Ksenia Tyunik (External Counsel) co-authored this publication

Introduction

Established by the Russian government in 2008, the Government Commission on Control over Foreign Investments in the Russian Federation (the "Government Commission"), headed by the chairman of the Russian government, is responsible for the review of foreign direct investment ("FDI") applications.

Although the final decision on the application is made by the Government Commission, all preparatory work, such as receiving applications, reviewing their completeness and liaising with relevant government bodies to obtain opinions on planned transactions, is carried out by the Federal Antimonopoly Service ("FAS"), which is also responsible for developing law enforcement practice in this area.

Summary of major changes in 2025

Russian laws on foreign investments were not substantially amended in 2025. FAS continues to implement amendments adopted earlier. The trend of invalidating transactions by foreign investors involving Russian strategic companies and freezing the respective stakes in such companies for the benefit of the Russian Federation continues.

The past year was marked by several significant court proceedings, which resulted in the transfer of shares in major Russian holdings to the state as a measure for alleged violations of Russian FDI regulations. Notably, in such cases FAS is increasingly developing a complex and comprehensive position regarding the establishment of control, including its "hidden" forms. In several cases, control was established on the basis of a combination of circumstantial evidence, which included not only legal but also factual circumstances.

The work of the Government Commission has become more closed in recent years. In particular, information on the dates of its meetings and agenda is no longer publicly available.

Who files?

The application for FDI approval is filed by the acquirer in a transaction resulting in the acquisition of control over an entity engaged in activities of strategic importance to Russian national defense and security, referred to as 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, otherwise the transaction is declared void.

If an acquirer is a foreign state-owned company, it must submit an application for approval with respect to the acquisition of any Russian company, not necessarily a strategic entity, if it obtains, directly or indirectly, a blocking stake in, or veto rights in relation to, such a company. These applications with respect to Russian companies not engaged in activities of strategic importance are generally subject to simplified review by FAS only, unless the regulator invokes the right of the prime minister to decide that a full-scale FDI review by the Government Commission is required.

To apply for consent, the acquirer must submit an application to FAS with attachments including corporate charter documents of the acquirer and the target, information on their groups' structures including the entire chain of control over both the acquirer and the target, transaction documents, and a business plan for the development of the target after closing. A table disclosing the acquirer's ultimate controlling entities, beneficiaries and beneficial owners is also required.

Types of deals reviewed

The Government Commission reviews transactions that result in the 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, as well as for establishing control over entities that apply for a "strategic" license or accreditation or obtain the right to fishing.

The list of activities of strategic importance comprises 51 activities that, if engaged in by the target, cause the target to be considered a strategic entity. The activities include not only those directly related to state defense and security, such as operations with nuclear materials and the production of weapons and military machines, but also certain indirectly related activities, such as television and radio broadcasting over certain territories, fishing activities and publishing activities.

The criteria for determining control are broad and are lower, at 25 percent, for a target 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, or for entities engaged in fishing activities.

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 from the Government Commission for acquisitions of lower stakes in strategic entities or acquisition of blocking rights with respect to the activities of such entities.

Such investors, however, may acquire control, defined as 25 percent or more of shares, over a strategic entity involved in exploration of subsoil blocks of federal importance or engaged in fishing activities if this does not change the existing control over such entities by the Russian Federation where it has a stake exceeding 50 percent. These acquisitions must be specifically approved by the Government Commission.

Investors refusing to disclose information about their beneficiaries, beneficial owners and controlling persons to FAS are subject to a special, stricter regime established for foreign public investors. According to the rules for disclosing this information approved by the government, a foreign investor planning to enter into a transaction involving a strategic entity must make prior disclosure of its controlling entities, beneficiaries and beneficial owners in order to avoid being treated as a non-disclosing investor and to ensure that the stricter regime established for foreign public investors will not apply. 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.

The chairman of the Government Commission, the prime minister, has the right to decide that prior approval is required with respect to any transaction by any foreign investor involving any Russian company, not necessarily a strategic entity, if this is needed to ensure 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 on whether the transaction should be sent to the chairman for his decision.

