Sanctions Developments Resulting From the Conflict in Ukraine - Russia

May 17, 2022

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Following the U.S., EU and UK developments, the Russian Federation has announced a series of measures that impose sanctions-like restrictions on certain kinds of transactions related to Russia.

Currency Controls and Restrictions on the Entry into Certain Transactions under Presidential Decrees

Presidential Decree No. 79

On February 28, 2022, Russian President Putin signed Presidential Decree No. 79, “On the Application of Special Economic Measures in Relation to Unfriendly Actions of the United States of America and Allied Foreign States and International Organizations” (“Decree 1”).[1]  Decree 1 provides, among other things, that:

  • Russian residents[2] – participants in foreign economic activities – shall sell 80% of foreign currency[3] credited from January 1, 2022 to their accounts in Russian banks under foreign trade contracts with non-residents not later than 3 business days from the effective date of Decree 1 (until September 1, 2022, the deadline for the compulsory sale of 80% of foreign currency credited to exporters starting from April 19, 2022 is extended to 60 business days from the date of crediting)[4];
  • Beginning February 28, 2022, Russian residents – participants of foreign economic activities – shall sell 80% of foreign currency credited to their accounts in Russian banks under foreign trade contracts with non-residents not later than 3 business days from the date when such foreign currency has been so credited (unless the Russian Governmental Commission for Control over Foreign Investment (the “Governmental Commission”) authorizes such sale in a different amount or the Russian Central Bank authorizes such sale within a different timeframe or permits a resident not to sell foreign currency to the extent it is used for repayment of loans to Russian banks);[5] and
  • Beginning March 1, 2022, (1) the provision of foreign currency by Russian residents to non-residents under loan agreements (excluding the restructuring of loans[6]), (2) the transfer of foreign currency by residents to their own accounts (deposits) opened with banks and other financial market organizations located outside the territory of the Russian Federation (the prohibition does not apply to transfers of rubles by residents to their own accounts (deposits) in rubles opened with foreign banks, including transfers resulting in conversion of rubles credited to such accounts into foreign currency and their transfer to residents’ bank accounts (deposits) in foreign currency opened with foreign banks, or their further transfer to such bank accounts (deposits) of other persons[7]), and (3) the transfer of funds without opening a bank account using electronic means of payment provided by foreign payment service providers, shall be prohibited.
    • However, the transactions described in (1) - (3) in this bullet point may be made on the basis of permits issued by the Governmental Commission.[8] In particular, on March 10, 2022, with respect to residents’ transfers of foreign currency (via deposits) to their own accounts opened with banks and other financial market organizations located outside the territory of the Russian Federation, the Governmental Commission generally licensed:
      • transfers made for the purpose of financing the operational activities of foreign branches and representative offices of residents in an amount not exceeding the financing provided to them last year;
      • individuals’ transfers of funds received from non-residents in the form of wages, rent, coupons, and dividends on securities and other interest payments; and
      • individuals’ transfers of funds from their foreign accounts opened before March 1, 2022, to other foreign accounts reported to Russian tax authorities.[9]
      • Further, the prohibition does not apply to transfers of funds to foreign accounts of foreign representative offices and branches of Russian legal entities or their employees.[10]

Presidential Decree No. 81

On March 1, 2022, Russian President Putin signed Presidential Decree No. 81, “On additional temporary economic measures to ensure financial stability in Russia,” which goes into effect from March 2, 2022 (“Decree 2”).[11]  Decree 2, among other things, introduces a special procedure for Russian residents to follow to engage in the following transactions with “persons of foreign states committing unfriendly acts” against Russia, a term defined to include persons associated with foreign states that commit unfriendly acts in relation to Russian legal entities and individuals[12] (including foreign persons that have their citizenship, their place of registration, their place of predominant business activity or their place of primary profit derived in such states) and with persons who are under the control[13] of such foreign persons, regardless of such persons’ places of their registration or places of predominant business activity:

  • transactions on granting loans and credits in Russian ruble (unless such loans or credits are granted to residents that are under the control of foreign persons associated with unfriendly states)[14]; and
  • transactions creating the right of ownership in securities and immovable property (including any transactions with other persons to the extent such other persons acquired said securities and immovable property from “persons of foreign states committing unfriendly acts” after February 22, 2022).

Such transactions may be made on the basis of permits issued by the Governmental Commission,[15] in particular:

  • on March 9, 2022, the Governmental Commission generally licensed the provision of loans by Russian credit institutions to Russian residents for the purpose of financing their business in Russia;[16]
  • on March 17, 2022, the Governmental Commission generally licensed (1) the purchase of immovable property by a foreign individual associated with unfriendly states, and (2) the sale of immovable property by a foreign individual associated with unfriendly states so long as the proceeds go into a C-type account;[17]
  • on April 4, 2022, the Governmental Commission generally licensed (1) gratuitous transactions involving transfer of ownership rights to immovable property with Russian residents and foreign persons associated with unfriendly states, provided that the parties to such transactions are spouses or close relatives, and (2) transactions at the expense of the property constituting mutual investment funds involving transfer of ownership rights to securities and real estate with Russian residents and residents-managing companies of such mutual investment funds, which investment units are held, among others, by foreign persons associated with unfriendly states or controlled by them;[18]
  • on, April 11, 2022, the Governmental Commission generally licensed (1) transactions involving transfer of ownership rights to securities and immovable property between a Russian resident and a Russian resident that is a financial organization under the control of foreign persons associated with unfriendly made on their own behalf and at their own expense or at the expense of clients who are not foreign persons associated with unfriendly states, and (2) transactions involving transfer of ownership rights to immovable property acquired (disposed of) by Russian legal entities with a direct or indirect shareholding of foreign persons associated with unfriendly states (or persons under their control) in the share capital of such entities: (i) for PJSCs - not more than 50% minus 1 share; (ii) for other JSCs - not more than 25% minus 1 share; (iii) for LLCs - not more than 25% minus 1 vote;[19]
  • on April 19, 2022, the Governmental Commission generally licensed, until July 1, 2022, sale of securities of foreign issuers, including foreign investment funds, constituting the mutual investment funds as of February 22, 2022 by residents-managing companies of such mutual investment funds to foreign persons associated with unfriendly states and (or) persons controlled by such foreign persons, provided that the funds received for the transactions (operations) are credited in full to bank accounts opened with Russian credit institutions;[20]
  • on April 21, 2022, the Governmental Commission generally licensed transactions involving transfer of the rights to securities issued by Russian issuers controlled by foreign persons associated with unfriendly states (or persons under their control) from Russian residents to such issuers.[21]

