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Russia Adopts Countermeasures

11 March 2022, as amended and updated on 16 May 2022. See previous alert here

Since 28 February 2022, the Russian President has signed a number of Decrees on special countermeasures in connection with actions by a number of foreign states and international organizations that have imposed sanctions on Russian individuals and Russian companies.1 2

 

Summary3

The key Russian special countermeasures, as we interpret them as of today, are summarized in the table below.4  Please note:

  • The "X" sign in the table means that, as a general rule, the relevant transaction or operation can only be made with authorization from the relevant Russian state body, as described in more detail further below.
  • The "OK" sign in the table means that the countermeasures do not restrict the relevant transaction or operation.
  • The countermeasures are described in a simplified manner; in practice, the applicability of the restrictions should be assessed taking into account all the circumstances of each particular situation.
  • The restrictions described shall apply in addition to the existing Russian currency control restrictions.
  • Some transactions and operations (including those described below) may not be possible in view of Decree 252, which prohibits entering into and performing transactions with Persons Sanctioned by Russia, as well as financial transactions of which such persons are beneficiaries (please see the section "Transactions involving sanctioned persons").
Resident5 Specific Foreign Person6 (including persons under its control) Specific Foreign Person is 
a resident (subsidiary in Russia)7
Specific Foreign Person controlled from Russia or from "friendly" countries8 Non-resident NOT Specific Foreign Person

Counterparty

Crediting funds in foreign currency9 to overseas accounts X X X X
Use of export currency proceeds  Mandatory sale of 80% (goods, works, services, IP) Not applicable Mandatory sale of 80% (goods, works, services, IP) Mandatory sale of 80% (goods, works, services, IP)
Providing a loan in foreign currency  X Not applicable X X
Providing a loan or credit in rubles  X ОК ОК ОК
Servicing a credit or loan X or through a special type "C" account in rubles (irrespective of whether there is a foreign currency or ruble debt) As agreed, including in foreign currency (if permitted by currency law)*10  Foreign currency obligation can be discharged in rubles or, possibly, in foreign currency* Foreign currency obligation can be discharged in rubles or, possibly, in foreign currency*
Payments related to securities (e.g., dividends on shares, coupons on bonds), payment of profit on participation interests  X or through a special type "C" account in rubles (irrespective of whether there is a foreign currency or ruble debt) Where securities are recorded on a depo account with a Russian depositary, foreign currency obligation can be discharged in rubles or, possibly, in foreign currency* Foreign currency obligation can be discharged in rubles or, possibly, in foreign currency* Foreign currency obligation can be discharged in rubles or, possibly, in foreign currency*
Acquisition/sale of securities and, possibly, participation interests  X X ОК* ОК*
Acquisition/sale of immovable property   X X ОК* ОК*
Making advance payment to a non-resident  X above 30% (services, works, IP) Not applicable X above 30% (services, works, IP) X above 30% (services, works, IP)
Payment for a stake in the non-resident's property/capital X Not applicable X X

 

Crediting foreign currency to overseas accounts; foreign currency proceeds

According to Decree 79, since 28 February 2022, Russian residents are required to undertake a mandatory sale of 80 percent of foreign currency proceeds credited to their bank accounts in Russia under their foreign trade contracts with non-residents (in relation to goods, services, works and IP) within three business days from the date the proceeds are credited.11 Based on the CBR decision, foreign currency credited starting from 19 April 2022 is to be sold within 60 business days from the date of crediting.12

Further, according to Decree 79, as of 1 March 2022, Russian residents are prohibited from crediting foreign currency to their overseas accounts (deposits) held with banks and other financial market organizations. Based on Decree 81, such crediting of foreign currency requires prior approval of the Government Commission.13 14

According to CBR clarification No. 3-OR,15 the ban on crediting foreign currency to overseas accounts of Russian residents, combined with the requirement for a mandatory sale of foreign currency proceeds:

  • Implies "the need for crediting all export currency proceeds to the [residents'] accounts opened with authorized [Russian] banks for the purposes of the subsequent mandatory sale thereof"16
  • Applies to all export contracts, including those exempt from the repatriation requirement as of 1 July 2021

This clarification can be interpreted as confirming a total ban on Russian residents' crediting foreign currency funds to their overseas accounts (both from their own accounts and from third parties). 

Based on Decree 126, deviation from the rule on the mandatory sale of foreign currency proceeds is possible with prior approval of the CBR or the Government Commission:

  • The CBR is entitled to grant approval to residents to sell foreign currency within a different term than the one specified by Decree 79, as well as not to sell foreign currency in the amount to be used by the relevant resident to discharge its foreign currency debt under a credit agreement with a Russian bank.17 As noted above, the CBR has already extended the term for sale specified by Decree 79 from three to 60 business days.
  • The Government Commission is entitled to grant approval to residents to sell currency proceeds in a different amount than 80 percent of foreign currency proceeds credited to their bank accounts in Russia.18

Furthermore, according to CBR clarification 4-OR,19 when determining the amount of foreign currency subject to mandatory sale, residents are entitled to reduce it by the amount of certain expenses related to the performance of a foreign trade contract (such as payment for transportation and insurance of cargo).

