New changes regarding foreign investments in Russian companies

On 29 December 2022, the President of Russia signed a number of laws aimed at striking a balance between attracting foreign investments into the Russian economy and averting possible risks associated with foreign investments in particular sectors[1] [2]. Some of the changes are already in force.

What transactions are affected by the changes?

With effect from 9 January 2023, tighter control has been established over foreign investments:

• in strategically significant sectors of the Russian economy in accordance with Federal Law No. 57-FZ of 29 April 2008 "Concerning the Procedure for Foreign Investments in Companies of Strategic Significance for National Defence and State Security" ("Federal Law No. 57-FZ")
• in certain Russian companies (participants in national projects and/or federal projects, town-forming entities, subsurface users, electricity suppliers, integrated heating supply organisations, et al.[3]) for which approval of investment therein is not required in accordance with Federal Law No. 57-FZ

Now, investments in the above companies must also be assessed to decide whether they need to be approved by the Government Commission for the Monitoring of Foreign Investments ("the Government Commission").

It will be recalled in this regard that transactions concluded by foreign investors which result in those investors directly or indirectly controlling more than 25% of the total votes conferred by voting shares/interests in strategic Russian companies require advance approval in accordance with Federal Law No. 57-FZ.

Who can be considered a foreign investor?

The list of persons and entities that may be classified as foreign investors has been extended. It now includes, for example, Russian citizens who have other citizenship and Russian companies that are controlled by foreign investors[4]. In addition, as from 30 March 2023 Russian citizens who have received a residence permit or another document conferring a permanent right of abode in a foreign state must obtain approval for control over strategic Russian companies in accordance with Federal Law No. 57-FZ.

Amendments to the foreign investment law

New rules took effect from 9 January 2023 requiring transactions with foreign investors to be referred for review by the Government Commission.

Amendments to Federal Law No. 160-FZ introduced a requirement for the Federal Anti-Monopoly Service ("FAS") to assess transactions with foreign investors to decide whether they need advance approval from the Government Commission. That assessment is mandatory both for investments in strategic enterprises and for investments in certain Russian companies as listed above.

As a result, a transaction with a foreign investor may be held up for over 60 days given that the preliminary assessment process involves the preparation of reasoned recommendations by federal agencies (up to 30 days), the review of the transaction by the chairman of the Government Commission (up to 30 days), followed by notification of the chairman’s decision to the parties concerned.

It should be noted that federal agencies consider the following criteria in their reasoned recommendations:

• the consequences of the transactions for the sector
• applicable regulations and/or federal state control procedures
• whether or not there is a need for the Government Commission to impose the obligations provided for in Federal Law No. 57-FZ on the foreign investor

In view of the above, we recommend that companies factor in the new rules and assess in advance whether a transaction would need to be reviewed by the Government Commission in order to plan the timeframe for obtaining approval.

Amendments to the competition law

Additions have been made to the list of documents that must be submitted as part of an application to the FAS for advance approval of transactions in accordance with Federal Law No. 135-FZ of 26 July 2006 "Concerning the Protection of Competition". Applicants must now submit information on beneficiaries / beneficial owners, information on activities in strategic sectors and a list of licences confirming the right to carry on such activities.

In addition, the FAS has the right:

• to extend the time limit for considering an application if the applicant’s transaction has been suspended for reasons enumerated in Federal Law No. 160-FZ
• to reject an application if the Government Commission refuses to grant advance approval for the transaction

Licensing of strategic activities

As from 30 March 2023, a procedure will be in place for approval of the issue of licences, certificates and other permits to carry on activities of strategic significance to companies controlled by foreign investors. Measures are also prescribed for permits issued to be suspended if violations are identified.