On April 8, 2022, the Governmental Commission supported proposals of the Ministry of Finance of the Russian Federation and the Bank of Russia (a) to terminate the issuance of permits for payments on Eurobonds in the manner set out in the issue documentation, and (b) to recommend to borrowers/issuers of Eurobonds to make payments to Russian holders of Eurobonds holding them through the Russian accounting infrastructure by transferring an equivalent amount in rubles (through Russian depositories without transferring funds to C-type accounts) or to make early redemption of Eurobonds with settlement in rubles through the Russian securities market infrastructure.[22]

No license is required if a transaction does not involve the transfer of funds, including the conversion of depositary receipts for shares of a Russian issuer into such shares, provided that the shares are credited to a depositary account of the holder of the respective depositary receipts.[23]

In addition, transactions creating the right of ownership of securities may be carried out at organized trades on the basis of permits issued by the Russian Central Bank upon agreement with the Russian Ministry of Finance.  The restrictions do not apply to transactions to which the Russian Central Bank or state bodies are parties.

Further, under Presidential Decree No. 254 “On temporary order of settlement of financial obligations in the field of corporate relations to certain foreign creditors” the following transactions have been exempted from the restrictions of Decree 2:

  • purchase of immovable property by citizens of unfriendly states;
  • sale of immovable property by citizens of unfriendly states, provided that the proceeds are credited to a C-type account;
  • gratuitous transfer of immovable property from citizens of unfriendly states to spouses or close relatives;
  • issuance of new shares and bonds by Russian legal entities to foreign persons from unfriendly states or persons under their control provided that (a) the issuer is 50% or more owned by, or is a 50% or more owner of, such person and such shares and bonds are paid for in rubles, or (b) upon such issuance such person will own no more than 25% of the issuer’s shares. [24]

Presidential Decree No. 95

On March 5, 2022, Russian President Putin signed Presidential Decree No. 95, “On Temporary Order of Settlement of Obligations to Certain Foreign Lenders” (“Decree 3”).[25]  Decree 3 establishes a special temporary debt settlement procedure by which:

  • creditors who are residents of the Russian Federation and creditors from states which are not unfriendly states will be able to receive funds due to them under existing debt obligations from residents of the Russian Federation in rubles; and
  • creditors from unfriendly states will be able to receive funds due to them under existing debt obligations from residents of the Russian Federation in rubles in special, so called “C-type” accounts at Russian and non-Russian credit institutions (the Russian Central Bank is expected to issue further guidance on these “C-type accounts” in due course), and may be able to engage in transactions involving securities registered in “C-type accounts” and make tax payments and engage in other transactions between “C-type accounts.”
  • For the purposes of Decree 3, such obligations of residents include, inter alia, dividends, coupons (interest) on securities (e.g., eurobonds).[26]
  • Further, under Presidential Decree No. 254 “On temporary order of settlement of financial obligations in the field of corporate relations to certain foreign creditors” it has been clarified that the special debt repayment regime established by Decree 3 also extends to guarantees provided by Russian residents to secure debt owed to foreign persons from unfriendly states or persons under their control. [27]
  • The Russian Central Bank and the Russian Ministry of Finance may issue special exceptions from the above-described Decree 3 procedures.
  • On March 18, 2022, the Russian Central Bank issued additional guidance regarding the C-type accounts:
    • Funds may be credited to C-type accounts:
      • from Russia residents for operations (i.e., transactions) listed in Decree 3;
      • from C-type accounts, brokerage, special brokerage, clearing and trading bank accounts; or
      • if such funds were erroneously debited funds from a C-type bank account;
    • Funds may be debited from C-type accounts:
      • to make mandatory payments;
      • for the purchase of OFZs (Russian sovereign bonds);
      • under a license to non-resident accounts in rubles or as otherwise specified by a license;
      • to C-type accounts, brokerage, special brokerage, clearing and trading bank accounts;
      • for payment of commissions to the bank servicing the account, the broker that opened the C-type special brokerage account, the depository servicing the C-type depositary account, and other commissions related to transactions with securities credited to С-type depositary accounts;
      • for payment of penalties on operations (i.e., transactions) listed in Decree 3; or
      • if such funds were erroneously credited to a C-type bank account. [28]

On April 4, 2022, the Russian Central Bank clarified that the performance of the obligations regulated by Decree 3 in accordance with the foregoing procedure shall be recognised as a proper performance of such obligations and shall not be deemed an event of default on this ground. If a foreign creditor claims that an event of default has occurred, Russian creditors cannot consider it as grounds for invoking cross-default provisions with respect to other obligations of the Russian debtor.[29]

Presidential Decree No. 126

On March 18, 2022, Russian President Putin signed Presidential Decree No. 126, “On additional temporary economic measures to ensure the financial stability of the Russian Federation in the sphere of currency regulation” (“Decree 5”).[30]  Decree 5 authorizes the Russian Central Bank to limit the maximum value of the following transactions:

  • pre-payment or advance payment by residents to non-resident foreign persons under certain contracts;
  • transfer of funds from Russian accounts of non-resident foreign legal entities incorporated in unfriendly states to accounts of non-resident foreign legal entities that are not persons of unfriendly states;
  • transfer of funds from Russian accounts of non-resident foreign legal entities that are not persons of unfriendly states to accounts opened in unfriendly states;
  • transfer (without opening accounts) of funds, including electronic money, by foreign persons of unfriendly states to non-resident foreign legal entities that are not persons of unfriendly states;
  • transfer (without opening accounts) of funds, including electronic money, by non-resident foreign legal entities that are not persons of unfriendly states to banks and other financial market organizations located in unfriendly states; and
  • purchase of foreign currency by non-resident legal entities on the internal currency market of the Russian Federation.