With respect to the ban on crediting foreign currency to the Russian residents' overseas accounts, it is worth noting that: 

  • Based on Decree 126, the ban does not apply to the transfer of foreign currency funds for crediting the accounts of Russian residents' representative offices and branches located abroad and their employees.
  • Based on CBR clarification 4-OR, the ban does not apply to crediting funds in rubles, including in cases of their subsequent conversion into foreign currency and crediting such foreign currency (i) to overseas accounts of such residents, or (ii) at the residents' instruction, to overseas accounts of other recipients.

 

Credits and loans

According to Decrees 79 and 81, as of 1 March 2022, Russian residents are prohibited from granting foreign currency loans to non-residents under loan agreements without the prior approval of the Government Commission. The rule applies irrespective of whether the relevant non-residents are Specific Foreign Persons.

Further, according to Decree 81, as of 2 March 2022, granting loans and credits by Russian residents to Specific Foreign Persons in rubles requires the prior approval of the Government Commission.

"Specific Foreign Persons" includes the following categories of persons:

  • Non-Russian nationals and entities connected to relevant states which are acting in an "unfriendly" (as such term is used in the Decree) manner in relation to Russian companies and individuals, including any persons that are citizens of those states, or are registered in those states, or conduct their business primarily in those states, or realize profits primarily in those states
  • Entities that are under the control of the above persons, irrespective of the place of their registration or the place where they primarily conduct their business
     

The list of relevant states and territories has been officially published and includes: Australia, Albania, Andorra, the United Kingdom (including Jersey, Anguilla, the British Virgin Islands and Gibraltar), member states of the European Union, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, the Republic of Korea, San Marino, North Macedonia, Singapore, the United States, Taiwan (China), Ukraine, Montenegro, Switzerland and Japan.20

However, taking into account Decrees 95, 126 and 254, "Specific Foreign Persons" does not include the following categories of persons:

  • Persons that are (i) under the control of Russian companies or individuals (with the ultimate beneficiary being the Russian Federation, a Russian company or a Russian individual), provided that (ii) the information about such control has been disclosed to the Russian tax authorities ("Foreign Persons Controlled from Russia") (thus, it is possible, among other things, to "lift" funds in the form of loans in rubles from Russian operational companies to the level of foreign shareholders who are ultimately controlled by Russian persons)
  • Russian residents that are under the control of foreign persons connected to foreign states, which are acting in an "unfriendly" manner (in other words, financing by Russian banks of Russian subsidiaries of Specific Foreign Persons is possible) 21
  • Persons that are under the control of foreign companies or individuals from the states which are not the ones acting in an "unfriendly" manner,22 or under the control of those states, provided that such control has been established before 1 March 2022 ("Foreign Persons Controlled from Friendly Countries")

 

Transactions involving immovable property, securities and participation interests

According to Decree 81, as of 2 March 2022, the following transactions (operations) require the prior approval of the Government Commission:

  • Transactions (operations) of Russian residents carried out (performed) with Specific Foreign Persons that entail the acquisition of ownership title to securities
  • Transactions (operations) of Russian residents carried out (performed) with Specific Foreign Persons that entail the acquisition of ownership title to immovable property

Transactions involving securities can be made via organized trades with the prior approval of the CBR, as agreed with the Ministry of Finance.

The range of persons falling within the category of "Specific Foreign Persons" in these cases is equivalent to the one described in the section "Credits and loans," save that Specific Foreign Persons that are Russian residents (i.e., their Russian subsidiaries) are not directly excluded from this category. 

The above requirement for approval also applies to transactions that are conducted by Russian residents with non-resident counterparties who are not Specific Foreign Persons in cases where the transactions relate to securities or immovable property acquired by such counterparties from Specific Foreign Persons after 22 February 2022. 

