Russian Government clarifies rules for transactions with foreign counterparties

On 28 February and 1 March 2022, the Russian President respectively signed Decrees No. 79* and No. 81*, which stipulate the need to obtain permission from the Government Commission for Control of Foreign Investment in Russia (the “Commission”) for certain transactions and operations between residents and foreign counterparties, including persons associated with states that commit, within the meaning of Russian law, unfriendly acts against Russian individuals and entities as well as those under their control, including Russian ones (“Restricted Persons”).

On 5 March 2022, the Russian Government approved* the following list of “unfriendly states”, meaning that foreign investors with links with any such state become Restricted Persons:

At the same time, Restricted Persons under Presidential Decree No. 95* dated 5 March 2022 do not include persons who are controlled by Russian persons (ultimate beneficiaries) when information on the control over these has been disclosed to the Russian tax authorities.

Transactions subject to restrictions

The following types of transactions or operations must be authorised by the Commission:

• transactions on granting rouble denominated loans and credits to Restricted Persons;
• transactions with Restricted Persons regarding the transfer of ownership of securities;
• transactions with Restricted Persons regarding the transfer of title to immovable property;
• transactions with securities and immovable property acquired from Restricted Persons by other foreign persons after 22 February 2022;
• currency operations related to the provision of foreign currency by residents in favour of non-residents under loan agreements;
• placement of foreign currency by residents on their bank or deposit accounts opened with foreign banks and other financial market institutions; and
• conducting money transfers without opening a bank account using electronic means of payment provided by foreign suppliers of payment services.

Transactions in relation to the transfer of ownership of securities made with Restricted Persons may be carried out through organised trading (i.e. a stock exchange) on the basis of authorisations issued by the Bank of Russia in agreement with the Russian Ministry of Finance.

[For more details, please see our previous eAlert: “Russia imposes additional restrictions on transactions with foreign investors”.]

Transactions not subject to restrictions

According to the Bank of Russia’s explanations*, the following types of transactions or operations are not subject to restrictions and do not require any approvals:

• changes in the terms or restructuring of loans extended before 1 March 2022;
• cross-border transfer of funds using correspondent accounts opened by Russian credit institutions in foreign banks and vice versa;
• conversion of depositary receipts into shares of a Russian issuer by the holder of the receipts;
• the transfer by a Restricted Person of securities transferred into management back to their owner;
• transactions with securities without a transfer of rights to them;
• transactions made against the will of a security holder (execution of a court decision);
• transactions involving the transfer of securities between depo accounts of a nominee holder;
• granting loans to Russian credit institutions controlled by Restricted Persons; and
• granting loans to Russian persons for the purposes of paying salaries or making other social payments to employees.

Procedure for obtaining the Commission’s authorisation

On 6 March 2022, the Russian Government adopted Decree No. 295* defining the procedure for issuing approvals for the above transactions with foreign counterparties. In order to obtain an authorisation, one of the parties to the transaction (the “Applicant”) must submit the following documents to the Russian Ministry of Finance:

• a free-form application addressed to the Commission and containing, inter alia, information on:
  • the purpose of the transaction;
  • the subject matter of the transaction;
  • other material conditions of the transaction; and
  • the intended term of validity of the authorisation;
• the Applicant’s state registration certificate or passport (for individuals);
• the Applicant’s charter;
• information on the beneficial owners and controlling persons of the Restricted Person involved in the transaction;
• for transactions regarding ownership of immovable property of a resident:
  • the resident’s balance sheet as of the last balance sheet date; and
  • information on the book value of the resident’s assets as of the last reporting date.

These documents may be provided in electronic or written form, in Russian or in a foreign language with an apostille and a certified translation.

Russian Government Decree No. 295* does not specify the timeframe for reviewing an application. If the application is processed with a positive outcome and the authorisation is issued, the Commission has the right to determine the conditions of the transaction and/or the period of validity of the authorisation at its own discretion.

We will continue to monitor these developments and report on further changes.

For further information, please email the authors or your usual contact at CMS Russia.

Co-authored by Yuriy Nakul, Paralegal in Corporate/M&A.

* In Russian