On April 1, 2022, the Board of Directors of the Bank of Russia limited certain transactions as follows:

  • pre-payment or advance payment by residents (except for individuals who are not individual entrepreneurs, credit institutions and state development corporation “VEB.RF”) to foreign persons is capped at 30% of the amount of obligations under each contract relating to provision of services or performance of works, transfer of information, intellectual property rights by non-residents (except for contracts the amount of obligations under each of which does not exceed USD 15,000, as well as contracts relating to goods necessary for the operation and maintenance of vehicles, provision of financial services, international, transit transportation services by non-residents; new exceptions, introduced on April 15, 2022, include, among other things, contracts relating to the provision by non-residents to Russian residents of tourism and travel services, maintenance and operation, as well as repair, installation and dismantling services outside the territory of the Russian Federation)[31];
  • purchases of foreign currency by non-resident legal entities from unfriendly states on the internal currency market of the Russian Federation are suspended.[32]

The Governmental Commission is authorized to except transactions from the relevant value limits set by the Russian Central Bank.

In addition, until December 31, 2022, Decree 5 provides that the following transactions will require a permit from the Russian Central Bank:

  • payment by a Russian resident for subscribed shares or another form of equity of a non-resident legal entity; and
  • contribution by a Russian resident to a non-resident in the form of capital investment under a general partnership agreement.

Lastly, until September 1, 2022, Decree 5 provides that obligations denominated in foreign currency under bank or deposit account agreements between sanctioned Russian credit institutions may be performed in rubles at the official exchange rate of the Russian Central Bank (provided that the obligations arose before the relevant sanctions were imposed).

Presidential Decree No. 252

On May 3, 2022, Russian President Putin signed Presidential Decree No. 252, “On the application of response special economic measures in connection with unfriendly actions of certain foreign states and international organisations” (“Decree 6”).[33] Decree 6 basically establishes a framework for Russian blocking sanctions:

  • Decree 6 prohibits Russian state and local authorities, as well as “organisations and individuals under the jurisdiction of the Russian Federation” (i) to enter into transactions with sanctioned persons, (ii) to perform obligations under transactions with sanctioned persons, and (iii) to execute financial operations to which sanctioned persons are beneficiaries (the sanctions also extend to entities under control of sanctioned persons)[34];
  • Decree 6 prohibits to export outside the territory of the Russian Federation products and raw materials which production or extraction takes place in the Russian Federation if such products and raw materials are supplied for the benefit of sanctioned persons or by sanctioned persons for the benefit of other persons.

On May 11, 2022, in accordance with Decree 6 the Russian Government adopted Governmental Decree No. 851[35] that, among other things, establishes:

  • a list of sanctioned persons – 31 legal entities, most of which belong to the Gazprom Germania group of companies;
  • additional criteria for prohibited transactions:
    • transactions involving the entry into Russian ports of vessels owned and/or chartered by, for or on behalf of sanctioned persons;
    • transactions for the benefit of sanctioned persons;
    • transactions involving payments, securities transfers (and other operations) with and/or for the benefit of sanctioned persons; and
  • the Ministry of Finance of the Russian Federation as the body authorized for submitting proposals to the Russian Government to amend the list of sanctioned persons, as well as to issue temporary licenses for certain transactions with sanctioned persons.

Presidential Decree No. 254

On May 4, 2022, Russian President Putin signed Presidential Decree No. 254, “On temporary order of settlement of financial obligations in the field of corporate relations to certain foreign creditors” (“Decree 7”).[36] Among other things:

  • Decree 7 restricts payment of dividends by Russian limited liability companies (LLCs) to foreign persons associated with unfriendly states and persons under their control. Dividends, if declared, may be paid to such persons only in rubles to C-type accounts, where they will be under a restricted regime. A license authorizing payment of dividends in the ordinary manner may be issued by the Bank of Russia (for LLCs that are credit institutions and financial organizations) or the Ministry of Finance, as agreed with the Bank of Russia (for other LLCs);
  • under Decree 7, a person shall not be deemed a person associated with unfriendly states (for the purposes of previously issued Decree 2 and Decree 3) if:
    • such person is under control of a person whose lex societatis is the law of a foreign state other than an unfriendly state; or
    • such person is under control of a foreign state other than an unfriendly state,

in each case provided that such control was established before March 1, 2022.

