Moscow, Russia

Foreign direct investment reviews 2021: Russian Federation

Further developments to Russian foreign investment laws introduce new requirements for investors and simplify regulation in some spheres

13 min read

Early in a transaction, a foreign investor should analyze whether the target company qualifies as a strategic entity

Established by the Russian government in 2008, the Government Commission on Control over Foreign Investments in the Russian Federation is responsible for the review of foreign direct investment applications. The Government Commission is headed by the Chairman of the Russian government and composed of the heads of certain ministries and other government bodies.

Following the appointment of Mikhail Mishustin as the new Chairman of the government and formation of the new government in January 2020, the new Government Commission has been operational since March 2020.

Although the final decision on the application is made by the Government Commission, all the preparatory work (such as reviewing an application's completeness and coordinating with relevant government bodies) is done by the Federal Antimonopoly Service (FAS). Among other things, FAS performs a preliminary review of the application and prepares materials for a further assessment by the Government Commission. The Head of FAS is a member and Executive Secretary of the Government Commission.

A new composition of the Government Commission, including a new Head of FAS, Maxim Schaskolsky, was approved in November 2020.



An acquirer must file if the proposed acquisition would result in the acquirer's control over an entity engaged in activities of "strategic importance" to Russian national defense and security (a "strategic entity"). The acquirer is required to obtain the consent of the Government Commission prior to the acquisition of control over a strategic entity, or the transaction is declared void.

To apply for consent, the acquirer must submit an application to FAS with attachments, which include corporate charter documents of the acquirer and the target, information on their groups' structures (including the whole chain of control over both the acquirer and the target), transaction documents and a business plan for the development of the target after closing. The obligatory document also is a table disclosing the acquirer's ultimate controlling entities, beneficiaries and beneficiary owners.

The concept of ‘control’ is interpreted broadly



The Government Commission reviews transactions that result in acquisition of control over strategic entities. Foreign investors must also obtain the Government Commission's consent for certain transactions involving the acquisition of a strategic entity's property. 

The list of activities of "strategic importance" comprises 47 activities that, if engaged in by the target, cause the target to be considered a strategic entity. The 47 activities encompass areas related to natural resources, defense, media and monopolies.

Activities include not only those directly related to the state defense and security (such as operations with nuclear materials, production of weapons and military machines), but also certain other indirectly related activities (such as TV and radio broadcasting over certain territories, extraction of water bioresources and publishing activities). 

The criteria for determining control are rather wide and are lower (25 percent) for a target that is involved in the exploration of "subsoil blocks of federal importance," such as oil fields with a certain size of reserves, uranium mines, and subsoil blocks subject to exploration within a defense and security zone. Amendments to the law entered into force in July 2021 extended this lower-control threshold to entities engaged in extraction (catching) of aquatic bioresources as part of the state's policy to strengthen control in this sphere.

Foreign public investors are prohibited from obtaining control over strategic entities, or acquiring more than 25 percent of a strategic entity's property, and must obtain consent of the Government Commission for acquisitions of the reduced stakes in strategic entities, or acquisition of blocking rights concerning such entities. These investors may acquire control over (25 percent or more of shares in) a strategic entity involved in exploration of "subsoil blocks of federal importance" or engaged in extraction (catching) of aquatic bioresources if this does not change the existing control over such entities by the Russian Federation (i.e., its stake in such entities exceeding 50 percent) and provided that the acquisition is specifically approved by the Government Commission.

Certain transactions involving strategic entities or their property are exempt from the requirement to obtain the Government Commission's approval, such as transactions in which the acquirer is ultimately controlled by the Russian Federation, constituent entities of the Russian Federation or a Russian citizen who is a Russian tax resident and does not have any other citizenship, as well as certain "intra-group" transactions.

Non-disclosing investors (those refusing to disclose to FAS information about their beneficiaries, beneficial owners and controlling persons) are subject to a special, stricter regime established for foreign public investors.

