Restrictions on transactions performed with entities of unfriendly” states

On 8 September 2022, Decree. No. 618 of the President of the Russian Federation “On the special procedure for carrying out (performing) certain types of transactions (operations) between certain entities” (“Decree”) was signed and entered into force.

Approval of transactions with participation interests in charter capitals of limited liability companies

The Decree provides that transactions and operations involving participation interests in charter capitals of limited liability companies (“LLCs”) or in relation to LLCs may only be carried out with the consent of the Government Commission on Monitoring Foreign Investment in the Russian Federation (“Government Commission”) if all of the following conditions are met:

• the transaction or operation entails, directly or indirectly, the establishment, modification or termination of (i) rights to own, use or dispose of participation interests in charter capitals of LLCs or (ii) other rights allowing to determine the terms of managing the LLC or the terms of its business activities;
• the relevant LLC is not a credit institution or a non-credit financial institution;
• the transaction or operation is performed between:
  
  • residents and foreign entities associated with "unfriendly" foreign statesSuch include foreign entities associated with foreign states committing unfriendly actions in relation to the Russian Federation, Russian legal entities and individuals (including if such foreign entities have the citizenship of such states, or the place of their registration, the place of their predominant business activities or the place of their predominant profit derived from activities are such states) or entities controlled by the abovementioned foreign entities, regardless of where they are incorporated or where they predominantly conduct their business activities ("Entities of Unfriendly States");
  • Entities of Unfriendly States; or
  • Entities of Unfriendly States and foreign entities that are not Entities of Unfriendly States;
    
• the transaction or operation is not performed in accordance with Decree of the President of the Russian Federation No. 416 dated 30 June 2022Decree. No. 416 of the President of the Russian Federation “On the application of special economic measures in the fuel and energy sphere in connection with unfriendly actions of certain foreign states and international organisations” dated 30 June. 2022, and is not provided for by Presidential Decree. No. 520 dated 5 August 2022Decree No. 520 of the President of the Russian Federation "On the application of special economic measures in the financial and fuel and energy spheres in connection with unfriendly actions of certain foreign states and international organisations” dated 5 August 2022.
  

Similar restrictions for transactions with securities and immovable property were introduced back in March this yearDecree No. 81 "On additional temporary economic measures to ensure financial stability in the Russian Federation" dated 1 March 2022, but until recently there was no general requirement to approve transactions with Entities of Unfriendly States in respect of participation interests in the charter capital of LLCs, except for certain restrictions stipulated by Presidential Decree No. 520 dated 5 August 2022. The range of transactions subject to approval under the Decree is broadly formulated and includes not only transactions directly with participation interests in charter capitals of LLCs. Based on the text of the Decree, subject to the abovementioned conditions, the permit of the Government Commission may also be required, in particular, for the conclusion of a corporate agreement in respect of an LLC or its parent company, suretyship agreement or trust agreement or for the transfer of the powers of the sole executive body to a management organisation. Transactions that entail an indirect transfer of participation interests or rights also require approval: for example, transactions involving shares in a foreign holding company controlling an LLC. The procedure for issuing permits by the Government Commission shall be approved by the Government of the Russian Federation within 10 days from the date of the adoption of the Decree.

Exceptions from the range of Entities of Unfriendly States

The Decree provides that for the purposes of the Decree as well as clause 1 of Decree No. 254 of the President of the Russian Federation dated 4 May 2022Decree No. 254 of the President of the Russian Federation “On the special procedure for carrying out (performing) certain types of transactions (operations) between certain entities” dated 4 May 2022 (“Decree No. 254”), the following exceptions shall apply:

• entities referred to in clause 12 of Decree No. 95 of the President of the Russian Federation dated 5 March 2022Decree No. 95 of the President of the Russian Federation "On the temporary procedure for the performance of obligations to certain foreign creditors" dated 5 March 2022 (whose ultimate beneficiaries are the Russian Federation, Russian legal entities or individuals if control information has been disclosed to Russian tax authorities) shall not be considered as Entities of Unfriendly States; and
• entities referred to in clause 4 of Decree No. 254 (being under the control of foreign entities not associated with foreign states committing “unfriendly” actions, provided that such control was established before 1 March 2022) shall not be considered as foreign entities associated with “unfriendly” foreign states.
  

This provision of the Decree, inter alia, allows residents referred to in clause1 of Decree No. 254 to make payments to their foreign participants that meet any of the criteria above in connection with the distribution of profit without following the special procedure using type “C” accounts established by Decree No. 95 of the President of the Russian Federation dated 5 March 2022.

Performance of obligations under bank account (deposit) agreements by sanctioned banks

The Decree provides that if foreign sanctions are imposed on a credit institution, it has the right to perform its obligations in a foreign currency under bank account (deposit) agreements concluded with resident legal entities, in roubles, in the equivalent calculated using the rate of the Central Bank of Russia on the date of the performance of the obligation. Thereby, the Decree introduces for an indefinite period of time a rule similar to the one that was previously in force until 1 September 2022, in accordance with Decree No. 126 of the President of the Russian Federation dated 18 March 2022Clause 5 of Decree No. 126 of the President of the Russian Federation “On additional temporary economic measures to ensure financial stability of the Russian Federation in the sphere of currency regulation” dated 18 March 2022 (“Decree No. 126”). Whereas the provision of Decree No. 126 that lost its force applied only to obligations of a credit institution arising prior to the date of the imposition of sanctions, a similar provision of the Decree applies to all relevant obligations of the credit institution arising both before and after the imposition of sanctions. This provision does not apply to the relations regulated by clause 1 of Decree No. 529 of the President of the Russian Federation dated 8 August 2022Decree No. 529 of the President of the Russian Federation "On the temporary procedure for the performance of obligations under bank account (deposit) agreements denominated in foreign currency and obligations under bonds issued by foreign organisations" dated 8 August 2022.

Disclosure of information to Entities of Unfriendly States by subsidiaries of strategic LLCs

LLCs in which the participation interest directly or indirectly belongs to legal entities that are subsoil users included on the list of strategic enterprises and strategic joint stock companies have the right not to disclose information on their activities to their participants that are Entities of Unfriendly States