Additional Currency Controls Introduced by the Bank of Russia

On May 16, 2022, the Bank of Russia established the following restrictions on the amounts of money transfers made to accounts opened abroad, until September 30, 2022:

  • residents of Russia and non-residents from friendly countries may transfer up to 50,000 US dollars or the equivalent in any other foreign currency per calendar month from their accounts with Russian banks to their accounts or other individuals abroad;
  • Russian residents and non-residents from friendly countries can still transfer no more than 5,000 US dollars or the equivalent in any other currency per month if money transfers are made through companies that provide money transfer services without opening an account;
  • non-resident individuals from friendly countries working in Russia under labour or civil law contracts may additionally transfer funds from Russian accounts abroad in rubles and foreign currency in the amount of their wages or fees for works done and services provided and make the same transfers without opening an account;
  • non-residents from unfriendly countries working in Russia under labour or civil law contracts are allowed to transfer funds from Russian accounts abroad in rubles and foreign currency in the amount of their wages or fees for works done and services provided and transfer these funds abroad without opening an account.[37]

On March 9, 2022, the Russian Central Bank circulated instructions introducing the following limitations on cash withdrawals from currency accounts and deposits by individuals until September 9, 2022:

  • a client may withdraw cash from currency accounts or deposits opened before the introduction of the limitations in an aggregate amount of up to USD 10,000, with any additional cash being withdrawn in rubles at the market rate;
  • a client may withdraw cash from currency accounts and deposits opened after the introduction of the limitations only in rubles at the market rate;
  • a client may withdraw cash from currency accounts and deposits only in USD or rubles, other foreign currencies will be converted upon withdrawal into USD at the market rate (starting from April 11, 2022, citizens who opened foreign currency accounts or deposits before March 9, 2022 and have not yet exceeded the currency withdrawal limit may withdraw cash also in euros);[38]
  • the sale of foreign cash currency to individuals is suspended, however, starting from April 18, 2022, banks will partially resume the sale of foreign currency to citizens – the currency credited to banks’ cash offices on or after April 9, 2022 will be sold.[39] [40]

Relatedly, on March 10, 2022, the Bank of Russia circulated instructions introducing the following limitations on cash withdrawals for legal entities and individual entrepreneurs until September 10, 2022:

  • Legal entities and individual entrepreneurs that are Russian residents may withdraw cash in USD, Japanese yen, pounds sterling, and EUR in an amount of up to USD $5,000, but only to pay for expenses on foreign business trips (this amount may be increased through a reasonable request by the respective bank to the Bank of Russia); and
  • Legal entities and individual entrepreneurs that are non-residents may not withdraw cash in USD, Japanese yen, pounds sterling, and EUR.[41]

On March 18, 2022, the Russian Central Bank clarified that all depositary accounts opened for non-residents before March 5, 2022 shall be deemed C-type depositary accounts and transactions with securities held in depositary accounts shall be made by non-residents using C-type depositary accounts only.[42]

Moratorium on Delisting of Russian-origin Foreign Securities

On March 23, 2022, the Bank of Russia introduced measures expected to allow foreign issuers (including issuers with a majority of their business in Russia) to retain listing on the Russian stock exchange. Until January 1, 2023, if securities issued by foreign companies (as well as respective depositary receipts) are delisted from a foreign exchange, such securities will not be delisted from the Russian stock exchange. [43]

Delisting of Depositary Receipts Representing Shares of Russian Companies from Foreign Markets

On April 16, 2022, Russian President Putin signed Federal Law No. 114-FZ which provides for mandatory delisting of depositary receipts representing shares of Russian companies from foreign markets with subsequent conversion into Russian securities. The amendments will take effect on April 27, 2022.

The law provides, among other things, that:

  • placement and organization of trading of depository receipts for shares of Russian issuers abroad is not allowed, and the trading of depository receipts issued before April 27, 2022 is also ceased;
  • Russian issuers, before May 6, 2022, will be required to take all necessary and sufficient actions to terminate agreements on the placement of depositary receipts and, within following 5 business days (before May 17, 2022), to provide supporting documents to the Bank of Russia. The approval of the board of directors (supervisory board) or the general meeting of shareholders is not required for transactions, other actions and decisions that are necessary to fulfill the new requirements (regardless of the provisions of the Russian issuer’s charter);
  • as an exception, by the Governmental Commission at its own discretion (i.e., in the absence of any application) or on the basis of an application from a Russian issuer – the procedure is established by Governmental Decree of April 16, 2022 672. [44]

On April 27, 2022, the Bank of Russia instructed depositories to keep separate records of shares of Russian issuers received as a result of the conversion of foreign depositary receipts and to limit the volume of debiting of such securities to 0.2% of their quantity during the day. These measures limit the possibility of an accelerated sale of foreign depository receipts converted into shares, but do not apply if the foreign depository receipts were acquired before March 1, 2022 or if the holder of the securities has a license from the Governmental Commission.[45]

The Russian Government Has Permitted Limited Disclosure and Provision of Information in 2022

In accordance with Governmental Decree of March 12, 2022 No. 351, if the disclosure or provision of information required in accordance with the Federal Law “On joint-stock companies” and the Federal Law “On the securities market” may lead to the imposition of sanctions against an issuer or other persons, the issuer of securities has the right to:

  • disclose or provide information in a limited composition or amount; or
  • refuse to disclose or provide information.

The same right is granted to insiders in relation to the disclosure of insider information.[46]

In addition, pursuant to Governmental Decree of March 18, 2022 No. 395, organizations have the right to restrict, fully or partially, the access to their financial statements contained in the state information resource of accounting (financial) statements for third parties (with the exception of state bodies, local government, state off-budget funds and the Bank of Russia).[47]

Moratorium on Bankruptcy

Pursuant to Decree of the Russian Government dated as of March 28, 2022 No. 497, since April 1, 2022, a moratorium has been imposed on the initiation of bankruptcy on applications filed by creditors against legal entities and citizens, including individual entrepreneurs. The moratorium will remain in effect until October 1, 2022.[48]

Trade Restrictions

On March 8, 2022, Russian President Putin signed Presidential Decree No. 100, “On the Application of Special Economic Measures in the Sphere of Foreign Economic Activity to Ensure the Security of the Russian Federation” (“Decree 4”), pursuant to which the Russian government will issue lists of products and raw materials that cannot be exported from or imported into Russia until October 31, 2022.[49]

On March 9, 2022, in accordance with Decree 4, the Russian Government adopted Governmental Decree No. 311, “On measures to implement the Decree of the President of the Russian Federation dated as of March 8, 2022 No. 100” (“Governmental Decree 1”)[50] and Governmental Decree No. 312, “On establishment on temporary basis of permissive procedure for export of certain types of goods outside the territory of Russian Federation” (Governmental Decree 2),[51] under which, until December 31, 2022:

  • Export of certain pharmaceutical products, equipment, electronics, vehicles and other goods is prohibited; and
  • Export of certain agricultural machinery, vehicles, industrial products, equipment and other goods requires an approval.