If at least one positive response is received, FAS sends materials to the prime minister for review and adoption of a decision. Upon receipt of a positive decision, FAS notifies the foreign investor of the need to obtain approval for a prospective transaction. Any transaction made in breach of this requirement is void.

The process is mandatory for transactions with targets participating in a national project, operating a city-forming enterprise, enjoying a dominant position in any market, or being the sole producer of products or services not under the control of a foreign investor, among others. In practice, FAS also invokes this right if the target operates in certain sensitive areas of state policy and the economy, in particular involving certain critical technologies such as genetic engineering, nanodevices, or cryobiology and biomaterial conservation.

Scope of the review

• Generally, a review of an FDI application assesses the transaction's impact on state defense and security.
• FAS initially requests opinions from the Ministry of Defense and the Federal Security Service on whether the transaction poses any threat to Russian defense and security. Additionally, if the target has a license for dealing with information constituting state secrets, FAS requests information from the Interagency Committee for the State Secrecy Protection regarding the existence of an international treaty allowing a foreign investor to access information constituting state secrets.
• Russian law does not provide additional details on the scope of the review or the criteria used to assess the transaction under review.

Review process timeline

The statutory period for reviewing the application is three months from the date of its acceptance for review. The Government Commission may extend the review period for an additional three months. In practice, the Commission uses this extension right for a large portion of applications pending review, and review timing largely depends on the availability of the Commission's members and the prime minister, meaning it may take longer than the statutory timeline.

The law sets out a simplified procedure for reviewing transactions in which a target engages in strategic activities but operates in certain civil sectors, such as the use of infectious disease agents in the food industry and water supply and drainage using centralized and municipal infrastructure, but where, due to the specifics of the activities, its "strategic" assets account for no more than 1 percent of its total assets.

For such transactions, approval is generally issued by FAS itself unless negative opinions or no opinions are received from the Ministry of Defense and the Federal Security Service, with subsequent notification of the Government Commission of the decision.

Applications by foreign state-owned companies filed with respect to non-strategic entities are reviewed under the simplified procedure by FAS only and approvals are therefore generally issued relatively quickly, unless FAS decides to invoke the right of the prime minister.

Public information on the activities of the Government Commission has become very limited in recent years, and therefore the percentage of approvals issued with respect to transactions submitted to the Government Commission for review is unclear. If approval is issued, it confirms the time period within which the acquisition must be completed. The acquirer may subsequently apply to the Government Commission with a substantiated request to extend this period if necessary.

The Government Commission may approve the transaction subject to certain obligations imposed on the foreign investor. The law contains certain lists of obligations that are not exhaustive, and the Government Commission has the right to impose any type of obligation on the foreign investor. These obligations may include requirements to invest certain amounts of funds in the activities of the strategic entity, to process bioresources or natural resources extracted by the strategic entity on Russian territory, to sell the strategic entity's products at fixed prices, to continue investment programs, or to localize the production of parts, components and accessories used by strategic entities in the production of goods.

How foreign investors can protect themselves

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. It is also necessary to analyze whether such consent would be required if the acquirer is classified as a non-disclosing investor. Answering these questions will allow the investor to begin filing preparations and submit its application sufficiently in advance to manage the impact of the filing on the timing of the transaction.

If the planned transaction does not require prior consent but consent would be required if the acquirer is classified as a non-disclosing 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 a strategic entity, the investor should analyze whether it operates in sectors for which invoking the right of the prime minister is mandatory, or in other potentially sensitive sectors, including those affected by sanctions or counter-sanctions, or possesses any critical technologies that may trigger referral of the transaction by FAS to the prime minister and result in a full-scale FDI review of the transaction.

Finally, a foreign public investor intending to acquire a stake exceeding 25 percent of shares in any Russian company, or blocking rights with respect to such company, must obtain FAS clearance for such acquisitions.

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