Please note the following: 

  • Decree 81, in effect, supplements the existing FDI regime of approval of transactions made by foreign investors, as it requires obtaining the Government Commission's prior approval for an additional range of transactions.23
  • As confirmed by CBR clarification 2-OR, the restriction applies both to the acquisition and sale of securities and immovable property by Russian residents, where the counterparty is a Specific Foreign Person.
  • According to CBR clarification 2-OR, a number of operations relating to securities involving Specific Foreign Persons do not require the Government Commission's approval, provided such operations are not accompanied by the transfer of funds. This applies to operations relating to: (i) the conversion of depositary receipts into shares of Russian issuers (provided that the shares are eventually credited to the depo account of the depositary receipts holder); (ii) the transfer of securities by a Specific Foreign Person who held such securities to the person in whose interests it acted (e.g., a trustee or a broker who is a title owner returning securities); (iii) the transfer of securities without ownership title being transferred; (iv) debiting a depo account of a nominal holder and crediting another depo account of a nominal holder; and (v) operations carried out without the will of a person exercising rights under securities (e.g., execution of court decisions, conversion etc.). However, the restrictions established by Decree 95 shall be observed.
  • It appears from a literal interpretation that Decree 81 does not limit the range of securities and the place of issuance. This may mean that the above requirement for approval applies to transactions involving securities issued by Russian or foreign companies. 
  • According to CBR clarification 2-OR, transactions involving immovable property located abroad and securities kept or recorded abroad do not require authorization from the Government Commission, provided that payments related to those transactions are made through residents' overseas accounts disclosed to the Russian tax authorities.24
  • "General" licenses of the Government Commission provide for a number of exemptions. In particular, Russian banks that are under the control of Specific Foreign Persons have been permitted to carry out (perform) transactions (operations) with residents with respect to immovable property and securities (i) in their own name and at their own expense, as well as (ii) in their own name and at the expense of clients that are not Specific Foreign Persons.25  This authorization is relevant for subsidiary banks of Specific Foreign Persons including in the context of satisfying their claims at the expense of the debtor's assets (with due regard to the limitations which apply due to the moratorium on filing insolvency petitions, as described further in the section "Other measures").
  • Decree 254 also specifies a number of exemptions. In particular, the above requirement for approval does not apply to the following transactions (operations):
    • Transactions (operations) (i) which entail the acquisition of ownership title to "additional" shares (participation interests), bonds of Russian companies, (ii) to which Specific Foreign Persons are parties that are members of the same group of persons as the Russian companies, (iii) provided that payments are made in rubles
    •  Acquisition by Specific Foreign Persons of ownership title to "additional" shares (participation interests) of Russian companies, provided that they will not acquire the right to dispose (directly or indirectly) of more than 25 percent of the shares (participation interests)
       
  • It appears from a literal interpretation of Decree 81 that the above requirement for approval applies to transactions involving securities only (e.g., shares) and does not apply to transactions with participation interests. Up until 4 May 2022, such interpretation appeared to be reasonable.26 However, the fact that Decree 254 of 4 May 2022 specified exemptions for transactions with participation interests, as described above, can be interpreted so that, as a general rule, such transactions are considered as falling within the scope of regulation of Decree 81.

 

Debt Servicing under Credits and loans, payments related to securities and participation interests

Decree 95 sets out a temporary procedure for the performance by debtors – who are Russian residents, the Russian Federation, the constituent entities of the Russian Federation or municipalities – of their obligations (i) under credits and loans, as well as (ii) financial instruments, including securities (such as shares, bonds)27 and derivatives,28  to Specific Foreign Persons.29

According to Decree 254, the rules described further equally apply to the payment of profits by Russian limited liability companies, economic partnerships and cooperatives to their foreign participants that are Specific Foreign Persons. Furthermore, these rules also apply to payments under guarantees (counter-guarantees) and suretyships if their beneficiaries/creditors under the secured obligations are Specific Foreign Persons and they secure obligations to be performed in accordance with the procedure set out by Decree 95.

The range of persons falling within the category of "Specific Foreign Persons" for the purposes of Decree 95 is equivalent to the one described in the section "Credits and loans."

The procedure relates to the performance of obligations in an amount exceeding RUB 10 million per calendar month (or its equivalent in foreign currency as per the CBR exchange rate as of the first day of each calendar month). According to clarifications of the CBR, this threshold applies to the aggregate amount of all the Russian debtor's obligations to all its foreign creditors per calendar month.30  We also note that starting from 1 April 2022, a moratorium on the filing of insolvency petitions by creditors was introduced (please see the section "Other measures" for further information). According to the Bankruptcy Law, one of the effects of the moratorium is a ban on the payment of dividends and the distribution of profits. It means that, in order to pay dividends or distribute profits to its foreign shareholders or participants as per the procedure described in Decree 95, a Russian company would need to waive the benefit of the moratorium first.  