Governmental Decree No. 850 of May 11, 2022 amended the lists of goods which export is prohibited or requires a license, as established by Governmental Decrees 1 and 2.[52]

In addition, pursuant to Governmental Decree No. 506 of March 29, 2022, the import of certain original goods to Russia has been legalized without the consent of the trademark holders (parallel import).[53] The broad list of such goods is set out in Order of the Russian Ministry of Industry and Trade dated as of April 19, 2022 No. 1532.[54]

Restrictions on Intellectual Property Rights Protection

On March 6, 2022, the Russian Government introduced amendments to the methodology for determining the compensation due to patent holders when the Russian Government uses an invention, utility model or industrial design covered by a patent without the patent holder’s consent.  Under the amendments, compensation will not be paid to patent holders from “unfriendly states.”[55]

On March 8, 2022, the Russian Government introduced Federal Law No. 46-FZ which authorizes the Russian Government to suspend certain intellectual property rights, including certain exclusivity-related protections.[56]

Draft Law on Appointment of External Administration for Foreign Companies Leaving Russia

On April 12, 2022, a revised draft federal law “On the External Administration for the Management of a Company” was submitted to the State Duma.

Grounds for the appointment of an external administration

Under the draft law, an external administration may be appointed for a company (or its certain branch) if both of the following conditions (the “Initial Conditions”) are satisfied:

  • the company is controlled or at least 25% owned, directly or indirectly, by one or several persons of unfriendly states, unless the company is controlled by the Russian Federation or is beneficially owned by citizens of the Russian Federation that are not related to unfriendly states; and
  • the company is essential for ensuring the stability of the economy and civil turnover and protection of the rights and legitimate interests of citizens in the Russian Federation or the relevant region of the Russian Federation, in particular if:
    • the company produces or sells socially important goods (works, services) of prime necessity or goods (works, services) the prices for which are subject to state regulation;
    • the company is a natural monopoly or holds a dominant position on the market;
    • the company is the sole producer of certain types of goods (such as medical products) or the sole producer of goods that have no Russian substitutes;
    • the company’s personnel constitute 25% or more of the relevant town’s working population;
    • the suspension of the company’s operations may result in a technological accident or environmental disaster, loss of life, disruption of the operation of life support, transportation, social infrastructure, energy, industrial or communication facilities or other socially important facilities;
    • the suspension of the company’s operations may result in destabilization or unjustified increase in retail prices for goods (works, services) produced (performed, rendered) by the company or other organizations for consumers in the Russian Federation or in the relevant region of the Russian Federation;
    • the company participates in a chain of significant productions and the suspension of the company’s operations may result in disruption of the operations of other organizations; or
    • a special interdepartmental commission of the Ministry of Economic Development of Russia (the “Commission”) so decides, regardless of the criteria above.

Provided that both Initial Conditions are met, an external administration can be appointed for the company if any of the following conditions (the “Triggering Conditions”) is also satisfied:

(a)  the company’s CEO, other management bodies or shareholders (participants) have actually ceased to manage the company in violation of the requirements of Russian laws, in particular, if, after February 24, 2022:

  • they have left Russia abandoning their duties and leaving the company without management, contrary to its interests; or
  • they have committed actions (or omissions) resulting in a significant decrease in the value of the company’s assets, its inability to perform its obligations or termination of the company’s business in violation of the requirements of Russian laws;

(b)  the company’s CEO, other management bodies or shareholders (participants) are taking actions that may lead to unjustified termination of the company’s business, its liquidation or bankruptcy, in particular, if, after February 24, 2022:

  • the company has publicly announced the termination of the company’s business in the absence of obvious economic grounds for doing so;
  • the company has terminated contracts that are material to the company’s business; or
  • the company has sent to more than one-third of the employees a redundancy notice (notice of dismissal);

(c)  the company’s business activities have been discontinued or suspended, in full or in part, or the volume of production and sales of goods (works, services) has significantly decreased (in particular if the revenue from sales for three months has decreased by 30% or more as compared to the previous three months or the same three months of the previous year);

(d)  continuation of the company’s business activities without the appointment of an external administration may create grounds for the appointment of an external administration under Triggering Condition (c) or lead to certain other consequences; or

(e)  removal of the grounds for the appointment of an external administration under Triggering Conditions (c) and (d) would require expenditure of budgetary funds.

Procedure for the appointment of an external administration

A petition for the appointment of an external administration for a company is submitted to the Arbitration Court of the City of Moscow by the tax authorities in accordance with the decision of the Commission. The company shall be notified of the petition on the day of its filing with the court. Upon acceptance of the petition, the court may take interim measures, including prohibition on:

  • entry into transactions involving disposal of the company’s assets;
  • dismissal of employees;
  • termination of material contracts; and
  • disposal of the shares (participation interests) in the company by its shareholders (participants).

Upon acceptance of the petition, the court appoints a court hearing on a date no earlier than five and no later than seven business days from the date of acceptance of the petition to decide whether an external administration shall be appointed. Before the date of the court hearing, the CEO or shareholders (participants) holding (each individually or collectively) more than 50% of the voting shares (participation interests) may submit to the court a motion to dismiss the proceedings if they commit to resume/continue the company’s business operations, including if the shares (participation interests) in the company are transferred to another person or placed in another person’s trust management. If such a motion is filed, the court shall deny the appointment of an external administration if convincing evidence is presented of the reality of the intention to remedy the circumstances that gave rise to the proceedings.