In December 2018, the Russian government approved rules for disclosing this information, according to which a foreign investor planning to enter into a transaction involving a strategic entity must make a prior disclosure of its controlling entities, beneficiaries and beneficial owners in order to avoid being treated as a "non­disclosing" investor and to ensure that the stricter regime established for foreign public investors does not apply to it. The disclosure must be made either in the form of an application for approval, if approval is required, or in the form of an informational letter filed with FAS 30 days before the transaction.

According to FAS, this advance disclosure requirement extends to exempted transactions in which the acquirer is ultimately controlled by the Russian Federation, constituent entities of the Russian Federation or a Russian citizen who is a Russian tax resident, and is a prerequisite for the relevant exemption to be applicable.

Amendments to Russia's foreign investment laws introduced in 2017 gave the Chairman of the Government Commission the right to decide that prior approval is required for any transaction by any foreign investor with regard to any Russian company (not necessarily the strategic entity), if this is needed for the purpose of ensuring national defense and state security.

The process is initiated by FAS, which obtains opinions from the Ministry of Defense, the Federal Security Service and other governing bodies whether or not the transaction needs to be sent to the Chairman for his decision. If at least one positive answer is received, FAS sends materials to the Chairman of the Government Commission for review and adoption of the decision. Upon receipt of the positive decision, FAS will notify the foreign investor about the need to receive approval for a prospective transaction. Any transaction made in breach of this requirement is void.

The structure of the types of transactions that could potentially fall under this requirement is still being formed. According to FAS, in practice the procedure is invoked for entities engaged in certain sensitive spheres for the state's policy and economy (in particular, operating certain critical technologies, such as genetic-engineering, nanodevice technologies or cryobiology and biomaterial conservation), entities being the largest or only suppliers of goods for the state needs, or those operating city-forming enterprises.

Russia's foreign investment laws establish a requirement for foreign public investors to obtain clearance for acquisition of more than 25 percent of shares in, or blocking rights to, any Russian company, even when the acquisition is performed as part of the company's establishment. Such applications are reviewed by FAS only and serve as a "double check" that the acquired Russian company indeed does not qualify as the strategic entity.



Generally, a review of the application assesses the transaction's impact on state defense and security.

FAS initially requests opinions of the Ministry of Defense and the Federal Security Service as to whether the transaction poses any threat to the Russian defense and security. Additionally, if the target has a license for dealing with information constituting state secrecy, FAS requests information from the Interagency Committee for the State Secrecy Protection on the existence of an international treaty allowing a foreign investor to access information constituting state secrecy.

Russian law does not provide more details on the review's scope or the criteria on which the transaction under review is assessed.



In 2020, FAS considered 45 applications by foreign investors and sent 11 for review to the Government Commission, which approved ten and rejected one. The total value of approved transactions was approximately US$2.5 billion, of which the amount of foreign investments was approximately US$1.2 billion.



Early in a transaction, a foreign investor should analyze whether the target company qualifies as a strategic entity and whether the planned transaction triggers a requirement for the Government Commission's consent.

In light of the recent amendments, acquirers should also analyze whether such consent would be needed in case the acquirer is qualified as a "non-disclosing" investor. Answering these questions will allow the investor to start filing preparations, and then to file its application sufficiently in advance to manage the filing's impact on the timing of the transaction.

If the planned transaction does not require prior consent but consent would be needed if the acquirer is qualified as a "non­disclosing" investor, the acquirer must disclose to FAS information on the acquirer's beneficiaries, beneficial owners and controlling persons in advance, at least 30 days before the planned transaction.

Even if the target company does not qualify as the strategic entity, the investor should analyze whether it operates in certain sensitive spheres or possesses any "critical" technologies that may trigger the process of referral of the transaction by FAS to the Prime Minister and eventually result in the full-scale foreign direct investment (FDI) review of the transaction.

A foreign public investor that intends to acquire a stake exceeding 25 percent of shares in any Russian company, or blocking rights to the company, must obtain FAS clearance of the acquisition.



The statutory period for reviewing the application is three months from the date of its acceptance for review. The Government Commission can extend the review period for an additional three months. In practice, the Government Commission uses this extension right for a large portion of applications pending review.