Payments related to the performance of the said obligations shall be made through special type "C" accounts in rubles opened in the name of (i) a Specific Foreign Person or (ii) a foreign nominal holder. It is worth noting the following with respect to type "C" accounts:

  • The regime governing type "C" accounts has been set out by the CBR31 and provides that the possibilities for using funds in such accounts are limited. Funds in a type "C" bank account can be withdrawn, for instance, for the payment of taxes, for the purchase of federal government bonds placed by the Ministry of Finance, for "transfers to the bank accounts of non-residents [in rubles] as provided for by the authorization," and for "transfers related to other operations as provided for by the authorization." This means that a non-resident would need authorization to withdraw funds for any purpose other than those specified as being permitted (such as payment of taxes and purchase of federal government bonds) (it is not fully clear who is entitled to issue such authorizations).
  • Apart from a type "C" bank account, the CBR has established other types of type "C" accounts; for instance, a depo account, a special broker account or a clearing bank account.
  • According to Decree 95, depo accounts opened prior to its entry into force (i.e., prior to 5 March 2022) in the name of non-residents32 or foreign nominal holders are considered to be type "C" accounts. Therefore, where a non-resident sells its securities previously held in a depo account with a Russian depositary, such securities will be debited from a special depo account of a non-resident. 
  • The possibilities for making operations with securities in depo type "C" accounts are also limited. Securities can be withdrawn from such accounts, for instance, "for their crediting to a depo account of a different type (personal account) due to levying execution on such securities" or "for crediting, in accordance with the issued authorization, to depo accounts of a different type (personal accounts) or accounts opened with a foreign organization that is recording rights to securities." 

The CBR and the Ministry of Finance are entitled to specify a different procedure for Russian debtors performing obligations under credits, loans and financial instruments (the CBR in relation to obligations of credit and non-credit financial organizations; the Ministry of Finance in relation to obligations of other debtors). Until such alternate procedures are established, the CBR and the Ministry of Finance, respectively, are entitled to issue prior approval for the obligations to be performed without complying with the procedure specified by Decree 95.

In other words, the performance by Russian debtors of their obligations under credits, loans and financial instruments to foreign creditors that are Specific Foreign Persons in the agreed currency of debt and without using type "C" accounts is possible, but requires the prior approval of the CBR or the Ministry of Finance.33

In relation to Eurobonds:

  • Decree 95 specifically provides that Russian companies shall perform their obligations relating to the issuance of foreign securities by foreign entities (Eurobonds, depositary receipts) in accordance with the procedure set out by the Decree. It likely means that this procedure must be followed in particular for payments by a Russian company-borrower in favor of a foreign SPV under a loan agreement underlying the transfer to the borrower of proceeds from the placement of Eurobonds issued by such SPV.
  • At the same time, according to Ministry of Finance information: (i) the decision was taken to stop issuing authorization for payments under Eurobonds as per the procedure envisaged in the issue documentation; (ii) borrowers/issuers are recommended to make payments separately: in favor of the securities holders whose rights are recorded with a foreign recoding system, "as per the previous procedure"34 – through a foreign payment agent, and in favor of Russian securities holders whose rights are recorded with a Russian recording system – through a Russian payment agent as per the procedure specified by Decree 9535  without using type "C" accounts; and (iii) by way of an alternative, in order to protect the interests of Russian securities holders, borrowers/issuers are recommended to carry out an early redemption of Eurobonds for rubles through the Russian market infrastructure.36

Despite the fact that Decree 95 is aimed to establish a specific procedure for Russian debtors performing obligations to Specific Foreign Persons, in fact, it also regulates the performance of obligations to other creditors, in particular:

  • Obligations in foreign currencies to foreign creditors who are not Specific Foreign Persons are deemed to be properly performed if performed in rubles, in an amount equivalent to the value of the obligations in foreign currency as per the CBR exchange rate as of the date of payment (it appears that this relates to obligations of all types; i.e., obligations under credits, loans and financial instruments) 
  • Obligations in foreign currencies to Russian residents whose securities are held in depo accounts with Russian depositaries are deemed to be properly performed if performed in rubles in an amount equivalent to the value of obligations in foreign currency as per the CBR exchange rate as of the date of payment (payments are to be made via Russian depositaries, without using the type "C" account)

These rules can be interpreted in different ways, including so that Russian debtors are entitled to perform those obligations to creditors that are not Specific Foreign Persons in rubles, rather than in the agreed currency of debt, at their choice. 

Furthermore, Russian debtors shall perform obligations to residents and foreign creditors that are not Specific Foreign Persons as per the procedure specified by Decree 95, if the relevant rights of claim were assigned to them by Specific Foreign Persons after 1 March 2022 (or a different date specified by the CBR).

 

Export of cash in foreign currencies

According to Decree 81, starting from 2 March 2022, the export of cash in foreign currencies and/or monetary instruments in foreign currencies in an amount exceeding the equivalent of US$10,000 (as per the CBR rate as of the date of export) is prohibited.