Under the court’s decision, the state-owned corporation VEB.RF or another organization selected by the Commission may be appointed to act as an external administration.

An external administration is appointed for a term not exceeding 18 months, subject to potential extension.

External administration’s mandate

The appointment of an external administration results in either:

  • placing of all or part of the shares (participation interests) in the company in trust management by the external administration (the “Trust Management Regime”); or
  • transfer of the powers of the company’s CEO to the external administration (the “Executive Regime”),

and during the term for which the external administration is appointed the court may decide to switch between these two regimes.

Under the Trust Management Regime, the external administration exercises all rights attaching to shares (participation interests) in the company, with certain exceptions. In particular, the company’s shareholders (participants) remain entitled to receive all dividends declared by the company (if any) upon completion of the external administration procedure.

Under the Executive Regime, among other things:

  • powers of the CEO transfer to the external administration and powers of other management bodies are suspended;
  • all issued powers of attorney are considered revoked;
  • previously adopted decisions on voluntary liquidation, reorganization, dividends, acquisition and sale of shares, and amendments to the charter are revoked;
  • no dividends can be paid and no share buyback is allowed;
  • no loans provided to the company by shareholders that are persons of unfriendly states can be repaid;
  • counterparties are not allowed to unilaterally terminate or amend contracts out of court; and
  • license agreements under which the company uses intellectual property of persons of unfriendly states or persons controlled by them cannot be terminated (and if such agreements have been terminated after February 24, 2022, they shall be deemed reinstated) and royalty payments under such agreements shall not be made.

The aim of the external administration under the Executive Regime is to manage the company, including resume/continue its business activities and secure its assets and the employees’ jobs.

However, Commission may, at the external administration’s request, decide to reorganize the company so that a new entity is spun off to which the company’s business and assets are transferred. After the reorganization is completed, the new entity is sold at an auction, in which the company’s shareholders and their affiliates are not allowed to participate while the external administration has the pre-emptive right to buy the new entity at the highest offered price. The proceeds of the sale are transferred to the company’s shareholders after deduction of the expenses on the external administration and the repayment of the company’s debts.

Alternatively, the Commission may, at the external administration’s request, decide to apply to the court to liquidate the company or initiate insolvency proceedings with respect to the company.

Applicability to credit institutions

The draft law is generally not applicable to, among others, credit institutions (including banks). However, the court may, at the request of the Russian Central Bank, initiate the procedure involving the spin-off of a new entity with its subsequent sale at an auction to a credit institution if it is already under liquidation or insolvency proceedings.[57]

Draft Law on Performance of Obligations

On March 22, 2022, a draft federal law “On amendments to certain legislative acts of the Russian Federation” was submitted to the Russian State Duma for consideration. The draft law provides, among other things, that:

  • if the performance of an obligation is objectively and definitively impossible as a result of sanctions imposed against Russia, the obligation shall terminate in whole or in respective part;
  • if the proper performance of an obligation is objectively and temporarily impossible as a result of sanctions imposed against Russia, the obligor which fails to perform or improperly performs the obligation shall not be deemed to be in breach;
  • if an obligor has not performed or improperly performed its obligation as a result of sanctions imposed against Russia, the creditor be entitled to unilaterally terminate the contract;
  • a loan provided to a Russian joint stock company (JSC) by the foreign legal entity controlling the JSC may, instead of repayment, be settled by the issue of additional shares to the lender (and for this purpose, by derogation of the general rule, the issue of preferred shares with nominal value exceeding 25% of the JSC`s authorized capital is permitted);
  • the unilateral amendment or termination of agreements relating to intellectual property shall be suspended, unless there has been a material breach of such agreement;
  • the term of an agreement under which Russian persons can use intellectual property is extended for as long as sanctions imposed against Russia remain in effect, unless such Russian person unilaterally terminates the agreement.[58]

The amendments are expected to apply retroactively from February 24, 2022.

Draft Law on Criminal Liability for Compliance with Sanctions

On April 7, 2022, a draft federal law “On amendments to article 201 of the Criminal Code of the Russian Federation” was submitted to the Russian State Duma for consideration.

According to the draft law, it is proposed to amend part 2 of article 201 of the Criminal Code of the Russian Federation “Abuse of authority” so that acts committed in order to comply with a decision of a foreign state, union of foreign states or international organization to impose sanctions against the Russian Federation shall be recognised as a criminal offence. Acts committed for the purpose of compliance with foreign sanctions shall be qualified under part 2 of article 201 of the Criminal Code of the Russian Federation if such acts:

  • are committed by a person who performs managerial functions in a commercial or other organization, using authority contrary to the legitimate interests of such organization;
  • are aimed at deriving benefits and advantages for such person (offender) or other persons or causing harm to other persons;
  • and resulted in substantial harm to the rights and legitimate interests of citizens or organizations or to the legally protected interests of society or the state.

Such acts will be punishable by:

  • a fine of up to one million rubles or in the amount of the offender’s income for a period of up to 5 years or without such; or
  • compulsory labor for up to 5 years with or without deprivation of the right to hold certain positions or engage in certain activities for a period of up to 3 years; or
  • imprisonment for up to 10 years with disqualification from holding certain positions or engaging in certain activities for up to 3 years.[59]

The statute of limitations on prosecution for compliance with foreign sanctions will be 10 years. Criminal cases will be initiated by officials of investigation authorities regardless of the receipt of crime reports from third parties.

The law will enter into force from the date of its official publication and will not apply to acts committed before such date.

Draft Law on Compulsory Seizure of Property Owned by Foreign States and Persons of Unfriendly States

On April 8, 2022, a draft federal law “On amendments to article 235 of part one of the Civil Code of the Russian Federation and regulation of certain legal relations on compulsory seizure of property” was submitted to the Russian State Duma for consideration.

