad types of measures:

• the end or suspension of international cooperation with the Affected States and foreign organisations;
• a prohibition or restriction on the importation of goods or raw materials produced in the Affected States or by foreign organisations to Russia, except vital products with no equivalent produced in Russia and products imported for personal use;
• a restriction on export of certain products or raw materials by foreign organisations from Russia;
• banning foreign organisations from participating in privatisation; and
• banning foreign organisations from providing certain types of services that will be determined by the Russian Government, as well as purchases carried out by legal entities affiliated with the state.

In addition, the President can decide to use other retaliatory measures.

Compared with the bill adopted by the Russian State Duma in the second reading, on which we reported in our previous Alert, the scope of entities to which the abovementioned measures may be introduced has changed.

In particular, the Counter-sanctions Law does not contain a clear definition of the concept of control, although during the review of the bill such a concept had been discussed. In addition, the participation of a foreign company registered in an Affected State in the charter capital of an organisation does not in itself constitute a sufficient basis for the application of the Counter-sanctions Law in respect of such an organisation.

Thus, retaliatory measures can be taken only with respect to:

• Affected States;
• organisations under the jurisdiction of Affected States;
• organisations directly or indirectly controlled by or affiliated with Affected States; and
• officials and citizens of Affected States.

In itself, the Counter-sanctions Law does not yet mean restricting the entrepreneurial activity of foreign organisations in Russia. However, it legitimises the introduction of such restrictions.

In this situation, companies that are potentially subject to the Counter-sanctions Law need to monitor the development of decrees of the Russian Government, which will provide for the specific content of retaliatory measures to be introduced.

If you have any questions on the matters referred to in this Alert, please do not hesitate to contact CMS Russia experts Leonid Zubarev and Sergey Yuryev or your regular contact at CMS Russia.

* In Russian