 

Buyback of shares by public joint stock companies

According to Decree 79, subject to the subsequent relevant changes in the law,37 up to and including 31 August 2022, public joint stock companies may acquire their own shares38 subject to meeting each of the following conditions:

  • The acquired shares are admitted to trading on a stock exchange
  • The shares are acquired via organized trades on the basis of orders addressed to an unlimited number of trade participants
  • The shares are acquired by a broker on a public joint stock company's instruction
  • The board of directors of a public joint stock company has adopted a decision on the acquisition of shares
     

The decision of the board of directors may provide that information relating to the buyback will not be disclosed in the form of a material fact report, or specify a later time for disclosure.

When a public joint stock company conducts a buyback of shares as described, the provisions of clauses 4, 5, 7 and 8 of Article 72 of the Law on Joint Stock Companies shall not apply.

Please note that starting from 1 April 2022, a moratorium on the filing of insolvency petitions by creditors was introduced (please see the section "Other measures" for further information). According to the Bankruptcy Law, one of the effects of the moratorium is a ban on the buyback of shares. It means that a public joint stock company willing to conduct a buyback of shares as described would need to waive the benefit of the moratorium first. 

 

Additional restrictions: advance payments by residents, transfers by non-residents, participation in non-residents' charter capitals 

According to Decree 126, until 31 December 2022, the following operations are prohibited without prior approval of the CBR: 39

  • Payment by a resident for a participation interest, contribution or stake in property (charter capital, joint capital or share fund of a cooperative) of a non-resident legal entity40
  • A contribution by a resident to a non-resident under a simple partnership agreement involving capital investments (a joint venture agreement)
     

Moreover, according to Decree 126, the Board of Directors of the CBR is entitled to establish caps for certain operations (operations exceeding the caps require authorization from the Government Commission):41

  • Advance payments by residents (other than individuals, banks and VEB) to non-residents (companies and individuals) under the contracts of certain types (as specified by the CBR)
  • Purchase by non-resident legal entities of foreign currency in the Russian currency market
  • Transfers of funds by non-resident legal entities abroad (from their accounts in Russia or without opening bank accounts)
     

The following caps are currently in place: 42

  • Advance payments by residents to non-residents are capped at 30 percent of the value of the resident's obligations under a contract in relation to services, works or IP provided by non-residents (save for contracts worth no more than US$15,000, as well as contracts in relation to financial,43 transportation and some other services)
  • The purchase of foreign currency in the Russian currency market by non-resident legal entities from the states acting in an "unfriendly" manner – zero US dollars or other foreign currency
     

The situation is a bit more complex in relation to non-residents' transfers abroad: the CBR Board of Directors has not established caps as envisaged by Decree 126; however, as it follows from the CBR information of 1 April 2022, transfers by non-resident legal entities from countries supporting sanctions from their accounts in Russia abroad have been suspended for six months.44

 

Payment for natural gas 

According to Decree 172,45  payment for natural gas in a gaseous state supplied by Russian suppliers after 1 April 2022 under contracts with foreign buyers shall be made in rubles. This applies to (i) contracts for the supply of gas to the states acting in an "unfriendly" manner, and (ii) contracts with foreign entities that are registered in the states acting in an "unfriendly" manner.

The payment mechanism is as follows: Foreign buyers shall transfer funds in the agreed contract currency to a special type "K" account in foreign currency opened with an authorized bank;46 acting on their instruction, the bank shall purchase rubles at the Moscow Exchange, credit the rubles to the type "K" account of the buyer in rubles and, finally, transfer them to the gas supplier.47  The payment obligation of a foreign buyer is deemed to be performed when funds received from the sale of foreign currency are credited to the supplier's account that is opened with the same bank. 

Type "К" accounts are opened to foreign buyers upon their application, but there is no need for their representatives to be present in person in the bank to open the accounts.

In case of violation by a foreign buyer of the established procedure for payment for gas to be supplied to the state acting in an "unfriendly" manner, no further supply of gas is allowed.48

Payment for gas without compliance with the established procedure is possible based on authorization from the Government Commission.49
 

Transactions involving sanctioned persons

According to Decree 252, starting from 3 May 2022, the following bans are in place in relation to transactions and operations with non-Russian persons that are subject to sanctions imposed by the Russian Federation ("Persons Sanctioned by Russia"):

  • The ban for state and municipal authorities, organizations and individuals falling under the jurisdiction of the Russian Federation:
    • On entering into and performing transactions (including foreign trade contracts) with Persons Sanctioned by Russia
    • On carrying out financial transactions of which the Persons Sanctioned by Russia are beneficiaries
  • The ban on exporting from Russia products and/or raw materials that are produced or extracted in Russia (i) to Persons Sanctioned by Russia or (ii) by Persons Sanctioned by Russia to other persons.
     

The list of Persons Sanctioned by Russia have been specified by the Government.50  The current list includes 31 foreign companies operating in the gas supply industry (including former subsidiaries of Gazprom). The Government has also specified additional criteria for the prohibited transactions. In particular, any transactions and any payments "in favor of" those persons are prohibited. 