The draft law provides for compulsory seizure of property (including cash, bank deposits, securities and corporate rights) from the owner if such property is located in the Russian Federation and belonged as of February 24, 2022 to foreign states or foreign persons of unfriendly states as well as to their beneficiaries and entities which are under control of such foreign persons.

Under the draft law, the property will be transferred to constituent entities (regions) of the Russian Federation in which territory such property is located under decisions of such constituent entities without compensation.[60]

Registration of Leased Foreign Aircraft

On March 14, 2022, Russian President Putin signed Federal Law No. 56-FZ which allows Russian airlines to retain their aircraft fleets and to continue operating leased foreign aircraft by permitting the registration by Russian airlines of their rights in leased foreign aircraft and for the applicable Russian government authority to issue Russian airworthiness certificates for such aircraft.[61]

Personal Sanctions Against “Official Persons” of Unfriendly States

The Russian Ministry of Foreign Affairs has announced that following “official persons” of unfriendly states are banned from entering Russian territory:

  • on March 15, 2022, April 13 and 21, 2022 – 411 (in total) U.S. “official persons,” including President Biden, Secretary of State Antony Blinken, Secretary of Defense Lloyd Austin[62] and American congressmen,[63] and 461 (in total) Canadian citizens, including Justin Trudeau,[64] Canadian senators,[65] military and media persons;[66]
  • on March 31, 2022 – top officials of the European Union, including European Commissioners, heads of military structures, as well as the majority of deputies of the European Parliament;[67]
  • on April 7, 2022 – top officials of Australia[68] and New Zealand;[69]
  • on April 16 and 27, 2022 – top officials of the United Kingdom[70] (including members of the House of Commons in the UK Parliament);[71]
  • on May 4, 2022 – top officials of Japan;[72]
  • on April 29, 2022 – representatives of Iceland, Norway, Greenland and the Faroe Islands.[73]

It is expected that the Russian Government will designate other foreign officials, businessmen, military personnel and media persons considered to be involved in the imposition of sanctions against Russia for similar designations.


[1] Russian Federation Presidential Decree No. 79 (Feb. 28, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202202280049.

[2] Under Russian currency laws, among others, the following persons are considered residents:  (1) citizens of the Russian Federation, (2) foreign citizens and stateless persons permanently residing in the Russian Federation on the basis of a permanent residence permit, and (3) legal entities established in the Russian Federation and their branches, representative offices and other subdivisions.

[3] Currencies other than Russian ruble.

[4] Press release of the Russian Central Bank (Apr. 21, 2022), available at http://www.cbr.ru/press/event/?id=12849.

[5] Russian Federation Presidential Decree No. 126 (Mar. 18, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203180017.

[6] Clarification of the Bank of Russia No. 2-OP (Mar. 18, 2022), available at http://www.consultant.ru/document/cons_doc_LAW_411988/.

[7] Clarification of the Bank of Russia No. 4-OP (Apr. 16, 2022), available at https://www.cbr.ru/Crosscut/LawActs/File/5867.

[8] The procedure for the issuance of such permits is set out in the Russian Federal Government Decree No. 295 (Mar. 6, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203070002.

[9] At the time of publication of this blog post, the license is not publicly available.

[10] Russian Federation Presidential Decree No. 126 (Mar. 18, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203180017.

[11] Russian Federation Presidential Decree No. 81 (Mar. 1, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203010083.

[12] Order of the Government of the Russian Federation of March 5, 2022, No. 430-r defines such unfriendly states to include Albania, Andorra, Australia, the United Kingdom (including Jersey, Anguilla, the British Virgin Islands, and Gibraltar), member states of the European Union, Iceland, Japan, Liechtenstein, Canada, Micronesia, Monaco, New Zealand, Norway, South Korea, San Marino, North Macedonia, Singapore, Switzerland, Taiwan, Ukraine and the United States.

[13] The Russian Central Bank, in its Clarification No. 2-OP of March 18, 2022, has clarified that, for the purposes of Decree 2 and Decree 3, control is defined in accordance with Article 5 of the Federal Law of April 29, 2008 No. 57-FZ, “On the procedure for foreign investment in business entities of strategic importance for the defense of the country and national security.”

[14] Russian Federation Presidential Decree No. 126 (Mar. 18, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203180017.

[15] The issuance of permits in respect of strategic companies is carried out by prior approval in accordance with the Federal Law of April 29, 2008, N 57-FZ, “On the procedure for foreign investment in business entities of strategic importance for the defense of the country and national security.”

[16] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 5 (Mar. 9, 2022), available at https://minfin.gov.ru/common/upload/library/2022/03/main/11_03_2022__05-06-10_VN-10925.pdf.

[17] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 12 (Mar. 17, 2022), available at https://minfin.gov.ru/common/upload/library/2022/03/main/vypiska_N_12.pdf.

[18] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 24 (Apr. 4, 2022), available at https://minfin.gov.ru/common/upload/library/2022/04/main/Vypiska_iz_protokola_N_24.pdf.

[19] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 30 (Apr. 11, 2022), available at https://minfin.gov.ru/common/upload/library/2022/04/main/Vypiska_iz_protokola_N_30.pdf.

[20] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 35 (Apr. 19, 2022), available at https://minfin.gov.ru/common/upload/library/2022/05/main/04_05_2022__05-06-10_VN-23021.pdf.

[21] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 36 (Apr. 21, 2022), available at https://minfin.gov.ru/common/upload/library/2022/05/main/04_05_2022__05-06-10_VN-23012.pdf.

[22] Extract from the minutes of the meeting of the Russian Governmental Commission for Control over Foreign Investment No. 28 (Apr. 8, 2022), available at https://minfin.gov.ru/common/upload/library/2022/04/main/Vypiska_iz_protokola_N_28.pdf.

[23] Clarification of the Bank of Russia No. 2-OP (Mar. 18, 2022), available at http://www.consultant.ru/document/cons_doc_LAW_411988/.

