Author: Victoria Gladysheva

Initially, Federal law dated 28 December 2012 No. 272-FZ "On Measures to Influence Persons Involved in Violations of Fundamental Human Rights and Freedoms, Rights and Freedoms of Citizens of the Russian Federation" provided for introduction of restrictive measures against some categories of the US persons.

From 5 March 2022, the restrictions initially provided for by this law could apply against any foreigners or stateless persons who violate the rights of Russian citizens.

The list of unfriendly foreign states was approved by Decree of the Government of the Russian Federation of 5 March 2022 No. 430-r and as of 5 April 2022 includes such countries as Australia, Albania, Andorra, Great Britain (including the island of Jersey and controlled overseas territories – islands Anguilla, British Virgin Islands, Gibraltar), EU Member States, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, USA, Taiwan (China), Ukraine , Montenegro, Switzerland, Japan (“Unfriendly states”).

In this article we briefly summarize the special economic measures imposed by the Russian authorities in relation to the persons from Unfriendly states.

Conclusion of contracts between persons from Unfriendly states and Russian residents
Approval of some transactions by the Government Commission
Presidential Decree No. 81 dated 1 March 2022 provides for obtaining special permissions from the Government Commission for Control over Foreign Investments in the Russian Federation (the “Government Commission”) for the execution by Russian residents of transactions concluded with:

1. foreign persons from Unfriendly states (including if such foreign persons have the citizenship of these states or have place of registration/place of business there);
2. with persons under control of persons from Unfriendly states (regardless of their place of registration/place of business).
Such permissions of the Government Commission must be obtained in relation to the following range of transactions:
1. credits and loans in rubles in favor of persons from Unfriendly states;
2. transactions with persons from Unfriendly states, entailing ownership of securities and real estate;
3. transactions, the subject of which is described in paragraphs 1 and 2, if such transactions are concluded with foreign persons who are not Persons of foreign states, and the subject of transactions are securities and real estate acquired after 22 February 2022 by such persons from Persons of foreign states.

The Official Clarification of the Bank of Russia No. 2-OR dated 18 March 2022 (clause 1.11) (“Clarification of the Bank of Russia”) clarifies that these restrictions do not apply to transactions connected with transfer of ownership to securities and real estate property that carried out by residents with persons from Unfriendly states, if:

  • securities are held by a foreign depository or foreign bank located outside of Russia, which also register the rights to securities and store them abroad;
  • real estate property is located outside of Russia;
  • settlements under transactions with such securities or real estate are carried out on accounts opened by residents in foreign banks located abroad, information about which is disclosed by residents to the tax authorities of Russia in accordance with Russian legislation requirements.

In addition, this permissive procedure for transactions does not apply to a certain range of transactions that are not accompanied by a transfer of monetary funds.
In addition, there is no need to obtain permission from the Government Commission in cases where a credit or loan is issued in rubles by a Russian resident to another Russian resident who is under the control of persons from Unfriendly states.

The procedure for approval of transactions by the Government Commission
An application for a permission is sent by a Russian resident or a person from Unfriendly state to the Ministry of Finance of Russia.
The permit may be issued to an indefinite group of persons, the permit may also indicate its validity period.

Performance of contracts with persons from Unfriendly states by Russian companies
Presidential Decree dated 5 March 2022 No. 95 establishes a temporary procedure for performance of obligations by debtors to creditors from Unfriendly states or those who are under their control (regardless of place of registration /places of business) in relation to credits, loans, financial instruments.
This procedure also applies to transactions between debtors and other foreign creditors, if the right to claim under such obligations was assigned in favor of such foreign creditors after 1 March 2022 by persons from Unfriendly states or persons controlled by them.
Repayment may be made by the Russian debtors in rubles only and according to the special procedure which provides for opening special "C" account in the name of a foreign creditor (or foreign nominal holder) at the request of a Russian borrower in a Russian bank or a Russian depositary. The status of “C” account was established by the Decision of the Board of Directors of the Central Bank of the Russian Federation dated 8 March 2022.

This procedure applies only to payments exceeding RUB 10 million per month (or equivalent amount in foreign currency).
At the same time, the Russian Central Bank (in relation to the fulfillment of obligations by credit institutions and non-bank financial institutions) and the Ministry of Finance of Russia (in relation to the fulfillment of obligations by other debtors) have the right to determine a different procedure for performance of obligations by obligations by Russian debtors.

Limitations in relation to payments in foreign currency
Some special economic measures are devoted to limitations applicable to payments in foreign currency.
From 1 March 2022, providing of loans in foreign currency by residents in favor of non-residents is prohibited. As for loans in rubles, they may be permitted by the Government Commission.

Starting from 28 February 2022, Russian residents (including Russian companies in which foreign persons may have shares) must sale 80% of foreign currency received under foreign trade contracts concluded with non-residents and providing for transfer of goods or intellectual property, provision of services or performance of works for non-residents. The foreign currency in prescribed amount should be sold no later than three working days from the date of its receipt.

The Central Bank of Russia is currently entitled to determine the number of advance payments to be made by residents in favor of non-residents under the certain contracts which are to be specified by the Central Bank of Russia.
The Central Bank of Russia also has the right to determine the amount of money to be transferred from Russian banks accounts of legal entities which are non-residents from Unfriendly states to other foreign legal entities and vice versa.

There is also a prohibition for residents of Russia to make payments for purchasing of shares in charter capital of a legal entity non-resident and arrange payments under joint-venture agreements without special permission issued by the Central Bank of Russia.

Other limitations and restrictions
There are number of other limitations and restrictions imposed which can be important for foreign contractors. In particular, wide range of export restrictions was imposed by the Russian authorities which prohibit or limit export of some agricultural goods and medicine equipment.
As for the other measures, the draft federal law on external management of foreign companies has been approved by the Government and may soon be considered by State Duma of the Russian Federation. You can read more about the draft law here.