 

Other measures

Apart from the countermeasures introduced by the said Decrees, a number of other measures have been brought in (which vary by the area of regulation and by the level of acts introducing those measures). In particular:

  • Export/Import: A Presidential Decree has been issued which imposes a ban/restriction on exporting from, and/or importing into, Russia of certain products and raw materials, as per the lists approved by the Government.51 
  • Bankruptcy: Starting from 1 April 2022, a six-month moratorium on the filing of insolvency petitions by creditors applies to all Russian companies52 and individuals.53

    The moratorium has the following effects, among others: enforcement proceedings in relation to pre-moratorium claims are stayed; debtor's pledged property cannot be foreclosed (including out of court); there is a prohibition on the distribution of profits, the payment of dividends, the buyback of shares and the payment of the actual value of the participatory interest; set-offs are restricted; financial sanctions will not accrue for breaches of monetary obligations. A debtor's obligation to file an insolvency petition in certain circumstances prescribed by statute has been suspended during the moratorium period. Persons covered by the moratorium can waive the benefit of the moratorium.

  • Operations in cash in foreign currencies: The CBR has imposed a number of restrictions on operations in cash in foreign currencies.54
  • Securities listing: A law was signed that prohibits the placement and circulation of shares of Russian issuers abroad via placement of foreign securities of foreign issuers (i.e., foreign depositary receipts). The ban applies from 27 April 2022. Russian issuers were required to take measures to terminate agreements underlying the placement of depositary receipts within five business days after the relevant rules entered into force (i.e., by 5 May 2022). Upon cancellation of the depositary receipts, their holders are to receive the correspondent number of shares of Russian issuers. The circulation of foreign depositary receipts in relation to Russian shares abroad can be continued if the relevant authorization is granted in accordance with the procedure set out by the Government.55

    Further, the CBR has taken measures to allow issuers to maintain their current level of listing. The CBR has provided grace periods to comply with the requirements for the securities to be maintained in the quotation lists: 56

    • With respect to the presence of independent directors in the board of directors – before the expiry of one month after the issuer's annual shareholders' meeting held in relation to the results of 2022
    • With respect to the number of the issuer's shares in circulation – until 1 July 2023
    • With respect to the level of the credit rating of the issuer (the bond issuance) or the surety (guarantor) which met the requirements as of 1 February 2022 – until 1 October 2022

    The CBR has also taken measures to maintain the listing of securities of foreign issuers admitted to trade on a Russian stock exchange:57

    • There is a moratorium until 1 January 2023 on the delisting of shares of foreign issuers (and depositary receipts in relation to such shares) on a Russian stock exchange in case of their delisting on a foreign stock exchange.
    • There is a grace period until 1 January 2023 for foreign issuers to comply with other requirements set out in Annex 2 to CBR Regulation No. 534-P.
  • The possibility of application of certain measures: There have been amendments to the law which sets out certain measures (sanctions) on individuals violating fundamental human rights and freedoms, rights and freedoms of Russian citizens (e.g., a ban on entry into Russia, freezing their assets in the territory of Russia): the possible application of such measures has been extended to include citizens of any foreign states and stateless persons (prior to these amendments the law mentioned only citizens of the US).58
  • Operations and transactions of financial organizations: A law has been adopted which, among other things, entitles the CBR, in order to ensure financial stability, to suspend (for up to six months) the carrying out of operations and transactions by credit and non-credit financial organizations, to set out economic ratios (that limit risks) on an individual basis and to set out other performance indicators for credit and non-credit financial organizations, including on an individual basis.59
  • Insurance: In particular, until 31 December 2022, Russian insurance companies are prohibited from entering into transactions with insurers, reinsurers and insurance brokers that are Specific Foreign Persons. The ban applies to Russian insurers' payments to those entities based on agreements concluded prior to 14 March 2022. In exceptional cases, such transactions and payments are possible based on authorization from the CBR.60

The range of measures applied, as described in this alert, is not exhaustive.

 

Click here to download 'Russia Adopts Countermeasures' PDF in Russian

 