[24] Russian Federation Presidential Decree No. 254 (May 4, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205040017.

[25] Russian Federation Presidential Decree No. 95 (Mar. 5, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203050062.

[26] In accordance with the information published on the official website of the Ministry of Finance of the Russian Federation – “Issuing of licenses (Decree No 95)”, available at https://m.minfin.gov.ru/ru/permission/95/.

[27] Russian Federation Presidential Decree No. 254 (May 4, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205040017.

[28] Russian Central Bank, “Decision of the Board of Directors” (Mar. 18, 2022), available at  http://www.cbr.ru/about_br/dir/rsd_2022-03-18_04/.

[29] Clarification of the Bank of Russia No. 3-OP (Apr. 4, 2022), available at https://www.cbr.ru/Crosscut/LawActs/File/5856.

[30] Russian Federation Presidential Decree No. 126 (Mar. 18, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203180017.

[31] Press release of the Russian Central Bank (Apr. 15, 2022), available at https://www.cbr.ru/about_br/dir/rsd_2022-04-15-12/.

[32] Press release of the Russian Central Bank (Apr. 1, 2022), available at https://www.cbr.ru/press/event/?id=12791.

[33] Russian Federation Presidential Decree No. 252 (May 3, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205030001?index=0&rangeSize=1.

[34] In accordance with Russian Federation Governmental Decree No. 851 (May 11, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205110017.

[35] Russian Federation Governmental Decree No. 851 (May 11, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205110017.

[36] Russian Federation Presidential Decree No. 254 (May 4, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205040017.

[37] Russian Central Bank, “Press Release” (May. 16, 2022), available at https://www.cbr.ru/eng/press/event/?id=12880.

[38] Press release of the Russian Central Bank (Apr. 8, 2022), available at https://www.cbr.ru/press/event/?id=12801.

[39] Press release of the Russian Central Bank (Apr. 8, 2022), available at https://www.cbr.ru/press/event/?id=12801.

[40] At the time of publication of this blog post, the text of the relevant instructions is not publicly available.  It appears that the instructions were sent only to banks.

[41] At the time of publication of this blog post, the text of the relevant instructions is not publicly available.  It appears that the instructions were sent only to banks.

[42] Clarification of the Bank of Russia No. 2-OP (Mar. 18, 2022), available at http://www.consultant.ru/document/cons_doc_LAW_411988/.

[43] Draft Law No. 19912-8 “On amendments to the Federal Law “On joint-stock companies” and certain legislative acts of the Russian Federation” (last amendments as of Mar. 22, 2022), available at https://sozd.duma.gov.ru/bill/19912-8.

[44] Russian Federation Governmental Decree No. 672 (Apr. 16, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202204180036.

[45] Press release of the Russian Central Bank (Apr. 27, 2022), available at http://www.cbr.ru/press/pr/?file=27042022_174522INFR27042022_154920.htm.

[46] Russian Federation Governmental Decree No. 351 (Mar. 12, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203140028.

[47] Russian Federation Governmental Decree No. 395 (Mar. 18, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203180028?index=1&rangeSize=1.

[48] Russian Federation Governmental Decree No. 497 (Mar. 28, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202204010040.

[49] Russian Federation Presidential Decree No. 100 (Mar. 8, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203080005?index=1&rangeSize=1.

[50] Russian Federation Governmental Decree No. 311 (Mar. 9, 2022), available at http://static.government.ru/media/files/KQum4rAMExMRTNzT6QD7Ab1usArjzePT.pdf.

[51] Russian Federation Governmental Decree No. 312 (Mar. 9, 2022), available at http://static.government.ru/media/files/JOhvHYuj24vKijHD2wSA1KByLkMDJMXv.pdf.

[52] Russian Federation Governmental Decree No. 850 (May 11, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205120011.

[53] Russian Federation Governmental Decree No. 506 (Mar. 29, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203300003.

[54] Order of the Russian Ministry of Industry and Trade No. 1532 (Apr. 19, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202205060001.

[55] Decree of the Russian Government No. 299 (Mar. 6, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203070005.

[56] Federal Law No. 46-FZ (Mar. 8, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203080001.

[57] Draft Law No. 104796-8 “On the external administration for the management of a company” (Apr. 12, 2022), available at https://sozd.duma.gov.ru/bill/104796-8.

[58] Draft Law No. 92282-8 “On amendments to certain legislative acts of the Russian Federation” (Mar. 22, 2022), available at https://sozd.duma.gov.ru/bill/92282-8#bh_hron.

[59] Draft Law No. 102053-8 “On amendments to article 201 of the Criminal Code of the Russian Federation” (Apr. 7, 2022), available at https://sozd.duma.gov.ru/bill/102053-8.

[60] Draft Law No. 103072-8 “On amendments to article 235 of part one of the Civil Code of the Russian Federation and regulation of certain legal relations on compulsory seizure of property” (Apr. 8, 2022), available at https://sozd.duma.gov.ru/bill/103072-8.

[61] Federal Law No. 56-FZ (Mar. 14, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202203140013.

[62] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1804365/.

[63] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/press_service/spokesman/official_statement/1809216/.

[64] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1804374/.

[65] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/press_service/spokesman/official_statement/1809221/.

[66] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1810343/.

[67] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1807424/.

[68] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1808465/.

[69] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1808470/.

[70] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1809607/.

[71] Russian Ministry of Foreign Affairs, Announcement, available at https://www.mid.ru/ru/foreign_policy/news/1810980/.

[72] Russian Ministry of Foreign Affairs, Announcement, available at

https://mid.ru/ru/foreign_policy/news/1811646/.

[73] Russian Ministry of Foreign Affairs, Announcement, available at https://mid.ru/ru/foreign_policy/news/1811482/#sel=4:1:y,4:1:y.