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Leaving Russia: the snowballing price of exits
Leaving Russia: the snowballing price of exits
11 October 2023
Series
Blogs
11 October 2023
Author: Evgeniya Rakhmanina
In a series of earlier posts (see below), we have been monitoring how the Russian government is scrutinising foreign exits from Russia and how the exits are becoming more expensive and more complicated to complete.
An update to the rules was unveiled by the Russian press on 10 October and according to several sources the new rules applicable to any foreign exits seeking clearance from Russian authorities are expected to be as follows:
The official document is not yet available, the above is based on press reports available at the moment. Once the official document is released by the Ministry of Finance of Russia, we will provide further details and insights.
In our earlier post, we outlined how the Russian government has been scrutinising foreign exits from Russia in 2022-2023, what regulatory clearances and hurdles it has introduced/updated to assess and regulate this ongoing process, and what requirements it imposes when it decides to allow those departures.
In July 2023, the Sub-Commission of the Governmental Commission for Control over Foreign Investments (the Sub-Commission), which reviews and approves the exits, further specified in its Protocol 171/5 the conditions it intends to apply to transactions seeking its clearance. This has now been further updated by Protocol 193/4 released on 4 October 2023.
In summary, the Sub-Commission will now consider approving an exit (or similar transactions involving Russian entities and their assets) only if (cumulatively):
Additional requirements apply to transactions in which the Russian entity is a public company, and where cross-border payments are involved.
This guidance in Protocol 171/5, as amended by Protocol 193/4, has now replaced previous guidance in Protocols 118/1 and 143/4. The guidance remains silent on any timeframes for the clearance process, retaining regulatory discretion and maintaining uncertainty of process and outcome for the parties.
As before, these rules are likely to be subject to further tweaks/changes in the coming months, and any advance warning of impending amendments remains unlikely.
Earlier this year the regime regulating foreign investment in strategically important entities was updated with a somewhat anticipated - but nevertheless quite aggressive - clause. Where a transaction in respect of a Russian strategically important entity or its assets was intentionally completed without a relevant clearance, and the law provides for invalidation of the transaction as a consequence, the law now allows the Russian court to transfer the relevant shares or assets to the Russian Federation rather than the previous owner along with any profits made from the uncleared transaction.
Although the law mandates the court to identify and consider any associated defense and security risks to the Russian state before this measure, the concepts of defense and security risks in the foreign investment regime are traditionally broad - often merging genuine national security concerns with commercial interests of the state and affiliated decision makers.
It remains to be seen whether a similar measure will be introduced for transactions involving non-strategic Russian entities which require clearance from the Sub-Commission or other Russian regulators outside of the foreign investment regime.