1 In particular, Decree No. 79 "On Special Economic Measures in connection with Unfriendly Actions by the United States of America and the Foreign States and International Organizations that have Joined Them" of 28 February 2022 ("Decree 79"), Decree No. 81 "On Additional Temporary Economic Measures to Secure the Financial Stability of the Russian Federation" of 1 March 2022 ("Decree 81"), Decree No. 95 "On the Temporary Procedure for the Performance of Obligations to Certain Foreign Creditors" of 5 March 2022 ("Decree 95"), Decree No. 126 "On Additional Temporary Economic Measures to Secure the Financial Stability of the Russian Federation in the Sphere of Currency Regulation" of 18 March 2022 ("Decree 126"); Decree No. 252 "On Retaliatory Special Economic Measures in connection with Unfriendly Actions by Certain Foreign States and International Organizations" of 3 May 2022 ("Decree 252"); Decree No. 254 "On the Temporary Procedure for the Performance of Financial Obligations in the Sphere of Corporate Relations to Certain Foreign Creditors" of 4 May 2022 ("Decree 254").
2 Government Resolution No. 430-r "On Approval of the List of States and Territories Acting in an Unfriendly Manner towards the Russian Federation, Russian companies and Russian individuals" of 5 March 2022 (please see the section "Credits and loans" for more details).
3 Overall, this alert focuses on the countermeasures affecting legal entities rather than individuals.
4 Due to the fact that the situation is changing rapidly, it should be noted that new regulations or official clarifications may be issued at a later date, suggesting the approaches that differ from those suggested in this alert.
5 According to CBR clarification No. 2-OR of 18 March 2022 ("CBR clarification 2-OR"), for the purposes of Decrees 79, 81 and 95, the "resident" shall be interpreted as per the definition contained in the Currency Control Law.
6 As such term is defined in the section "Credits and loans". Please note, as a rule, "Specific Foreign Persons" or "foreign" persons (shareholders, creditors, etc.) as used throughout the text refers to non-Russian nationals or entities, as applicable.
However, in rare cases Russian entities/Russian residents that are under the control of the non-Russian persons would also fall under the category of Specific Foreign Persons (please see the section "Transactions involving immovable property, securities and participation interests" for more details).
7 In cases where such persons are excluded from the category of Specific Foreign Persons, we proceed from the idea that they are subject to the same regulation that applies to counterparties that are Russian residents.
8  We proceed from the idea that, as long as such foreign persons are excluded from the category of Specific Foreign Persons, they are subject to the same regulation that applies to non-residents that are not Specific Foreign Persons.
9 For the avoidance of doubt, "foreign currency" as used throughout the text refers to non-Russian currency.
10 In cases marked with an asterisk, the response will change if the relevant rights of claim, securities or immovable property were acquired by the counterparty from a Specific Foreign Person (as described in more detail below).
11  This rule also applies to foreign currency proceeds credited in Russia as of 1 January 2022: 80 percent of such proceeds were subject to mandatory sale within three business days after the Decree's entry into force.
12 CBR information of 21 April 2022.
13  The Government Commission on Control over Foreign Investments in the Russian Federation ("Government Commission").
14 According to Decree 81, banks are entitled to make transfers in foreign currency to correspondent accounts in non-resident banks, subject to compliance with the restrictions set out in Decree 81.
According to CBR clarification 2-OR, the provisions of Decrees 79 and 81 do not apply to funding by Russian banks of their correspondent accounts held with foreign banks.
15 Official clarification of the CBR No. 3-OR of 4 April 2022 ("CBR clarification 3-OR").
16 According to CBR clarification 3-OR, the performance of obligations under export contracts is possible either (i) by way of crediting funds from non-residents to accounts in Russia or (ii) without such crediting of funds in cases envisaged by clauses 2, 4, 5, 7, 9, 11 and 13 of part 2 of Article 19 of the Currency Control Law.
17 The procedure for granting approvals by the CBR is established by the decision of the Board of Directors of the CBR of 25 March 2022 (in Russian).
18 The procedure for granting approvals is established by Government Resolution No. 295 of 6 March 2022 (as amended).
19 Official clarification of the CBR No. 4-OR of 16 April 2022 ("CBR clarification 4-OR").
20 Government Resolution No. 430-r of 5 March 2022.
21 Before that rule was introduced by Decree 126, the CBR clarifications and a "general" license of the Government Commission permitted only providing financing to subsidiary Russian banks, as well as providing financing to subsidiary Russian companies to finance payment of salaries and their business operations in Russia (CBR Information Letter No. IN-01-31/26 of 5 March 2022, currently abolished; information from the Ministry of Finance of 9 March 2022 (in Russian)).
22  This relates to the persons whose lex personalis is the law of the relevant state.
23 The procedure for granting approvals is established by Government Resolution No. 295 of 6 March 2022 (as amended). See also special section on granting approvals on the website of the Ministry of Finance (in Russian).
24 Please see clarifications of the CBR (the answer to the question "Can a Russian resident make transactions involving immovable property and securities abroad […]?" in the section "Investments" (in Russian)).