Amendments to the law adopted in March 2021 introduced a simplified procedure for review of transactions in which a target operates in certain "civil" sectors (such as food industry, energy/water supply, machinery) but due to specifics of production has a small strategic asset (not more than 1 percent of total assets of the company) in the form of a water supply facility, a drainage facility or a production quality-control laboratory with a "strategic" license and therefore qualifying as a strategic entity. For such transactions, the approval is generally issued by FAS itself (unless negative or no opinions on the deal were received from the Ministry of Defense and the Federal Security Service), with subsequent notification of the Government Commission of the adopted decision.



  • Russia's foreign investment laws were amended twice in 2021. The first set of amendments was adopted in March 2021 and aimed at establishment of simplified procedure for review of transactions involving a target operating in "civil" sectors of economy (such as the food industry, energy, machinery) and qualifying as the strategic entity only due to ownership of a small asset (not exceeding 1 percent of the target's total assets), which due to the production specifics has a "strategic" license. Such transactions are generally reviewed and approved by FAS with only subsequent notification of the Government Commission of the issued decision. This law also extended the list of obligations that may be imposed on the foreign investor in connection with its acquisition of the strategic entity. The second set of amendments concerned companies engaged in extraction (capture) of aquatic bioresources and lowered a "control" threshold in such companies from more than 50 percent to 25 percent or more of shares. Foreign investors owning stakes in such companies that are equal to, or exceed, 25 percent, must apply to the Government Commission for subsequent approval of control over such companies, or reduce their stakes to the 25 percent level.
  • At this writing, FAS has developed several other bills with suggested amendments to the foreign investment laws that have not yet been submitted to parliament, most of which are still being discussed at various levels, including with the business community and with other governing authorities.
  • FAS continues to follow the general trend of strengthening control in the foreign investments sphere. In recent years, FAS has continuously applied extensive interpretation of "control, " arguing that control exists not only in situations where a foreign investor has a majority stake in the strategic entity or the ability to adopt decisions regarding the ""controlled" entity, but also in cases where a foreign investor has extensive blocking rights with respect to the strategic entity's activities and hence may influence its decision-making. This position of FAS has been confirmed by the recent court practice. Such extensive interpretation, however, leads to unreasonably broad application of foreign investment laws, and leads to a confusion in the terminology and regulation set by the law; e.g., with respect to foreign public investors that are supposed to approve acquisition of blocking rights and are prohibited from acquiring "control" which, if properly interpreted, should not encompass blocking rights.


  • Most transactions submitted to the Government Commission for review are approved. The approval contains the term within which the acquisition must be completed. The acquirer can subsequently apply to the Government Commission with a substantiated request to extend this term, if necessary
  • The Government Commission can approve the transaction subject to certain obligations imposed on the foreign investor. The law contains a list of obligations that is not exhaustive. Since 2016, the Strategic Investments Law empowers the Government Commission to impose any type of obligation on the foreign investor, including the obligation to invest certain amounts of funds into activities of the strategic entity, or to process bioresources or natural resources extracted by the strategic entity on Russian territory
  • Amendments to the law adopted in March 2021 extended the list of obligations listed in the law by adding such obligations as the sale of the strategic entity's products at fixed prices (tariffs), continued execution of investment programs and implementation in the territory of the Russian Federation of advanced innovative technologies and the localization of production of parts, components and accessories used by strategic entities in their production of goods


  • Timing for obtaining FDI clearance in Russia tends to be extremely lengthy, and often goes beyond the statutory terms specified in the law. There are several reasons for this. FAS tends to request opinions on the planned deal not only from the Ministry of Defense and the Federal Security Service, as provided in the law, but also from other governing authorities, and these authorities often delay their responses. Other reasons for delay include irregular meetings of the Government Commission and the high workload of the FAS FDI department, which delays preparation of materials for the Commission
  • FAS tends to be extremely cautious, and to obtain positions of the governing bodies on the necessity to send the transaction for review by the Prime Minister (to decide whether the full-scale FDI review is needed) even in non-obvious cases
  • The concept of "control" is interpreted broadly. FAS takes into account not only legal actions by the foreign investor but also factual circumstances, such as foreign investor's professional or family connections with the entities exercising control over strategic entities, and uses these as indirect evidence of control



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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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