25 Please see extract from the minutes of the meeting of the relevant sub-commission of the Government Commission No. 30 of 11 April 2022 (in Russian).
26  We note that transactions involving participation interests are mentioned in passing in a Government resolution, which sets out the procedure for granting approvals. In our view, it could be interpreted as a technical mistake, rather than the introduction of a restriction for transactions involving participation interests.
27 The need to observe Decree 95 (including the requirement to use type "C" accounts) when the depositaries are making payments related to securities is confirmed by the decision of the Board of Directors of the CBR of 18 March 2022 (in Russian).
28 The applicability of Decree 95 to derivatives, among others, is confirmed in CBR clarification 2-OR.
29 Please see also CBR response No. 12-4-2/3652 of 16 May 2022 to the query from the Association of Russian Banks (ARB) ("CBR response to ARB"), which confirms that for the purposes of Decree 95 the "financial instrument" shall be interpreted as per the definition contained in the Securities Market Law and that Decree 95 does apply to the payment of dividends on shares.
30 CBR response to ARB.
31 Decision of the Board of Directors of the CBR of 18 March 2022 (in Russian) (it replaces the regime set out by the CBR on 8 March 2022).
32 According to CBR clarification No. 2-OR, all depo accounts opened prior to the entry into force of Decree 95 in the name of non-residents are considered to be type "C" accounts. It appears that this is a broad interpretation of clause 4 of Decree 95, which does not take into account the definition of "foreign creditors" contained in clause 1 of Decree 95.  However such interpretation is effectively confirmed by the approach which is set out in the Decision of the Board of Directors of the CBR relating to the regime governing type "C" accounts and CBR response to ARB, both stating that the depo accounts that are to be opened to non-residents shall be the type "C" accounts.
33 See special section on granting approvals on the website of the Ministry of Finance (in Russian).
34 Apparently, this is about payments through type "C" accounts (absent the authorization for the opposite).
35 This is about the possibility of payment in rubles.
36 Information of the Ministry of Finance of 12 April 2022 (in Russian).
Please see also extract from the minutes of the meeting of the relevant sub-commission of the Government Commission No. 28 of 8 April 2022 (in Russian).
37 Federal Law No. 46-FZ of 8 March 2022 (as amended).
38 Except for the purpose of reducing the total number of shares.
39 The procedure for granting approvals by the CBR is established by the decision of the Board of Directors of the CBR of 25 March 2022 (in Russian).
40 According to the CBR clarification, this implies "the limitation of a direct transfer of funds for participation in what is called a "limited liability company," "contribution to the capital of a company," "share in a cooperative" under Russian law" (please see CBR answer to the question "Can Russian investors buy foreign securities at organized trades […]?" in the section "Investments" (in Russian)).
Our understanding is that, as far as participation interests are concerned, the restriction relates to payment for participation interests in connection with the establishment of a company or the charter capital increase, but not to the sale-purchase transactions.
41 The procedure for granting such approvals is established by Government Resolution No. 295 of 6 March 2022 (as amended).
42 Please see decisions of the Board of Directors of the CBR of 1 and 15 April 2022 (in Russian).
43 Including insurance and reinsurance services. However, there are other restrictions related to insurance services (please see the section "Other measures").
44 CBR information of 1 April 2022.
Please see also CBR information of 16 May 202 (in Russian).
45 Presidential Decree No. 172 "On Special Procedure for the Performance by Foreign Buyers of Obligations to Russian Suppliers of Natural Gas" of 31 March 2022.
46 The authorized bank is Gazprombank.
47 The regime governing type "K" accounts has been set out by the decision of the Board of Directors of the CBR of 31 March 2022 (in Russian).
48 Please see also Official clarification of the CBR No. 5-OR of 29 April 2022.
49 The procedure for granting approvals is established by Government Resolution No. 295 of 6 March 2022 (as amended).
50 Government Resolution No. 851 of 11 May 2022. The restrictions extend both to listed entities (available here) and entities that are subject to their control.
51 Presidential Decree No. 100 of 8 March 2022.
52 Save for the developers of apartment buildings and other immovable objects entered in the register of problematic facilities.
53 Government Resolution No. 497 of 28 March 2022.
54 Please see, for instance, CBR information of 10 March 2022 (in relation to companies).
55 Federal Law No.114-FZ of 16 April 2022; Government Resolution No. 672 of 16 April 2022; CBR information of 19 April 2022.
56 CBR information of 6 March 2022 (in Russian).
57 CBR information of 23 March 2022.
58 These amendments were made by Federal Law No. 30-FZ of 4 March 2022 (which entered into force on 15 March 2022), and relate to Federal Law 272-FZ "On Sanctions for Individuals Violating Fundamental Human Rights and Freedoms, Rights and Freedoms of the Citizens of the Russian Federation" of 28 December 2012.
According to the announcements on the website of the Ministry of Foreign Affairs, a number of personal sanctions have been introduced that imply a ban on the entry of a number of foreign officials in Russia.
59 Federal Law No. 46-FZ of 8 March 2022 (as amended).
60 Federal Law No. 55-FZ of 14 March 2022.

 

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